Entrepreneurship for Engineers

Business plan poster

Complete business plan Business introduction Products photos Ceo Similar international/national company, introduction, ceo, business volume Major environmental risks Investors Expected revenues for one year, 3 years and over 10 years Initial investment 2 Poster dimensions 6 ft x 4 ft

Quiz 1 Marks 10 time 15 min

What are your career objectives list ten points and how would you like to achieve these
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Weightage

End term =40 % Class project = 15% Quizes = 10% Assignments = 5% Mid term = 20% Class participation = 10%
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Introduction

Quiz 1
Procurement process of public and private sector organisations Quotations RFP, tendering, comparative statements

Aim of the Module

This course aims at:
Enabling the students to understand the fundamental concepts of Entrepreneurship, Learn various techniques and processes of decision making, Be able to generate ideas for businesses Be familiar with business plan and Technicalities involved in opening their own private limited company in Pakistan for a 7 startup business

Learning Outcomes
To learn what is entrepreneurship, concepts, definitions and applications in real life. Learn from examples of reasons for failure and successes of individuals and business companies. To be able to make a business plan for a product or service for a startup business To develop the ability to attract an investor angel for sponsoring the newly created enterprise Learn the processes of establishing a private limited company using services of Securities and Exchange Commission of Pakistan 8

Semester project 15% weightage

Assignment 1 Project identification, name your company, what are your products /services CEO, Middle level manager, employee Describe duties and responsibilities of all the members towards the project. Ass# 2 Find investor angel +seed money(later Assignment) Ass#3 preparing a business plan
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Subject Focus Points

Entrepreneurship the motivations, the risks, rewards, impact Seeing opportunities, identifying profitable opportunities Creating a business plan- its content and importance as a tool Starting a company and the regulatory requirements Raising money to start the business-bootstrapping, enrolling investors to your plan 10 Getting loans- what do banks need

Subject Focus Points

Getting loans- what do banks need Selling and getting the first clients What makes my business different than competition? Building a team- getting people to believe in the venture Making mistakes, changing plans, mutilating, adapting to what customers want Cash flows the oxygen of any business Project- creating a business plan and presenting to potential investors/stakeholders
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Few definitions of Entrepreneurship?

Organizing a business venture and assuming the
risk for it.

An entrepreneur is a person who is willing and

able to convert a new idea into a successful

venture.
Entrepreneurship is a process of converting a new idea into a successful venture
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 Practice of starting new organizations or revitalizing mature organizations Particularly new businesses in response to identified opportunities. Entrepreneurial activities has a vast range It ranges in scale from solo projects to major undertakings creating many job opportunities. Entrepreneur is one who organizes, manages and assumes the risk of a business enterprise.
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What is Entrepreneurship may include?

What Is it in nut shell?

The pursuit of opportunity through innovation, creativity and hard work without regard for the resources currently controlled.
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Entrepreneur
Founding entrepreneur who identifies the opportunity and moves to exploit it commercially. Often it is the founder (or founding team) who possesses much of the technical and managerial knowledge that make-up the tangible and intangible assets of the firm. In sum, an entrepreneurs expanding knowledge base and absorptive capacity becomes an entrepreneurial firms competitive advantage (Alvarez and Busenitz 2001, p.766). 15

Who Is An Entrepreneur?

A vision-driven individual who assumes significant personal and financial risk to start or expand a business.
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Entrepreneurs: Born or Made?

Is there inborn talent required? Assume that the answer is YES:
then we can identify the main characteristics if we have them, fine - no others need to apply! we could start spotting talent in kindergarten we could "stream" these people we could discourage people without these talents
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Entrepreneurs: Born or Made?

Assume the answer is NO:
then schools could teach anyone would be a "profession" like law or medicine companies could establish "nurseries" for them government "incubators" would be successes

The real answer lies somewhere in-between

Talent and education is the way
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Who is an Entrepreneur?
Situational more than personality
Flexibility
Age Distribution for Starting Company

Ability

20

25

30

35

40

45

Age

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Who is an Entrepreneur?
Managers Opportunities
Future Goals
Change Status Quo

Possible

Entrepreneur

Satisfied manager

Perceived Capability
Blocked
Frustrated manager Classic bureaucrat

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Burch's Entrep. Personality Traits

1.A desire to achieve

Conquer problems, create successful venture Their workload is very hard to match

2.Hard work

3.Nurturing quality 4.Acceptance of responsibility

Morally, legally and mentally accountable Want be rewarded for their efforts
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5.Reward orientation

Burch's Entrep. Personality Traits

6.Optimism

Anything is possible Pride in something first class They are wholly "take charge" people

7.Orientation to excellence

8.Organization

9.Profit orientation

Profit primarily a gauge of performance

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Failure? So what!
Failure seen differently in America & Europe.
In Europe it is a major set-back U.S. expected (required even!) Canada - in between but tending to U.S.

Our System:
Many entrepreneurs had been "blue collar" Many come from families of entrepreneurs Many are immigrants or their children But, there are no "rules" that ensure success

Universally, entrepreneurs shake off failure!

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Failure as Learning Process

Ignore it, then start again
Some find it easy to blame someone else

In public, always optimistic

Especially with funders Agonise over what went wrong in private

Willingness to disregard the rules

Start from first principles.

