Chapter 5: Entrepreneurial Management in:

Joachim H. Becker, Sven Pastoors, Ulrich Scholz, Rob van Dun

Towards Sustainable Innovation, page 105 - 130

A five step approach to sustainable change

1. Edition 2017, ISBN print: 978-3-8288-3903-8, ISBN online: 978-3-8288-6655-3,

Tectum, Baden-Baden
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101 chapter 5: entrepreneurIal ManageMent Rob van Dun Summary Entrepreneurial management is an important requirement to make innovation successful. Not only for start-ups, but also for the existing companies which want to incorporate innovation. Where a start-up may lack “the management” it needs, an existing firm needs to adopt entrepreneurship and policies and practices that enable it. Established firms need to focus on the opportunities, rather than the threats to profitability that they face. In order to do so, they have to: • View changing environments not as threat, but opportunity. • Find out about their competitors believes • Enable and support entrepreneurial employees • Shift their focus and resources towards opportunities • Perceive sustainability as an opportunity With regard to the structure of the company, existing firms face two major challenges: To separate the new from the old and its responsibility for innovation. 102 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation Start-ups face completely different challenges, they need to manage their innovativeness and create sustainable ideas, business plans and the company that is needed to bring an innovation to the market. The challenges pertaining to start-ups include: • Validation of the idea to provide value • Defining of the business model • Focus on the market, rather than technology or the initial idea • Human resource management to ensure they have enough personnel to facilitate fast growth • Financial funding to keep things going 5.1 The significance of entrepreneurial management Entrepreneurial management is one of the most important requirements to make innovation successful. Not only for the new venture, but also for the existing business that wants to incorporate systematic innovation. Where a new venture lacks “the management” it does need, an existing business needs to adopt entrepreneurship as well as policies and practices that enable it. In academic literature, there is a lot of debate about what entrepreneurship entails, raising the question what an entrepreneur than is. Although this is an interesting debate, we use Kuratko’s (2009, page) definition of the entrepreneur: “an innovator or developer who recognizes and seizes opportunities; converts these opportunities into workable/marketable ideas; adds value through time, effort, money or skills (…)” (Kuratko, 2009, p. 4). Arguably, this definition on the one hand excludes those individuals who set up their own firms as a means to be more flexible or self-employed, rather than doing anything new or innovative. On the other hand, however, this definition leaves room for what is often called intrapreneurship (i.e. entrepreneurship within an existing firm), which is gaining popularity (Duncan et al., 1988, p16-21). Moreover, this definition explains that 103 Chapter 5: Entrepreneurial Management innovation and entrepreneurship are closely related topics, since entrepreneurs apply innovation as a tool to do something different in order to be successful. Entrepreneurs that set up new businesses obviously need to do something innovative, whether that is providing new products or services, finding new ways how to market them or a new way of organisation that adds value. They have to stand out from the rest in order to be able to compete. They cannot be considered to be one of the many. For that, they need to innovate. Once they have done so, they need to learn how to manage their new businesses. Entrepreneurship requires the capacity and willingness to develop, organize and manage a business venture along with any of its risks in order to make a profit. Entrepreneurship is not exclusively required of the entrepreneur or start-up companies, but of any organisation that aims at innovation. In line with Drucker, entrepreneurship will be defined as the systematic search for opportunities and exploitation of innovations to create value and economic growth and the management of all the challenges that occur throughout this process (Drucker, 1985, p143). As a result, entrepreneurial management than “involves the specific management behaviours which entrepreneurs must engage in, in order to drive the market process and produce innovation” (Stokes, D. & Wilson, N. 2010, p34). As mentioned earlier, this applies for both new and existing companies, although they face completely different challenges. 5.2 Managing an existing firm The existing firm, and in particular a very successful one, typically struggles to become or sometimes remain innovative. The managers of companies such as Nokia and Motorola where not asleep at the switch when Apple produced the first smartphone, they simply 104 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation did not recognize that customers might actually desire such a phone, and believed that their tried-and-true technology was superior to that of Steve Jobs’ firm. Both firms had in common that they were the leading companies in respectively the European and American market. They already produced phones that had access to the internet (e.g. Nokia’s WAP), and seemed to know everything about their customers. But why did they fail? And, why specifically these two renowned and leading firms? Companies that are successful “know” the rules of an industry and understand what their customers require. They