Diane M. Sullivan (2010)Some sections Modified from Barringer & Ireland’s (2008) Chapter 2

Recognizing Opportunities and Generating Ideas

Day #2

Personal Characteristics of the EntrepreneurPersonal Characteristics of the Entrepreneur

Characteristics that tend to make some people better at recognizing opportunities and successfully developing and running firms than others

Prior Experience

Social Networks

Cognitive Factors

Prior Industry ExperiencePrior Industry Experience

Prior Industry ExperiencePrior Industry Experience Prior industry experience helps entrepreneurs recognize Prior industry experience helps entrepreneurs recognize

opportunities becauseopportunities because An individual may spot a market niche that is underservedAn individual may spot a market niche that is underserved

Can build a network of social contacts who provide insights that Can build a network of social contacts who provide insights that lead to new opportunitieslead to new opportunities

Technical term: Technical term: The The Corridor PrincipleCorridor Principle

Cognitive FactorsCognitive Factors

Opportunity recognition may be an innate skill Opportunity recognition may be an innate skill or cognitive processor cognitive process

Entrepreneurs may have a “sixth sense” so Entrepreneurs may have a “sixth sense” so they see opportunities that others missthey see opportunities that others missThis “sixth sense” is called This “sixth sense” is called entrepreneurial entrepreneurial

alertnessalertnessThe ability to notice things without engaging in The ability to notice things without engaging in

deliberate searchdeliberate search

Social NetworksSocial Networks

Characteristics of one’s social network affects Characteristics of one’s social network affects opportunity recognition and venture developmentopportunity recognition and venture development

You

Network Tie

Refers to any relationship you have with another

person

The people represented in a network are generally called

“actors”

When mapping the network of one individual, that

person is called the “focal actor”

• A graphical representation of a network of relationships is called a network map.

• People indicated as dots/circles

• Relationships indicated as lines

Important Network CharacteristicsImportant Network Characteristics

Certain network tie characteristics linked to better Certain network tie characteristics linked to better outcomes (e.g., opportunities recognized, firm outcomes (e.g., opportunities recognized, firm performance, power, etc.)performance, power, etc.) Network SizeNetwork Size Network Tie StrengthNetwork Tie Strength

Strong TiesStrong Ties Weak TiesWeak Ties

Bridging TiesBridging Ties

Network SizeNetwork Size

You You

Large Network characterized by many ties Small network characterized by few ties

Benefits of Larger Networks1. Very helpful in earlier stages of venture

development2. More opportunities identified3. Better firm performance4. Faster IPO5. Network growth

Benefits of Smaller Networks1. Helpful in later stages of venture

developmenti. Provides a more parsimonious

group of “helpers” later on

Network Tie Strength: Strong TiesNetwork Tie Strength: Strong Ties

Strong Ties are determined as such by three characteristics of these relationships:

1. Long duration of relationship

2. Closeness of relationship (close/very close)

3. Frequency of contact (frequently interact)

In depicting a “network map”, strong ties are indicated by short solid lines from the focal actor to the connecting strong tie.

Drawbacks of Strong Ties

1. Provide access to redundant information2. Provide access to similar or redundant contacts (e.g., no help in expanding an actor’s network)

Strong-ties: characterized by frequent interactions between coworkers, friends, and spouses

Benefits of Strong Ties1. Generally trustworthy2. Provides depth of information3. Usually helpful in early-stage funding

You

MomDad

Spouse

Best Friend

Network Tie Strength: Weak TiesNetwork Tie Strength: Weak Ties

Weak-ties: characterized by infrequent interactions between acquaintances

You

Weak Ties are determined as such by three characteristics of these relationships:

1. Short duration of relationship

2. Closeness of relationship (not close)

3. Frequency of contact (infrequently interact)

In depicting weak ties on a “network map”, weak ties are indicated by long dotted lines from the focal actor to the connecting weak tie.

