Entrepreneurs typically lack the time and money to interview a representative cross section of potential customers, let alone analyze substitutes, reconstruct competitors’ cost structures, or project alternative technology scenarios. In fact, too much analysis can be harmful; by the time an opportunity is investigated fully, it may no longer exist.
Many successful entrepreneurs spend little time researching and analyzing. founders who spent a long time in study, reflection, and planning were no more likely to survive their first three years than people who seized opportunities without planning. In fact, many corporations that revere comprehensive analysis develop a refined incapacity for seizing opportunities. Analysis can delay entry until it’s too late or kill ideas hy identifying numerous problems.
What are the critical elements of winning entrepreneurial approaches? Our evidence suggests three general guidelines for aspiring founders:
1. Screen opportunities quickly to weed out unpromising ventures.
2. Analyze ideas parsimoniously. Focus on a few important issues.
3. Integrate action and analysis. Don’t wait for all the answers, and he ready to change course.
Screening Out Losers
Individuals who seek entrepreneurial opportunities usually generate lots of ideas. Quickly discarding those that have low potential frees aspirants to concentrate on the few ideas that merit refinement and study. Profitable survival requires an edge derived from some combination of a creative idea and a superior capacity for execution. But entrepreneurs cannot rely on just inventing new products or anticipating a trend. They must also execute well, especially if their concepts can he copied easily. In other cases, entrepreneurs must reflect on the adequacy of their ideas and their capacities to execute them. Successful start-ups don’t need an edge on every front. The creativity of successful entrepreneurs varies considerably. Some implement a radical idea, some modify, and some show no originality. Capacity for execution also varies among entrepreneurs. Selling an industrial niche product doesn’t call for the charisma that’s required to pitch trinkets through infomercials. In assessing the viability of a potential venture, therefore, each aspiring entrepreneur should consider three interacting factors:
1. Objectives of the Venture: Revolutionary enterprises usually require new processes or manufacturing techniques; competitive markets rarely fail to provide valuable products or services unless providing them involves serious technological problems. In contrast, ventures that seek to capture a market niche, not transform or create an industry, don’t need extraordinary ideas. Some ingenuity is necessary to design a product that will draw customers away from mainstream offerings and overcome the cost penalty of serving a small market.
2. Leverage Provided by External Change: Exploiting opportunities in a new or changing industry is generally easier than making waves in a mature industry. Enormous creativity, experience, and contacts are needed to take business away from competitors in a mature industry, where market forces have long shaken out weak technologies, strategies, and organizations. Strategic choices in a new industry are often very limited; entrepreneurs have to adhere to the emerging standards for product features, components, or distribution channels.
3. Basis of Competition: Proprietary Assets versus Hustle. In some industries, a company’s profitability depends significantly on the assets it owns or controls-patents, location, or brands for example. Good management practices like listening to customers, maintaining quality, and paying attention to costs, which can improve the profits of a going business, Companies in fragmented service industries, such as investment management, investment banking, head hunting, or consulting cannot establish proprietary advantages easily but can nonetheless enjoy high profits by providing exceptional service tailored to client demands.
Gauging Attractiveness
Entrepreneurs should also screen potential ventures for their attractiveness-their risks and rewards- compared to other opportunities. Several less likely to face cash crunch because of factors such as technical delays, cost overruns, and slow buildup of sales.
Parsimonious Planning and Analysis
To conserve time and money, successful entrepreneurs minimize the resources they devote to researching their ideas. In setting their analytical priorities, entrepreneurs must recognize that some critical uncertainties cannot be resolved through more research. For example, focus groups and surveys often have little value in predicting demand for products that are truly novel. Entrepreneurs should concentrate instead on issues that they can reasonably expect to resolve through analysis and that determine whether and how they will proceed. Resolving a few big questions-understanding what things must go right and anticipating the venture-destroying pitfalls. Visionary entrepreneurs must guard against making competitors rich from their work. Entrepreneurs who hope to secure a niche face different problems: they often fail because the costs of serving a specialized segment exceed the benefits to customers. Entrepreneurs should therefore analyze carefully the incremental costs of serving a niche and take into account their lack of scale and the difficulty of marketing to a small, diffused segment.
Integrating Action and Analysis
Standard operating procedure in large corporations usually makes a clear distinction between analysis and execution. In contemplating a new venture, managers in established companies face issues about its fit with ongoing activities Acting before an opportunity is fully analyzed has many benefits. Doing something concrete builds confidence in oneself and in others. Key employees and investors will often follow the individual who has committed to action, for instance, by quitting a job, incorporating a lease.
As soon as any problem or risk shows up, the entrepreneur begins looking for solutions. Entrepreneurs often blur the line between research and selling. From the beginning, entrepreneurs don’t just seek opinions and information, they also look for commitment from others.
An entrepreneur’s willingness to act on sketchy plans and inconclusive data is often sustained by an almost arrogant self-confidence.
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