have internalized some cause-and-effect relationships, which always occurred in the past, which constitute their reality about their industry and business. They know which button to press in order to gain market share, they seem to know everything. Until their reality is shattered… Sometimes companies seem unable to adapt new policies and practices when the environment they operate in changes. Instead, they copy what made them successful in the past. That might work for a while. But in rapidly changing environments (such as the mobile phone industry), copy-pasting what made a firm successful in the past might not be effective on the long-run. What was successful in the past might no longer work. Unable to adapt to the changing environment and with management pressing the same buttons, they are quickly replaced by those companies that are more reactive, that are capable of understanding the new rules and how this influences their reality. That is why it is so hard to stay number 1. Ask any sports coach how hard it is to win back-to-back championships, tournaments or trophies. Only the best in their game are able to do this, at the expense of hard work and adapting to changes in the environment. As the reigning champion, you are the one to beat and everyone else is trying to achieve just that. 105 Chapter 5: Entrepreneurial Management Additionally, firms can develop managerial inertia: the phenomenon whereby managers fail to update and revise their understanding of a situation when that situation changes, a phenomenon that acts as a psychological barrier to organizational change. (Huff et al., 1992, p55-75) Such failure to revise their “law of nature” leaves even the most successful managers vulnerable to failure. Hence, change is key for any firm to prevent this phenomenon and closely scan their environment for changes that affect their business. Thus, the existing firm needs more entrepreneurship, managers and employees that are willing to accept change and seek out opportunities to cope with this. In order to remain or become entrepreneurial, existing companies have to confront their business-as-usual and to be willing to change. Fortunately, though, even those who are not natural entrepreneurs and risk-seeking adventure junkies can learn entrepreneurial management. For the typical manager or employee, however, this means facing a couple of tough challenges. To academics who want to study literature on entrepreneurial management, most notable are the original works of Peter Drucker (1985), who defines 4 major challenges, as well as Robert Hisrich, Michael Peters and Dean Shepherd (1998), who establish similar but slightly different barriers for success. The following challenges combine both Drucker’s and Hisrich’s work. 5.2.1 change, hit the ground running Most of us simply don’t like changes, both in our personal and professional lives. As a result, we try to avoid it as much as we can. And who may blame us? After all, it makes perfect sense not to be willing to even perceive and accept changes. Changes poses all sorts of threats as we feel unequipped to deal with new situations. For our ancestors, change meant having to deal with new environments, different predators and creepy crawlies that were either edible or poisonous. In similar fashion, when our (business) environment changes, we have to deal with new players and to learn new things. The 106 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation scariest of all is not being able to continue business-as-usual because the context has changed. This changing context, however, is exactly the reason why companies need to adopt change and create mechanisms to cope with it. Here follow some: 1. Be eager to innovate: This requires acceptance of change as a stable, not an exception to the rule. Provide incentives for managers and employees to look out for new opportunities and spend their time working on new ways to solve existing problems. Google, for example, gives its engineers time to spend time on passion projects that creates unforeseen ideas and technologies they might want to introduce later. 2. Stop focusing on products and business units that no longer sell: When products reach the peak (or maturity phase) of their respective product life cycle it is time to stop focusing on them. They are bringing loads of money already. Rather than making drastic changes to those products, focus on building operational excellence through close cooperation with your customers. Use this cooperation to obtain feedback as to make your own product obsolete. Spend your research and development (R&D) budget on new products or services. The same goes for complete business units or product lines for which demand is declining. Rather than spending all of your energy on solving the problems of existing products, you should focus on opportunities. 3. Share success stories: According to Drucker (1985), the unexpected success can be made transparent when it is discussed during management or team meetings. Instead of focusing on the problems that need to be solved in the short run, discuss the (unexpected) successes. Reward managers and employees that innovate. Make innovation and innovative output part of the management information or key performance indicators that are discussed during those meetings. The main goal of all this is to shift the focus from problem or threat towards embracing change. 107 Chapter 5: Entrepreneurial Management 4. Make someone responsible for innovation high-up. Appoint a Chief Innovation Officer that oversees all things innovative for many departments. He or she has to ensure that the division management gives the employees time and money to develop new ideas. 