Ability to "bend, not break" rules of life

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Classic Entrepreneurship: The Startup

Raw startup companyan innovative idea that develops into a high growth company Qualities of a startup company
Strong leadership from the main entrepreneur Complementary talents and outstanding teamwork of team members Skill and ingenuity to find and control resources Financial backing to chase opportunity

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Desirable and Acquirable Attitudes and Behaviors

Commitment and determination Leadership Opportunity obsession Tolerance of
Risk Ambiguity Uncertainty

Creativity, self-reliance, and adaptability Motivation to excel

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The Entrepreneurial Process

It is opportunity/market driven It is driven by a lead entrepreneur and an entrepreneurial team It is resource parsimonious(cost conscious) and creative It depends on the fit and balance among these It is integrated and holistic
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The Timmons Model of the Entrepreneurial Process

Communication
Opportunity (2)
Ambiguity

Business Plan Fits and gaps

Team (3)

Resources (4)
External forces

Creativity
Uncertainty

Leadership
Capital markets

Founder (1)

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Enlightened Serendipity (Chance Fate, destiny)

Being in the right place At the right time, Recognizing it, and Acting upon it, APPROPRIATELY and PASSIONATELY!!!
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Entrepreneurs V. Intrapreneurs
Entrepreneurs are people that notice opportunities and take the initiative to mobilize resources to make new goods and services. Intrapreneurs also notice opportunities and take initiative to mobilize resources, however they work in large companies and contribute to the innovation of the firm.
Intrapreneurs often become entrepreneurs.

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Intrapreneurship
Learning organizations encourage intrapreneurship.
Organizations want to form:
Product Champions: people who take ownership of a product from concept to market.

Skunkworks: a group of intrapreneurs kept separate from the rest of the organization.
New Venture Division: allows a division to act as its own smaller company.

Rewards for Innovation: link innovation by workers to valued rewards.

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Small Business Owners

Small business owners are people who own a major equity stake in a company with fewer than 500 employees. In 1997 there were 22.56 million small business in the United States. 47% of people are employed by a small business.

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Employee Satisfaction
In companies with less than 50 employees, 44% were satisfied. In companies with 50-999 employees, 31% are satisfied. Business with more than 1000, only 28% are satisfied.

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Employee Satisfaction
Employee Satisfaction
Satisfaction Percentage
50 40 31 30 20 10 0 less than 50 50-999 1000+ Number of Employees 1000+ 28 44 less than 50 50-999

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Advantages of a Small Business

Greater Opportunity to get rich through stock options Feel more important Feel more secure Comfort Level

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Disadvantages of a Small Business

Lower guaranteed pay Fewer benefits Expected to have many skills Too much cohesion Hard to move to a big company Large fluctuations in income possible

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Who are entrepreneurs?

Common traits
Original thinkers Risk takers Take responsibility for own actions Feel competent and capable Set high goals and enjoy working toward them

Common traits
Self employed parents Firstborns Between 30-50 years old

Well educated 80% have college degree and 1/3 have a graduate level degree

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 Successful

Successful and Unsuccessful Entrepreneurs

Unsuccessful
Poor Managers Low work ethic Inefficient Failure to plan and prepare Poor money managers

Creative and Innovative Position themselves in shifting or new markets Create new products Create new processes Create new delivery

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Characteristics of Entrepreneurs
Key Personal Attributes

Strong Managerial Competencies Good Technical Skills

Successful Entrepreneurs

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Key Personal Attributes

Entrepreneurs are Made, Not Born!
Many of these key attributes are developed early in life, with the family environment playing an important role Entrepreneurs tend to have had self employed parents who tend to support and encourage independence, achievement, and responsibility Firstborns tend to have more entrepreneurial attributes because they receive more attention, have to forge their own way, thus creating higher self-confidence

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Key Personal Attributes (cont.)

Entrepreneurial Careers
The idea that entrepreneurial success leads to more entrepreneurial activity may explain why many entrepreneurs start multiple companies over the course of their career Corridor Principle- Using one business to start or acquire others and then repeating the process Serial Entrepreneurs- A person who founds and operates multiple companies during one career

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Key Personal Attributes (cont.)

Need for Achievement
A persons desire either for excellence or to succeed in competitive situations High achievers take responsibility for attaining their goals, set moderately difficult goals, and want immediate feedback on their performance Success is measured in terms of what those efforts have accomplished McClellands research

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Key Personal Attributes (cont.)

Desire for Independence
Entrepreneurs often seek independence from others As a result, they generally arent motivated to perform well in large, bureaucratic organizations Entrepreneurs have internal drive, are confident in their own abilities, and possess a great deal of self-respect

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Key Personal Attributes (cont.)

Self-Confidence
Because of the high risks involved in running an entrepreneurial organization, having an upbeat and self-confident attitude is essential A successful track record leads to improved selfconfidence and self-esteem Self-confidence enables that person to be optimistic in representing the firm to employees and customers alike

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Key Personal Attributes (cont.)

Self-Sacrifice
Essential Nothing worth having is free Success has a high price, and entrepreneurs have to be willing to sacrifice certain things

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Technical Proficiency
Many entrepreneurs demonstrate strong technical skills, typically bringing some related experience to their business ventures
For example, successful car dealers usually have lots of technical knowledge about selling and servicing automobiles before opening their dealerships Especially important in the computer industry

NOT ALWAYS NECESSARY

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Planning
Business Plan A step-by-step outline of how an entrepreneur or the owner of an enterprise expects to turn ideas into reality.