Benefits of Weak Ties

1. Provide unique perspectives

2. Helpful for identifying opportunities

3. Helps entrepreneurs expand their network

Drawbacks of Weak Ties

1. Difficult to sort through information

2. Over time tend to become strong ties

3. Sometimes difficult to create exchange relationship with (requires legitimacy)

Bridging TiesBridging Ties

Bridging ties describe the situation where an actor is tied to another actor within the network who has no other links with that network.

Benefits of Bridging Ties1. Actors holding bridging positions are more likely to

receive novel information vs. the rest of the network 2. Bridging actors more likely to receive new information

earlier than others in the network3. This leads to more power and control benefits for the

actors holding the bridge position (e.g., the brokering position)

Drawbacks of Bridging Ties1. If you do not hold the bridging

position, you may be in a weak position

You

Broker between 3 network groups

Group 1

Group 3

Group 2

Other Important Entrepreneurial Network Other Important Entrepreneurial Network Issues to ConsiderIssues to Consider

Understanding your network can help to know where network “gaps” need to be filled

To evaluate your entrepreneurial network:

1. List names of your contacts that can help with business-related issues

a) Count the number of contacts within your business network = network size

2. Next to their name, list the business functions they can help with

a) Examine the business functions listed and determine if any are missing

3. Next to the business function(s), list each contact’s relationship to you (e.g., friend, family, acquaintance)

a) Count the number of friends and family = strong ties

b) Count the number of acquaintances = weak ties

i. With which business functions do your strong ties help?

ii. With which business functions do weak ties help?

Other Important Entrepreneurial Network Other Important Entrepreneurial Network Issues to ConsiderIssues to Consider

The types of networks that are beneficial to entrepreneurs vary The types of networks that are beneficial to entrepreneurs vary during different phases of venture developmentduring different phases of venture development

Early-stages benefit from large, diverse networks Early-stages benefit from large, diverse networks

Later-stages benefit from more parsimoniously diverse networksLater-stages benefit from more parsimoniously diverse networks

Managing your network over time can impact venture performanceManaging your network over time can impact venture performance

Understanding others’ networks can help to know where they Understanding others’ networks can help to know where they can add value can add value and and where they need valuewhere they need value addedadded

Evaluate your contacts’ networks to find gaps, areas from which you can Evaluate your contacts’ networks to find gaps, areas from which you can benefit, and areas where you can helpbenefit, and areas where you can help

Creating win-win situations between network partners Creating win-win situations between network partners higher venture higher venture performanceperformance

Emerging Issues with Business NetworksEmerging Issues with Business Networks

Online Networking

www.linkedin.com: focused on professional networking

www.ryze.com: combines business and social networking

www.twitter.com: increasingly being used as a marketing tool

Cautions and Recommendations:

Employers increasingly using online social networking websites to screen candidates

Facebook.com

Myspace.com

Twitter.com

Online networking is only useful to the extent that focal actors effectively manage and utilize their network

1.1. BrainstormingBrainstorming

2.2. Focus GroupsFocus Groups

3.3. SurveysSurveys

4.4. Customer Advisory Boards Customer Advisory Boards

5.5. Day-in-the-Life ResearchDay-in-the-Life Research

6.6. IDEO Method CardsIDEO Method Cards

6 Other Techniques For Generating Ideas6 Other Techniques For Generating Ideas

Technique 1: BrainstormingTechnique 1: Brainstorming

Used to generate a large number of ideas/solutions quicklyUsed to generate a large number of ideas/solutions quickly Typically involves a group of people and is targeted to a Typically involves a group of people and is targeted to a

specific topicspecific topic Can generate more ideas than traditional meetings because Can generate more ideas than traditional meetings because

usually when an idea is suggested, the group immediately usually when an idea is suggested, the group immediately starts to evaluating itstarts to evaluating it

Rules for a brainstorming session:Rules for a brainstorming session: No criticism No criticism

Promotes people offering more ideas than they otherwise mightPromotes people offering more ideas than they otherwise might

Freewheeling is encouragedFreewheeling is encouraged The session should move quicklyThe session should move quickly Leap-frogging is encouragedLeap-frogging is encouraged