5. Get rid of your arrogance: Even if you believe that you know what’s best, don’t underestimate the power of trends. Small competitors that all of a sudden start doing something completely different might not desperate, but could have spotted developments that you simply haven’t seen yet. Study the reasons why they are acting differently. The same goes for new players that enter your industry or market. What do they do differently? Focus on the assumptions that underlie their products/services and find out which tidal wave they could be riding. Simply because you are bigger or better at the moment does not mean you will be in the future. Ask Nokia, Motorola and BlackBerry employees what happened to their companies (fun fact: BlackBerry is headquartered in Waterloo18, Canada) 6. Measure innovative performance: Set up key performance indicators (KPIs) with a strong focus on innovative output. How much of your sales are generated by newly introduced products? How much of your revenue is spent on R&D and how does that compare to your competitors or the industry average? Which new products/services exceed expectations? Using these KPIs will direct your focus towards innovative output, expose unexpected successes and failures, and creates a sense of urgency. 18 Waterloo, a city in present-day Belgium, is mostly known for Napoleon Bonaparte’s defeat on 18 June 1815 108 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation All of the measures above have one common goal: adopt and embrace change. By implementing some of these measures you force employees to think long-term. Installing policies and practices that provide incentives to innovate should propel your company forwards. Don’t be scared to make drastic decisions. Realigning your business with the changing environment is of paramount importance if you want to be successful not only now, but also in the future. Take Dutch technology giant Philips as an example. They analysed that in two of their at-the-time most important business units (Consumer Electronics and Lighting) they were not as competitive as before. This was largely due to the fact that these technologies were relatively old, attracting many low-cost and commoditizing competitors from South East Asia. As a result, they expected the financial performance of these divisions to decrease in the coming years. Although Philips had traditionally always made lighting products and consumer electronics products (mostly notably radios, TVs, CDs et cetera), they knew that they had to sell these divisions they were not so competitive in any more, and focus on their relatively new but more innovative and promising Healthcare and Consumer Lifestyle divisions. This massive change required Philips to redefine their purpose and markets. It completely changed everything they did. They would not have done this if it would not have been absolutely necessary. However, they understand perfectly well which division or products would no longer sell in the future. As the Philips example illustrates, when companies are willing to perceive and adopt change, they will hit the ground running. 5.2.2 from Threat to opportunity One of the most harmful threats to entrepreneurship is having a risk-averse corporate culture. Most managers focus on ad-hoc decision making, minimizing risks and putting out all sorts of fires. All 109 Chapter 5: Entrepreneurial Management of this screams short-term, often at the expense of recognizing and seizing long-term opportunities. 1. View changing environments not as threat, but as opportunity: Changes to the status quo of business are often solely perceived as a threat, but it only is that if you are unable to change. Key to your success is the ability to understand these changes in an early change and not get surprised by them. If you accept that changes are happening (both in the external and internal environment), you can pre-empt those changes by figuring out how they can work in your advantage. This, obviously, requires a good understanding of where major changes happen (see chapter 4 Systematic Innovation). Continuously ask yourself what major trends you are able to recognize and what this means for your business specifically. Find out where there is a silver lining to be found. Can you use new technologies to enter new markets? Can demographic changes help you find new target groups? 2. Find out about competitors’ believes: Competition surely poses a threat in terms of your firm’s profitability. You need to watch them closely and figure out what they are doing, but more importantly where they are going. If all of a sudden they change directions or develop new products, which you consider questionable, you have to ask yourself why they changed. They may have a very good reason for that. Perhaps, they have recognized trends and developments that you are not aware of. What’s an opportunity for them could be an opportunity for you as well. So, figure out what it is. 3. Enable and support entrepreneurial employees: Your own employees can be a tremendously valuable source for creative solutions and new ideas. Opportunities are not visible to all of us simultaneously as they are largely dependent on people’s backgrounds and experience. (Shane, 2000, p.) That means that every employee might see different opportunities. Don’t judge their ideas, yet. The fact that you don’t understand it, see the same opportunity, or acknowledge the relevance does not mean that they are wrong at all. Instead, encourage them to think outside of the box, combine their prior knowledge with new ideas. After all, 3M executives might not have understood in the beginning when one of their employees explained the Post-It to them. 110 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation 4. Shift focus and resources towards opportunities: As explained with the example of Philips earlier, redirect your focus and resources to areas where you are able to excel and are innovative. If you want to be successful in the future, you need to make sure that you make your own product obsolete. In other words, you need to develop a product that will be the successor of your current product. 