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Questions To Keep In Mind

What are my motivations for owning a business?
Should I start or buy a business? What and where is the market for what I want to sell? How much will all this cost me? Should my company be domestic or global?

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Motivations
Deciding what your motivations are will direct you toward what type of business fits you best. Types: 1. Lifestyle Venture 2. Smaller Profit Venture 3. High Growth Venture

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1. Lifestyle Venture
Small company that provides its owner independence, autonomy, and control. Is often run out of household Provides flexibility (hours, meeting places, attire) Aligns your personal interests and hobbies with your desire to make a profit.

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2. Smaller Profit Venture

Small company not concentrated on pushing the envelope and growing inordinately large. Making millions of dollars not important. Content with making a decent living. Ex. Mom and Pop Stores

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3. High Growth Ventures

Goal is maximum profit and growth. Concentrated on pushing envelope and growing as large as possible. Focus on innovation

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Start or Buy?
Start cheapest, but very difficult -requires most planning/research Buy expensive may be out or reach -requires less planning and research Franchise (middle ground) a business run by an individual (the franchisee) to whom a franchiser grants the right to market a certain good or service.

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The Market???
Planning & Research essential Extensive market surveys (family, friends, neighbors) Magazines and Polls offer some information on the market -Businessweek, Harris Poll

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What about the cost?

Plan realistically, not optimistically
Dont overestimate your profits Dont underestimate your costs

Sources of Funds
Banks Venture Capitalists filthy rich, high risk investors looking for a many-times-over yield Angels seem to have altruistic motives and less stringent demands than venture capitalists

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Domestic or Global?
Drawbacks to Global more research and less accessible connections in startup phase, more travel time required, more considerations. Advantages to Global more human resources, more demand, more financing, easier to start global than go from domestic to global.
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Entrepreneurship: Growth Pressures

Entrepreneurs often find that as their business grows, they feel more pressure to use formal methods to lead their organizations.
Although this formalization process may compromise some entrepreneurs spirit, it often leads to more focus, organization, and greater financial returns. Basically, its a movement from a seat-of-the-pants operation to a more structured, legitimate and recognizable business.

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Entrepreneurship: Growth Pressures

Entrepreneurial and Formal Organizations differ in

six business dimensions:

Strategic orientation Commitment to opportunity Commitment to resources Control of resources Management structure Compensation policy 58

Entrepreneurship: Growth Pressures

Business Dimension
Strategic orientation
Commitment to opportunity Commitment to resources
(capital, people, and equipment)

Entrepreneurial Organization
Seeks opportunity
Revolutionary Short duration

Formal Organization
Controls resources
Evolutionary Long duration

Lack of stable needs and Systematic planning resource bases systems

Control of resources

Lack of commitment to permanent ventures

Flat Many informal networks

Power, status, financial rewards for maintaining status quo

Clearly defined authority and responsibility

Management Structure Compensation policy

Unlimited; based on Short-term driven; teams accomplishments limited by investors

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Entrepreneurship: Growth Pressures

Going Global.
From domestic to worldwide expansion, globalization can be extremely rewarding for entrepreneurs.

THINK: Money and Business Exposure

However, it is a huge undertaking. Adapting your business to operate in the global market can lead to a decrease in ownership, and a forced focus on raising money to keep your business alive. THINK: Selling out, Private to Public (Initial Public Offering, IPO)

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Entrepreneurship: Managing a Family Business

Over 50% of the U.S. Gross Domestic Product (GDP) is generated from family business.
12% of CEOs on the Inc. 500 list describe their company as a family business.

So, why not dream up a plan and go into business with your family or friends?
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Entrepreneurship: Managing a Family Business

Two reasons not to go into business with your family or friends.

Families fight Friends fight.

Often, it involves money. So a business environment could potentially breed arguments, disagreements, and feuds. Fighting can occur during early developmental stages when hours are long and pay is low. Or, after success has been achieved.

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Entrepreneurship: Managing a Family Business

Six steps to help lead you to a successful Family Business:

Clear job responsibilities Clear hiring criteria Clear plan for management transition Agreement on whether and when to sell business Commitment to resolving conflicts quickly Outside advisors are used to mediate conflicts.
Clarity is key. but NO GUARANTEE.

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Entrepreneurship: Managing a Family Business

Operational vs. Survival Issues.
Operational = Decisions about the economics of the business and how to balance that with rational and family obligation criteria. THINK: Day-to-day grind. Survival = Develop out of a lack of attention on the operational issues within the business. THINK: Festering problems; ultimately compromise livelihood.

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Entrepreneurship: Managing a Family Business

FAMILY FEUD:

Severed relationships

Divorce

Poor business performance

Low morale, motivation

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Entrepreneurship: Corporate INTRA-preneurs

Intrapreneur = someone in an existing organization who turns new
ideas into profitable realities. Not every employee has the ability to become a successful intrapreneur. It takes well-developed strategic action, teamwork and communication abilities.