Technique 2: Focus GroupTechnique 2: Focus Group

Used for a variety of purposes—can be used to help Used for a variety of purposes—can be used to help generate new business ideasgenerate new business ideas

Gathering of 5-10 people, selected based on common Gathering of 5-10 people, selected based on common characteristics relative to the issues being discussedcharacteristics relative to the issues being discussed

Groups led by a trained moderator who tries to gain Groups led by a trained moderator who tries to gain insight into why people feel they way they do about insight into why people feel they way they do about the issuethe issue

* * Focus groups are also useful for developing and/or modifying/ researching Focus groups are also useful for developing and/or modifying/ researching business offerings once they are identified.business offerings once they are identified.

Technique 3: SurveysTechnique 3: Surveys

Method of gathering information from a sample of individualsMethod of gathering information from a sample of individuals Sample = a fraction of the population of interestSample = a fraction of the population of interest

This class is a sample of the entire UD student population andThis class is a sample of the entire UD student population and An even a smaller sample of the entire university-student population in the USAn even a smaller sample of the entire university-student population in the US

The most effective surveys select a “random” portion of the populationThe most effective surveys select a “random” portion of the population Every person in the population has the same probability of being selected to Every person in the population has the same probability of being selected to

participate in the surveyparticipate in the survey Random sampling allows us to feel more confident in the information we gatherRandom sampling allows us to feel more confident in the information we gather

This class is This class is notnot a a randomrandom sample of the UD student population sample of the UD student population If we put every UD student name in a hat a selected 30, that would be a random If we put every UD student name in a hat a selected 30, that would be a random

selection of the UD student populationselection of the UD student population If we put every university student’s name in the US in a hat and picked 100, that If we put every university student’s name in the US in a hat and picked 100, that

would be a random sample of the US university populationwould be a random sample of the US university population

Surveys can help to gain information about people’s perceptions, needs, Surveys can help to gain information about people’s perceptions, needs, and problems related to new product, service, and business ideas and problems related to new product, service, and business ideas

More on this later in the semesterMore on this later in the semester

Techniques 4, 5, and 6: Techniques 4, 5, and 6: CABs; Day-in-the–Life; and IDEO Method CardsCABs; Day-in-the–Life; and IDEO Method Cards

Customer Advisory Boards (CABs)Customer Advisory Boards (CABs) Regular meetings of a sample of a company’s customers to discuss needs, Regular meetings of a sample of a company’s customers to discuss needs,

wants, and problems wants, and problems

Day-In-The-Life ResearchDay-In-The-Life Research The employees of a company spend a day with a customerThe employees of a company spend a day with a customer

A type of anthropological researchA type of anthropological research Can watch customers using the firm’s offeringsCan watch customers using the firm’s offerings

Have to be careful of the “Hawthorne Effect”Have to be careful of the “Hawthorne Effect”

The employee can actually practice using the firm’s offerings as a customer wouldThe employee can actually practice using the firm’s offerings as a customer would

IDEO Method CardsIDEO Method Cards Each card has a picture and corresponding method for coming up with a new Each card has a picture and corresponding method for coming up with a new

idea on the backidea on the back 4 categories: learn, look, ask, and try4 categories: learn, look, ask, and try

Initial Steps for Protecting IdeasInitial Steps for Protecting Ideas

Step 1Step 1 Put idea in a tangible form (e.g., enter into a physical idea Put idea in a tangible form (e.g., enter into a physical idea

logbook or computer disk)logbook or computer disk) Include the date when the idea was first conceived Include the date when the idea was first conceived

Step 2Step 2 Secure the idea (e.g., password protect, put in safe, etc.)Secure the idea (e.g., password protect, put in safe, etc.)

Step 3Step 3 Avoid inadvertent or voluntary disclosuresAvoid inadvertent or voluntary disclosures Doing so could forfeit the right to claim exclusive rights to it Doing so could forfeit the right to claim exclusive rights to it

Other, more formal, stepsOther, more formal, steps Copyright, Trademarks, Patents, etc.Copyright, Trademarks, Patents, etc.

Discussed in more detail later in semester Discussed in more detail later in semester