Theories of E&I
Week 1 – Part 1
Ä Video 1 – Introduction to entrepreneurship
Sledzik
Schumpeter’s idea of entrepreneurship and creative destruction. He introduced the idea of the
individual in a period where there were only two dominant views in economic and social studies. à
microeconomics vs. sociology:
• Microeconomics view suggested that the market consisted of atomize actor who are well
informed, rational, and governed by economic rules and principles
• Over socialized perspective suggested that all our actions, beliefs and behaviors are governed
by the social environment we are in.
Schumpeter introduces the idea that market evolution is driven by special individuals who create
innovation through change.
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”. The entrepreneur
allocates existing resources to new uses and new combinations. Creates change through creative
destruction. Profit is a reward not an anomaly.
According to Schumpeter, the motives of entrepreneurs for carrying out innovations are:
• Money
• Independence
• Competition
• Joy of creation
Main limitation of this view is that do not take into account social causes.
Characteristics of entrepreneurs that can be improved, and therefore trained:
• Intelligent
• Alert
• Energetic
• Determined
• Video 2 – Entrepreneurial process
Blank
Often idealized the entrepreneurial process as
linear.
But looks like more like this in reality:
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,Failure is important step. In reality, the entrepreneurial process starts with bad business plans bases
on untested assumptions. These plans fail. Successful entrepreneurs do something different from the
rest:
• Learn from failures
• Alter their business model
• Set up and test new assumptions
• Succeed or start all over again
The lean start-up process consists of repetitive cycles, each
cycles consist of the element of the general implementation
process. The result is the minimum viable products (MVP):
it is a product that it is developed enough to be suitable to
harvest customers feedbacks. Using an MVP you can
gather feedbacks from customers from which you can
adapt your assumptions and business model for further
development.
2
, Ä 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
Schumpeter’s idea of entrepreneur. For him consumers are passive, their preferences are already given
so they cannot be the cause of the economic change. Development for him is a historical process of
structural changes driven by innovation which was divided by him into 5 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 production opening of a new market
3. Opening of a new market
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 positions
Innovation was considered an essential driver of competitiveness and economic dynamics. →
Creative destruction.
Innovation: process of industrial mutation, that incessantly revolutionizes the economic structure
from within, destroying the old one and creating a new one.
Innovation process divided into 4 dimensions:
• invention
• innovation
• diffusion
• imitation
What makes economic growth is the diffusion of basic innovation, not the discovery of the innovation
→ not the power of ideas but the power to get things done.
Innovations are essential to explain economic growth, “entrepreneur” is the central innovator.
Entrepreneurship is innovation and the actualization of innovation.
First idea of entrepreneur as a single person who reform, revolutionary patterns of production by
exploiting an invention… Motivated by:
• Profits
• Create own kingdom
• Desire for gain (competition)
• Joy of creation
Second entrepreneur: more focus on innovation, not single entrepreneur anymore
Ä Blank, S. (2013). Why the lean start-up changes everything. In Harvard Business Review,
91(5), 63-72
Lean start-up favors experimentation over elaborate planning, customer feedback over intuition, and
iterative design over traditional “big design up front” development.
3 limits of business plans:
1. Business plans rarely survive first contact with customers.
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, 2. No-one besides venture capitalists and the late Soviet Union requires five-year plan to forecast
complete unknowns.
3. Start-up are not smaller version of large companies.
One critical difference is that existing companies execute a business model, start-ups look for one.
Lean definition of a start-up: a temporary organization in search for a repeatable and scalable
business model. Lean method’s 3 key principles:
1. Rather than engaging in months of planning and research, entrepreneurs accept that all they
have one day is a series of untested hypotheses. These are summarized in business model
canvas: a diagram of how company creates value for himself and its customers.
2. Use a “get out of the building” approach called customer development to test their hypotheses:
go out and ask potential users. Use feedbacks to revise assumptions, and start a cycle to
continuously improve the product/service.
3. Practice agile development which means developing the product iteratively and incrementally.
Lean start-up does not operate in stealth mode. 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 venture capital industry, in which a small number of firms each needed
to invest a big sum 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
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, The lean start-up reduces the first two constraints by helping new ventures launch products that
customers actually want, far more quickly and cheaply than traditional methods, and making start-
ups less risky.
Week 1 – Part 2
Ä Video 1 – Why a firm needs an innovation strategy
Pisano
There are different types of innovation.
Strategy: a commitment to a set of coherent, mutually reinforcing policies or behaviors aimed at
achieving a specific competitive goal.
Alignment of Business and innovation strategy helps firms to operate a well-functioning innovation
system where searching for and implementing new ideas are well aligned without conflicting with
priorities.
A good innovation strategy needs to answer 3 questions:
1. How will innovation create value for potential customers?
a) Higher quality
b) Lower price
c) Greater social benefits
2. How will the company capture a share of the value its innovations generate?
3. What type of innovations will allow the company to create and capture value, and what
resources should each type receive?
a) Creates a model built on 2 dimensions:
I. Require new business model
II. Require new technical competences
Certain theories and models that can help in
finding the right strategy:
• Managers can investigate where they are in
innovation LC.
o In the beginning there is strong focus
on improving the product
o Then focus shifts to process innovation
o Finally, firms should press down prices
with standardization and integration.
But at the same time invest in radical
innovations.
• Ambidexterity theory (manage exploration
and exploitation)
o Successful firms can balance exploration (uncertain, risky, radical innovation) and
exploitation (incremental, non-risky, sustaining innovation)
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