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Entrepreneurship: Corporate INTRA-preneurs

Organizations that redirect themselves through innovation have the following characteristics:

Commitment from senior management Flexible organization design Autonomy of the venture team

Competent/Talented people with entrepreneurial attitudes

Incentives and rewards for risk taking Appropriately designed control system 67

Entrepreneurship: Corporate INTRA-preneurs

In order to for this type of forward thinking to reap long-term benefits, top management must allow it to flourish in the day-to-day operations of the business.

This is known as skunkworks

Skunkworks = Islands of intrapreneurial activity within an organization.

REMEMBER: On the island, formal rules and policies of the organization often DO NOT apply.

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How to be a successful entrepreneur

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Oil Drilling in Libya

In 1961, something remarkable happened in the Libyan desert. Eight years earlier, in 1953, an obscure entrepreneur named Bunker Hunt applied for a drilling licence. BP joined him and he had all failures until 3 meters deep in sand he got one of the biggest oil reserve of the world
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Why Enterpreneurs fail

We make our decisions and our decisions make us. Being an entrepreneur is like riding a roller coaster a combination of thrills and spills. The spills are many; in the United States, 80 per cent of new start-ups fold within two years. The statistics for the United Kingdom are similarly depressing. Yet most failures are avoidable. Bad luck is not to blame; rather, ill-judged decision making
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 How do I recognize a good opportunity? How do I recognize a decision I might subsequently regret? How can I predict how a decision might turn out? When should I trust my instincts? How can I prepare for the unexpected? When should I take a risk?
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Major consideration for Enterpreneurs

 How to be a Successful Entrepreneur How should I choose if faced with two equally attractive options? When should I cut my losses? When is the best time to sell a thriving business? How do I get what I want and what do I need to make a success of the business?
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Major consideration for Enterpreneurs

Deciding to Give It a Go how not to do it

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Illusion of control
Our innate tendency as human beings to overestimate our ability to influence outcomes even those that are actually down to chance. Most people have an overly inflated idea of their own competence often the realists who quit first when the going gets rough precisely because they can see only too well that the odds are against them Entrepreneurs need a cash flow: they need to sell enough to meet expenses, restock and perhaps repay loans. Where is the money going to come from?
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The overconfidence trap

Why else do people buy hotels that have already had a succession of owners who have gone bankrupt They do it because they believe they can make a difference, though usually they just end up bankrupt too Instead of confronting the problem and thinking about whether and, if so, how one could achieve a turnaround, people simply put up a notice saying Under New Management 76

Dreaming with discipline

Entrepreneurs who fail make one of the following mistakes:
They have no plan at all. Their plan is not properly thought through. They fiddle the figures until the plan makes financial sense

A plan is a good way of testing reality, thereby helping to avoid the overconfidence trap because the process of planning forces you to consider whether your ideas are practical

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Questions asked by Investors

How much is the prospective owner proposing to invest in the idea?
Who else is involved?

At face value, does the idea seem credible?

What market research has been conducted and with what results? How comprehensive and well thought out is the business plan?

Does the prospective owner have the requisite skills and experience to run the business?
Does the prospective owner have the requisite energy and commitment to go the distance?
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The dangers of Myopia

Insufficient reality testing may result in myopia that prevents us from seeing a complete and accurate picture Myopia resides in failing to consider the other side of the equation It is also very important to research

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Denial

As human beings we are adept at hearing good news and equally adept at shutting out bad news. Better to begin with doubts and end in certainties than begin with certainties and end in doubts.

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Too Good to lose

Entrepreneurs claim to rely solely upon intuition when making important decisions Luck does play a part in business but be aware that susceptibility to myopia is also heightened when an opportunity seems to be too good to miss This is because we are liable to be dazzled by all the advantages of the idea and therefore neglect to probe the potential hazards
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Over Reach
An opportunity is an opportunity if you can deliver on it. Otherwise it is a liability Expansion is almost every entrepreneurs goal but it brings new challenges Dont try to run before you can walk.
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The experience trap

Firefighters are most likely to be killed not when they are new to the job but when they have been in it for about 10 years. This is because experienced firefighters develop a false confidence in themselves based on the belief that they have seen it all before we tend to attribute our successes to our innate abilities and our failures to bad luck 83

Basic concepts
All decisions involving uncertainty entail risk. Many failures could be avoided, however, if entrepreneurs conducted sufficient reality testing beforehand. Failure usually results from over confidence and/or biased information processing. Risks of mis judgement are heightened when an opportunity seems too good to lose. 5. Experience offers no immunity from error. In 84 fact, it can make things

Optimal Solutions how to choose between alternatives

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Six Thinking Hats

Framework

Confusion is the biggest enemy of good thinking

We try to do too many things at a time
Juggling with six balls at a time is rather difficult Tossing up one ball at a time is much easier

Six Hat Thinking does one thing at a time and in the end the full picture emerges
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Six Thinking Hats

Western Thinking = Argument

Western thinking was designed about 2300 years ago by the Greek Gang of Three:
Socrates simply point out what is wrong Plato we see only shadow truths Aristotle things fit into boxes (categories)

Western thinking is concerned with what is determined by analysis, judgment and argument.
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Six Thinking Hats

Adversarial vs. Parallel Thinking

Adversarial Thinking A B

Parallel Thinking A B
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Six Thinking Hats

Parallel Thinking

It was six men much inclinedTo learning, Who went to see the Elephant (Though all of them were blind), That each by observation Might satisfy his mind.

