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Summary Theories of Entrepreneurship and Innovation - The complete course
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Entrepreneurship & InnovationWEEK 1
08 Sept The entrepreneurial process
• Blank, S. (2013). Why the lean start-up changes everything. In Harvard Business
Review, 91(5), 63-72.Links to an external site.
The “lean start-up”
Instead of executing business plans, operating in stealth mode, and releasing fully
functional prototypes, young ventures are testing hypotheses, gathering early and
frequent customer feedback, and showing “minimum viable products” to prospects.
This new process recognizes that searching for a business model (which is the
primary task facing a startup) is entirely different from executing against that model
(which is what established firms do). Recently, business schools have begun to teach
the methodology, which can also be learned at events such as Startup Weekend.
Over time, lean start-up techniques could reduce the failure rate of new ventures
and, in combination with other trends taking hold in the business world, launch a
new, more entrepreneurial economy.
The lean method has three key principles:
- First, rather than engaging in months of planning and research, entrepreneurs
accept that all they have on day one is a series of untested hypotheses—
basically, good guesses. So instead of writing an intricate business plan,
founders summarize their hypotheses in a framework called a business model
canvas. Essentially, this is a diagram of how a company creates value for itself
and its customers,
- Second, lean start-ups use a “get out of the building” approach called
customer development to test their hypotheses. They go out and ask
potential users, purchasers, and partners for feedback on all elements of the
business model, including product features, pricing, distribution channels, and
affordable customer acquisition strategies. The emphasis is on nimbleness and
speed: New ventures rapidly assemble minimum viable products and
immediately elicit customer feedback. Then, using customers’ input to revise
their assumptions, they start the cycle over again, testing redesigned offerings
and making further small adjustments (iterations) or more substantive ones
(pivots) to ideas that aren’t working.
- Third, lean start-ups practice something called agile development. Agile
development works hand-in-hand with customer development. Unlike typical
year- long product development cycles that presuppose knowledge of
customers’ problems and product needs, agile development eliminates
wasted time and resources by developing the product iteratively and
incrementally. It’s the process by which start- ups create the minimum viable
products they test.
In the past, growth in the number of start-ups was constrained by five factors in
addition to the failure rate:
1. The high cost of getting the first customer and the even higher cost of getting the
product wrong.
2. Long technology development cycles.
,3. The limited number of people with an appetite for the risks inherent in founding or
working at a start-up.
4. The structure of the venture capital industry, in which a small number of firms each
needed to invest big sums in a handful of start-ups to have a chance at significant
returns.
5. The concentration of real expertise in how to build start-ups, which in the United
States was mostly found in pockets on the East and West coasts. (This is less an issue
in Europe and other parts of the world, but even overseas there are geographic
entrepreneurial hot spots.)
The lean approach reduces the first two constraints by helping new ventures launch
products that customers actually want, far more quickly and cheaply than
traditional methods, and the third by making start-ups less risky.
,
, • Sledzik, K. (2013). Schumpeter’s view on innovation and entrepreneurship.
Management Trends in Theory and Practice, (ed.) Stefan Hittmar, Faculty of
Management Science and Informatics, University of Zilina & Institute of
Management by University of Zilina, 2013, ISBN 978-80-554-0736-4. (Links to an
external site.)(Read only the first part of the article until “4. Schumpeter’s
"Second“ Entrepreneurship theory")
Schumpeter highlighted the function of entrepreneurs who is carrying out new
combinations.
“Dynamic capitalism was executed to fail because the very efficiency of capitalist
enterprise would lead to monopolistic structures and the disappearance of the
entrepreneur.”
Schumpeter described development as historical process of structural changes,
substantially driven by innovation which was divided by him into five types:
1. launch of a new product or a new species of already known product;
2. application of new methods of production or sales of a product (not yet
proven in the industry);
3. opening of a new market (the market for which a branch of the industry was
not yet represented);
4. acquiring of new sources of supply of raw material or semi-finished goods;
5. new industry structure such as the creation or destruction of a monopoly
position.
Schumpeter argued that anyone seeking profits must innovate. Innovation is
considered as an essential driver of competitiveness and economic dynamics. He
also believed that innovation is the center of economic change causing gales of
“creative destruction”
According to Schumpeter innovation is a "process of industrial mutation, that
incessantly revolutionizes the economic structure from within, incessantly destroying
the old one, incessantly creating a new one".
He divided the innovation process into four dimensions: invention, innovation,
diffusion and imitation. Then he puts the dynamic entrepreneur in the middle of his
analysis. In Schumpeter’s theory, the possibility and activity of the entrepreneurs,
drawing upon the discoveries of scientists and inventors, create completely new
opportunities for investment, growth and employment. In Schumpeter’s analysis, the
invention phase or the basic innovation have less of an impact, while the diffusion
and imitation process have a much greater influence on the state of an economy.
What matters in terms of economic growth, investment and employment, is not the
discovery of basic innovation, but rather the diffusion of basic innovation, which is
the period when imitators begin to realize the profitable potential of the new
product or process and start to invest heavily in that technology.
According to Schumpeter, invention is not the cause: discovery and execution are
“two entirely different things”. “The pure new idea is not adequate by itself to lead to
implementation ... . It must be taken up by a strong character (entrepreneur) and
implemented through his influence”. It is not the power of ideas but the power that
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