Theories of Entrepreneurship and Innovation – UvA MsC BA 2024
Week 1
Lecture 1 Introduction to Entrepreneurship
Schumpeter’s view on innovation and entrepreneurship - Sledzik (2013)
Schumpeter’s view on Entrepreneurship is that dynamic capitalism was executed to fail because the
very efficiency of capitalist enterprise would lead to monopolistic structures and the disappearance
of the entrepreneur. Entrepreneurs create economic and social value through change.
He described development as historical processes of structural change, substantially driven by
innovation which was divided by him into 4 types:
1. Launch of a new product of a new species or an already known product
2. Application of new methods of production or sales of a product
3. Opening a new market (for which a branch of the industry was not yet presented)
4. New industry structure such as the creation or destruction of a monopoly position.
He believed that innovation is an essential driver of competitiveness and economical dynamics.
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 innovation process has 4 dimensions:
1. Invention
2. Innovation
3. Diffusion
4. Imitation
The possibility and activity of entrepreneurs create completely new opportunities for investment,
growth, and employment. Diffusion is the period when imitators begin to realize the profitable
intention of the new product of process and starts to invest heavily in that technology.
The diffusion and imitation phase have much greater influence on the state of an economy. The
macroeconomic effects of any basic innovation are hardly noticeable in the first few years. What
matters in terms of economic growth, investment, and employment is not the discovery of basic
innovation, but rather the diffusion.
Discovery and execution are two entirely different things. The idea must be taken by a strong
character (entrepreneur) and implemented through his influence. The entrepreneur’s main function
is to allocate existing resources to new uses and new combinations -> creative destruction.
Before Schumpeter, there were 2 dominant views on how markets evolve:
1. Macroeconomically: the profit is the result of an imperfect market.
2. Sociologists: your actions are determined by the social. The profit is the result of the working
class.
Schumpeter’s contribution: The individual.
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.
- Every new structure destroys the old structures.
, - This happened by the recombination of resources -> allocating existing resources to new uses
and new combination.
- Creating change through creative destruction: a process where the entrepreneur disrupts the
existing practices and industry structures through the recombination of knowledge and
resources.
- Profit is the result of innovation.
The first theory of entrepreneurship
Schumpeter says that profit is the result of the reasonability of the entrepreneur -> taking risks.
The motives of entrepreneurs:
1. Profit
2. Independence
3. Competing
4. Joy of creation
Characteristics:
1. Intelligent
2. Alert
3. Energetic
4. Determined
Not born, can be improved by others, by learning skills.
The entrepreneur doesn’t have to be the capitalist (owner) of the company. The entrepreneur
created profit but not always receive it, and it is not guaranteed that it will remain entrepreneur in
the future, it depends on his talent and will to act.
The Lean Startup – Steve Blank
The idealistic entrepreneur process implies that it is a leaner process, separated by stages and that
everything goes by plan. This is the old way in which you write a business plan, pitch it to investors,
assemble a team, introduce a product, and start selling as hard as you can. Somewhere in this
sequence, you will probably fail, and then the process has to start all over again.
Then you already raised money by investors and many man hours are developed by executing the
idea without gathering customer feedback -> too late and then you may realize that there is no
demand.
We have learnt 3 things:
1. Business plans rarely survive without customer contact
2. No five-year plan to forecast unknowns -> waste of time
3. Start-ups are not smaller versions of large companies. The ones that succeed go quickly from
failure to failure, all the while adapting, iterating on and improving initial ideas as they learn
from customers.
Successful entrepreneurs do iterate:
1. They learn from failures
2. Alter their business model
3. Set up and test new assumptions
4. Succeed or start again.
,A start-up is a temporary organization designed to search for a repeatable and scalable business
model.
The lean start-up is a methodology that makes the process of starting a company less risky.
It is an iterative process whereby you build something new, measure the data, learn from the data
and build again.
Important differences between traditional process and the lean start-up methodology:
- It focuses on experimentation instead of the execution of elaborated plans.
- It integrates customer feedback instead of building upon intuitions.
- It applies iterative design instead of execution of the big design upfront.
It has 3 principles:
1. At the start, the entrepreneur only has a series of untested hypotheses (good guesses) rather
than engaging in month of planning and research without a business plan. Their
assumptions/hypotheses are summarized in a business model canvas, which summarizes
how a company creates value for itself and its customers.
2. Lean start-ups use a ‘get out of the building’ approach, called customer development, to test
their hypotheses. They are asking for feedback on all elements of the business model,
including product features, pricing, distribution channels, and affordable customer
acquisition strategies. They use Minimum Viable Products (MVPs) and immediately elicit
customer feedback, then using this input to revise their assumptions, and then start the cycle
over again. They keep making further small adjustments (iterations) or substantive
adjustments (pivots) to ideas that are not working.
3. Lean start-ups practice agile development. This eliminates wasted time and resources by
developing the product iteratively and incrementally.
Quick, Responsive Development consist of short development cycles in which an initial plan goes
through the process of planning, analysis and design, implementation and testing and thereby
gathering customer feedback at their MVP. Then you evaluate the customer feedback and start the
cycle again with the adapted plan.
It is important that the MVP is much less than the functional prototype, it is just a sketch of the basic
functions just enough to test whether it is liked by the customers. Note that the target market can
change during the iterative process of the MVPs.
, Business Model Canvas
The BMC lets you look at all 9 building blocks of the business:
Key partners, key activities, key resources, cost structure, value propositions, customer relationships,
channels, customer segments, and revenue streams.
The growth in the number of startups was constrained by 5 factors in addition to the failure rate:
1. The high cost of getting the first customer and even higher costs 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 startups to have a change at significant returns.
5. The concentration of real expertise in how to build start-ups.
The lean approach reduces 1 and 2 by helping new ventures launch products that customer really
want, far more quickly and cheaper than traditional methods. The 3 rd is also reduced by making
startups less risky.
There are also trends that alter lean startups:
- Easily accessible offshore manufacturing -> products that are bits delivered over the web.
- Decentralization of access to financing -> seed investments and crowdsourcing, and super
angel funds provide a democratic method of financing start-ups.
- The instantaneous availability of information -> start-up advice.
Also, already existing companies can use the lean process for innovations. To keep up with external
threats they should keep inventing in new business models.
Lecture 2 Introduction to Innovation Management
You need an Innovation strategy – Pisano (2015)
The problem with innovation improvement efforts is rooted in the lack of an innovation strategy.
A strategy is a commitment to a set of coherent, mutually reinforcing policies or behaviors
aimed at achieving a specific competitive goal.
Good strategies promote alignment among diverse groups within an organization, clarify objectives
and priorities, and help focus efforts around them.
Many organizations define their overall business strategy (their scope and positioning) and specify
how their marketing, finance, operations etcetera support it. However, firms rarely articulate
strategies to align their innovation efforts with their business strategy. As an organization has diverse