John Godfrey Saxe's ( 1816-1887) version of the famous Indian legend

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Six Thinking Hats

Parallel Thinking Wall Fan Spear

Snake
Rop e And so these men of Indostan Disputed loud and long, Each in his own opinion Exceeding stiff and strong, Though each was partly in the right, 90 And all were in the wrong!

Tree

Six Thinking Hats

Parallel Thinking

A wise man was passing by and he saw this. He stopped and asked them, "What is the matter?" They said, "We cannot agree to what the elephant is like. The wise man calmly explained to them, "All of you are right. The reason every one of you is telling it differently is because each one of you touched a different part of the elephant. So, actually the elephant has all those features. "Oh!" everyone said. There was no more fight. They felt happy that 91 they were all right.

Six Thinking Hats

Parallel Thinking

Using parallel thinking they could all walk around and look at each part of the elephant together. So at each moment each person is looking in parallel from the same point of view and in the same direction. This is almost the exact opposite of argument, adversarial, confrontational thinking
Each party deliberately takes an opposite view Each tries to prove the other wrong 92

Six Thinking Hats

Directions and Hats

By using standard labels (like; front, back, left side, right side, north, south, east, west) we can choose which direction we want to look. What are the different directions thinkers can be invited to look? This is where the hats come in: There are six colored hats corresponding to the six directions of thinking: white, red, black, yellow, green, blue. Why hats? A hat indicates a role (i.e. I see you have your thinking cap on) A hat can be put on or taken off with ease 93 A hat is visible to everyone around

Six Thinking Hats

The Six Hats
White Hat Blue Hat Red Hat

Green Hat

Black Hat

Yellow Hat

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Six Thinking Hats

The WHITE Hat = Facts and Data

The White Hat calls for information known or needed.

Think of white paper, which is neutral and carries information:
What information do we have? What information is missing? What information would we like to have? How are we going to get missing information?
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Six Thinking Hats

The RED Hat = Feelings / Intuition

The Red Hat signifies feelings, hunches, and intuition.

Think of red and fire and warm:
Putting on my red hat, this is what I feel about the project My gut feel is that it will not work I dont like the way this is being done
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Six Thinking Hats

The BLACK Hat = Issues / Concerns

The Black Hat is judgment the devils advocate or why something may not work.
Think of a stern judge wearing black robes who comes down heavy on wrong-doers. The Black Hat is the caution hat.
The regulations do not permit us to do that We do not have the capacity to meet the 97 demand

Six Thinking Hats

The Yellow Hat = Benefits

The Yellow Hat symbolizes brightness and optimism.

Think of sunshine. The Yellow Hat is for:
The logical positive view of things Feasibility and how something can be done Benefits that are logically based:
This might work if we moved the plant nearer the customers 98 The benefit would come from repeat customers

Six Thinking Hats

The GREEN Hat = New ideas / Possibilities

The Green Hat focuses on creativity; the possibilities, alternatives, and new ideas.
Think of vegetation and rich growth. The Green Hat is for:
New ideas and additional alternatives Putting forward possibilities and hypotheses Creative efforts
We need some new ideas here Could we do this a different way?

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Six Thinking Hats

The BLUE Hat = Managing the Thinking

The Blue Hat is used to manage the thinking process.

Think of the sky and an overview. The Blue Hat:
Is for process control Sets the agenda for thinking Suggests the next step in the thinking Can ask for other hats:
I suggest we try some green hat thinking Could we have a Basic concepts of your views?

The Blue Hat is for thinking about thinking. It is used for organizing and controlling the process so that it becomes 100 more productive.

Six Thinking Hats

Encourages parallel thinking Directs thinking in discrete segments Switches thinking from one mode to another Explores a subject more thoroughly Makes specific time and space for creative thinking Separates ego from performance
101 Framework

Six Thinking Hats

White Hat: Looks objectively at data and information. Is neutral and

concerned with facts and figures.

Red Hat: Legitimizes feelings and gives an emotional view, hunches,

and intuition.

Yellow Hat: Is positive and constructive. The yellow color symbolizes

sunshine, brightness and optimism. suggests why it cannot be done.

Black Hat: Is logical, negative, judgmental, and cautious. Is gloomy,

Green Hat: Is about new ideas and creative thinking.

Blue Hat: Controls the thinking process. The blue hat is concerned
with control and the organization of the thinking process.

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Basic concepts
Good decisions combine emotion and rigorous analysis. Try Edward de Bonos six thinking hats: blue: purpose of thinking; red: raw emotion; yellow: advantages; green: possibilities; black: risks and difficulties; white: information needed to make a decision. 103

Basic concepts
Most decisions fail through insufficient black or white hat thinking. Insufficient yellow and/or green hat thinking can mean lost opportunity. Distinguish between known, unclear and assumed. Beware the known facts as they may turn out to be assumption. All else equal, give raw emotion thinking the casting vote.

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Decisions about Future Investments the sunk costs trap

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Elements for consideration

Amount already invested in the venture known as past or Sunk costs should be ignored because they cannot influence future outcomes We become obsessed with what was rather than seeing and acting upon what now is. The golden rule when making decisions involving sunk costs is to focus upon achieving the best possible return on investment for the future WASTE NOT, WANT NOT? What you dont want you may not waste too. 106

Elements for consideration

All else equal, if an opportunity offering a better return upon investment becomes available, we should take it even though it means abandoning a successful course of action What is past is past. We cannot recall the past five minutes, never mind the past five years. The sooner we recognize this, the better, for if we cling to the past we risk losing what the future might offer
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Elements for consideration

It is always disappointing when a customer walks away, particularly if you have invested a lot of time and effort trying to achieve a sale. If that happens, respond with charm. Hand the customer your business card and wish them well. Todays sale is lost but there is always a tomorrow Rather than thinking only of the cost of letting go, consider the cost of persistence.
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Elements for consideration

.Sometimes it is wise to persist despite setbacks. More specifically, persistence may be economically wise if:
the likely pay-off is high; and the project is almost complete.
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Matrix for decision making

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Basic concepts
Sunk costs should normally be ignored when deciding how to invest resources. The correct approach is to select the option that promises maximum return upon investment for the future. This may actually mean dropping a successful decision. If it is emotionally difficult to forgo past investments, calculate what persistence is costing you.

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Basic concepts
Where large and complex projects are involved, seek professional help in determining whether and to what extent persistence makes economic sense. Try not to deceive yourself about the state of a project. Dont let budgets hold you back. Time equals risk. Money and energy can be replenished; never time

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What is stress
The word stress derives from the Latin word stringer, meaning to draw tight. The concept of stress emanates from physics and engineering, where pressure is seen as resulting in strain and ultimately fracture hence, for example, nervous breakdown or the straw that broke the camels back. Psychologists regard stress as a persons adaptive response to any form of stimulus that places excessive psychological or physical demands upon 113 them

Quiz 3/4
Stress is defined as a persons adaptive response to any form of stimulus that places excessive psychological or physical demands upon them Explain it clearly with three industrial examples

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Stress and its causesQ a

There are seven general causes of stress: 1. overload; 2. underload; 3. responsibility for others; 4. personality and demands for success; 5. relationships with others; 6. major life changes; 7. daily interruptions and problems.

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Basic concepts
Stress results from demands that exceed our coping ability and threaten something important. Stress is debilitating; it is associated with serious illness and early death. Stress also results in poor decision making.

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Basic concepts
4. The most common causes of stress are:
overload or underload, quantitative or qualitative; relationships and responsibility for others; being driven to succeed; major transitions and daily hassles.
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Basic concepts
5. Stress is frequently accompanied by anxiety and depression. 6. Anxiety produces over-sensitivity to threat, hence threat rigidity. 7. Depression results in perceived helplessness. 8. Depression can be natures way of forcing you to slow down.
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Basic concepts
9. Since stress results from lack of control, the antidote is taking charge by: practicing time management; installing management systems; prioritizing work; delegating; taking responsibility for yourself; managing expectations; 119 practicing emotional detachment.

Basic concepts
There is never a perfect time to do anything. Entrepreneurs get rich by employing people. Dont let identity hold you back. Have a long-term vision for where you want to be and concrete short- and mediumterm plans.
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Basic concepts

Use the latter to create opportunities. Never try to wring the last drop of value out of a business. The best time to quit is always before you want to
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Leading the Dream Team group decisions

We may not like people who challenge us, but we need them As a rule of thumb, when annual turnover reaches 3 million a professional management team is required Try to control everything and you will end up controlling nothing. It is the quality of advice that matters, not who is giving it.

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Group Code of conduct

We will listen to one another actively. We will treat each other with respect. We will work as a team. We will be open and honest, without offending, and say when we disagree with something. We will encourage others to speak their 123 minds.

Lessons from companies

As the firm grows, change your approach to match. To maintain overall control, dont try to control everything. Value constructive conflict and try to stimulate it. Seek advice; you dont have to take it. Communicate: ensure others understand the rationale for decisions. It is better to take people with you than have them work against you.
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Lessons from companies

Actively solicit contributions from group members. Be unfathomable; keep others guessing. Challenge the dream team constantly. Escape to reality

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Get Lucky taking risky decisions

Risk is a choice. To be risk-seeking is to take a bigger risk than circumstances warrant. Risk-seeking behaviour may be triggered by loss or disappointment. Entrepreneurs take risks, but they de-risk ventures as much as possible. Be bold in conceiving ventures but cautious in executing them

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Get Lucky taking risky decisions

High risk may be justified by high reward. Low risk and high reward is even better. It may be worth using options to limit risk and capture opportunities. Shadow options may be worth more than you think.

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Risk assessment checklist

List all the main risks involved in a venture. How probable is this risk on a score of 1 to 10? What would the impact be on a score of 1 to 10? Multiply the two results to achieve a risk score. 128

Risk assessment checklist

What could I do to reduce the probability? What could I do to minimize the impact? What might be the cost of not taking the risk?
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Basic concepts
Taking too little risk can be as bad as taking too much. Risk aversion arises from fear of endangering existing gains. We are most likely to be risk-averse when we are already successful. Ask yourself what you would do if you were not afraid. Consider feeling the fear and doing it anyway.
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Basic concepts

Small adaptations can add up to more than the sum of their parts. Think long-term. Remember, nothing is for ever. Beware herding. Go higher: found a legacy.
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Decisions about Runaway Projects The escalation trap

Instead of exiting failing ventures, entrepreneurs may be tempted to escalate their commitment. Escalation can turn a mistake into a calamity. Escalation is thought to be mainly driven by fear of failure. Sometimes it can be almost as expensive to quit as it is to continue. Prevention is better than cure: be careful what you get into. 132

Decisions about Runaway Projects The escalation trap

Set precise expectations and timescales for their attainment before committing resources. Monitor progress regularly. Budgets used properly can help prevent runaway projects. Set limits on your involvement, identify quitting points and stick to them..
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Decisions about Runaway Projects The escalation trap

Dont take failure personally. If an idea doesnt work, try something else. No law requires you to be consistent. Beware erring in the opposite direction to escalation.
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Negotiations
Never negotiate over positions. Focus upon interests. Price is seldom the only factor in negotiations. Interests may conflict but there are frequently identical and/or mutually compatible interests as well. Search for options that meet all parties interests. Try to put yourself in the other partys shoes.
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Negotiations
Base discussions around market rates or some other defensible criterion. Dont try to argue the other party into submission; listen and ask questions. Be prepared to ask for what you want. Never say no when you can say maybe. Never negotiate when you and/or the other party feel angry. Be patient.
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Negotiations
Be pragmatic if the cost of not doing a deal is high. Be clear about what you are agreeing to. Commit important agreements to writing. Reciprocal trust is economically efficient. 137 Alternatives are power

Entrepreneurial Genius deciding on an idea for business

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How to create ideas

1. One approach to inventing new ideas involves taking familiar products or services for which there is already a market and reinventing them. 2. Asking obvious (silly) questions can be extremely rewarding. 3. Improve the familiar through innovation 4. Reduce the loss to customers
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Examples of reducing loss to customers (imparts cost but no value).

queuing at a hotel checkout; waiting for a computer to boot up; the background hiss the television makes; clothes that need washing; window frames that need painting; cars that need servicing; the weight of a lawnmower; waiting in a doctors surgery; preparing a supermarket in readiness for customers; the time it takes to microwave a meal

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How to create ideas

5. Solve problems. 6. Take what no body wants. 7. Make the expensive cheap 8. Get people at the price they want to pay 9. Add Value to service or product 10.Invent a name 11.The master key ; acceptance by the people
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Basic concepts
1. Ideas for business are more likely to come via active search. 2. Start by questioning underlying concepts. 3. Look for hidden assumptions that may be restricting progress. 4. Ask yourself, Why? 5. Then ask, Why not? 6. Experiment with the 10 keys to innovation:
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Deciding on the idea of Business

Tea bags, liquid soap, highlighter pens the world is full of good, Commercially viable ideas that seem obvious now but did not exist until someone thought of them. How did they do it? Deciding on an idea for business can be difficult. The world is a crowded marketplace
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Deciding on the idea of Business

There are two ways of generating new ideas. One is to wait for inspiration to strike. It may work but it is uncertain. Entrepreneurial genius does not require sophisticated scientific or technical knowledge. Genius resides in how we think about 144 things

Deciding on the idea of Business

BlackBerry mobile phone has captured a market lead in e-mail that rivals have struggled to beat. The device is packed full of complicated electronics but its success rests as much as anything on a shift in thinking Genius is a trick of mind that can be learned. 145 The trick resides in questioning

Deciding on the idea of Business

The trick resides in questioning the obvious, In questioning received ways of doing things and Demolishing concepts that are blocking progress If you already have an idea for business or are already in business
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Becoming and Entrepreneurial Genius

Blocking assumptions are everywhere. They frequently reside in taken for- granted assumptions and practices when we say pen, we almost invariably think ink. It is obvious, is it not? The trouble is, if we never looked beyond the obvious, we would never have invented the electronic pen
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Becoming and Entrepreneurial Genius

Allen Lane, books were expensive partly because they had cardboard covers. Lane made business history (and a fortune) by reinventing the book as a paperback Early computers occupied whole rooms. Initial efforts to make them small focused upon shrinking the hardware What is a mobile phone these days? It might be a camera, or an MP3 player, or an organizer
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Conceptual Blockbusting
How we conceptualize something determines what we see and how we see. We think of time as something that passes, but where does it go to after it passes? We think of the past as irretrievable, Some things happen time and time again Possibilities are limited only by imagination
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How to be a successful Entrepreneur

They glimpse new possibilities by ridding themselves of blocking assumptions. If we assume soap always comes in blocks, we will never be able to imagine it in liquid form Locks may have keys but we have invented many different kinds of key, such as electronic cards Many cities have broken the blocking assumption that big events such as football matches take place inside a stadium by opening up free space and exploiting the possibilities of wide-screen television 150

Ten keys to Innovation

Imagine things that never were and ask, Why not?

KEY 1: REINVENT THE FAMILIAR Taking familiar products or services for which there is already a market and reinventing them Example: Potato crisp. the only varieties on offer were plain and cheese and onion but now there are many flavours Laptop computer introduced portability into a world dominated by desktop machines
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Ten keys to Innovation

Imagine things that never were and ask, Why not?

KEY 1: REINVENT THE FAMILIAR In order to see new possibilities, try questioning basic concepts and assumptions. What is a hotel? Is it a sleeping factory or a place where guests come to enjoy good food and relax in pleasant and secure surroundings Ask silly questions. The answers may be very rewarding
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Ten keys to Innovation

Imagine things that never were and ask, Why not?

KEY 2: IMPROVE THE FAMILIAR In the 19th century an entrepreneur named George Mortimer Pullman built Lavish railway carriages and introduced innovations such as onboard catering and at seat services in return for a supplement
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Ten keys to Innovation

Imagine things that never were and ask, Why not? KEY 2: IMPROVE THE FAMILIAR

Dyson vacuum cleaners are vacuum cleaners made better. Videoconferencing saves time, money and effort and helps to protect the environment. Yet it is not used as much as it could be because the equipment is cumbersome and temperamental. If it could be improved, videoconferencing might become the norm rather than the exception. 154

Ten keys to Innovation

Imagine things that never were and ask, Why not? KEY 3: REDUCE LOSS.

The following are some examples of loss: queuing at a hotel checkout; waiting for a computer to boot up; the background hiss the television makes; clothes that need washing; window frames that need painting; cars that need servicing;

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Ten keys to Innovation

Imagine things that never were and ask, Why not? KEY 3: REDUCE LOSS.

The following are some examples of loss: the weight of a lawnmower; waiting in a doctors surgery; preparing a supermarket in readiness for customers; the time it takes to microwave a meal.
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Ten keys to Innovation

Imagine things that never were and ask, Why not? KEY 4: SOLVE PROBLEMS.

Life is full of problems waiting to be discovered! Fountain pens that ran out of ink were a nuisance until someone invented cartridges. We never thought much about how messy and restricting wires are until Blue tooth and wireless electricity technology were discovered In order to solve problems you have to recognize their existence and then ask yourself what you can 157 do about it

Ten keys to Innovation

Imagine things that never were and ask, Why not? KEY 4: SOLVE PROBLEMS.

That means being willing to challenge the status quo and taken-for-granted assumptions about what is acceptable and what can be changed. It means thinking about what could be as distinct from what merely is. It is the difference between asking why? and why not Implications of diminishing reserves of oil and 158 began to develop hybrid petrol/electric cars.

Ten keys to Innovation

Imagine things that never were and ask, Why not?

KEY 5: TAKE WHAT NOBODY WANTS

Where theres muck, theres brass. As this homely Northern saying recognizes, fortunes have been built by entrepreneurs focusing upon what no one else wants Try pouring coffee into a full cup. It will spill over and make a mess because the cup is already full. So, the cup is most useful when 159 it is empty

Ten keys to Innovation

Imagine things that never were and ask, Why not?
KEY 5: TAKE WHAT NOBODY WANTS Large, established businesses are likewise full. They are full of products, full of commitments. Entrepreneurial potential resides not in competing head on with giants But in exploring the empty space, the things that large organizations are not interested in the low-cost airline easyJet was launched from regional airports that the big airlines shunned, where landing fees were correspondingly cheap A cup is most useful when it is empty
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Ten keys to Innovation

Imagine things that never were and ask, Why not? KEY 6: MAKE THE EXPENSIVE CHEAP

P ay as you go services have made mobile phones universally affordable. Rowland Hill, who is credited with the invention of the postage stamp, got rid of a system of complicated tariffs based on weight and distance, and introduced a single uniform charge encapsulated in the stamp known as the Penny Black 161

Ten keys to Innovation

Imagine things that never were and ask, Why not? KEY 6: MAKE THE EXPENSIVE CHEAP

Berni Inns reduced the price of meals by removing tablecloths, thereby saving over 250,000 a year in laundry, and substituting table mats; by reducing the number of dishes on offer to cut the cost of inventory by keeping dishes simple so that they could be cooked and served by relatively inexpensive technicians rather than highly trained cooks
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Ten keys to Innovation

Imagine things that never were and ask, Why not? KEY 6: MAKE THE EXPENSIVE CHEAP

Dining pubs take the idea further as customers get their own drinks and order their own food, thereby cutting down on the need for waiting staff. Low-cost airlines have taken a similar approach by subtracting frills such as meals. Pay as you go mobile phone customers get a stripped-down version of the service afforded to contract customers.
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Ten keys to Innovation

Imagine things that never were and ask, Why not? KEY 7: GET THE PRICE RIGHT

Subtraction will make things cheaper but it will not help you decide how much to charge. It is not just a matter of making something affordable; it has to fit the customers budget Budgeting is a way of compartmentalizing resources either mentally in our heads or on paper. Give people what they want at a price they will pay.
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Ten keys to Innovation

Imagine things that never were and ask, Why not? KEY 8: ADD VALUE

You can buy a box of Faber-Castell pencils in a nice wooden box for around 70. Scientists are currently experimenting with scientific discoveries into how human vision works to add value by making suits that are utterly invisible. There is nothing special about a bag of Granny Smith apples. Imagine, however, receiving rarer varieties packed in an attractive presentation box
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Ten keys to Innovation

Imagine things that never were and ask, Why not? KEY 8: ADD VALUE

Adding value is the opposite side of the coin of reducing loss Customers will pay for mineral water in attractive bottles because it means they can place the bottle directly on to the table and avoid having to use a jug

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