5. See sustainability as an opportunity. So, sustainability is this megatrend, but what does this mean to us? It means that we will have to integrate sustainability in all our decisions. That’s not a bad thing, at all. In their article “Why Sustainability Is Now the Key Driver of Innovation” (2009, page) Nidumolu, Prahalad and Rangaswami explain that sustainability provides plenty of opportunities to increase profitability by closely focusing on the supply chain, staying ahead of strict environmental legislation, finding new target groups for green products and services, and discovering new business models to provide value to your customers. All of this with the underlying goal of “doing well by doing good”. The article defines different stages in which companies can introduce sustainable innovations for future success. In doing so, the authors argue that sustainability and increased legislation should not be seen as a threat, but rather as an opportunity for companies to improve their operations and profitability in the long-run. 5.2.3 Management structure Managing for opportunities is something completely different than managing for risk reduction. As such, it requires a different structure, as the rules of the game are wildly different. Although the intensions are good and companies are leaning towards embracing change and opportunities, they need to think of how to set up their company for innovation. Most companies are structured too bureaucratically to act fast, where so many managers have to decide whether a new idea is any good or not. Before the final go is then given (the “green light”), costly time has already vaporised if given at all. In start-up world, this green 111 Chapter 5: Entrepreneurial Management light mentality of waiting for an approval is not commonly seen. Instead, they start taking initiative until some tells them to stop, or, in other words, they receive a red-light signal. The key difference being that ideas are generated faster and no additional restrictions (e.g. return-on-invest metrics) are in place. This is only one key difference between start-up firms and more mature firms, but it plays an important role in the innovative output of those firms. This leads existing companies to not react to changes in the environment as quickly as they should and hanging on to business as usual too much. In doing so, they miss opportunities that are typically seized by newer, smaller companies that act faster and more agile. In essence, this negatively affects the innovation output of those firms simply as not everyone sees the same opportunities, resulting in many possible good ideas to be shut down before they can be proven to work. When Steve Jobs was still the CEO of Apple Inc., he understood the need for agility and the need to focus on only a few things at a time. This was an entrepreneurial characteristic that is very uncommon among more mature firms, especially the ones with the size of Apple. It allowed Apple to create disruptive innovations and create completely new industries, which traditionally were only done by startup companies. It’s exactly the agility of start-ups and the rapid decision-making that more mature companies lack. They manage, but are to slow to innovate. They seem to focus on too many (and not so important) things at the same time. Separate the new from the old As the rules for the “new” ideas are so different from doing business as usual, Peter Drucker (1985, page) suggests a strict separation from those areas with the organization. That means that the existing firms needs to set up teams or departments that have more freedom, are less bureaucratic and sometimes even isolated from the rest of the company. A good example of this is Apple’s organizational struc- 112 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation ture. In an effort to illustrate this, Horace Dediu of Asymco has separated the functional areas into sustain and disrupt (along Clayton Christensen’s theory of disruptive innovation). In essence, this enables half of Apple (i.e. the disruptive part of the organization) to act similar to a massive start-up company without many of the constraints the typical more mature firm has. An additional advantage of this is that new innovations should not be measured along the same metrics as older products or services; return-on-investment is, for instance, a poor instrument to assess whether an innovation should be marketed or not as the new innovation typically is undervalued at first. Figure 5.1: Apple’s organizational structure according to Horace Dediu Source: Dediu, 2013. 113 Chapter 5: Entrepreneurial Management Responsibility for innovation It is essential for an existing company to make someone high up in the company responsible for innovation. Within the existing business, this person should oversee where innovation is needed and setting up the organizational structure, set up the policies that enable opportunity seeking and willingness to change. This person (e.g. the Chief Innovation Officer) can compare company’s total innovative performance with company’s innovative objectives. Thus, he may develop a systematic review of innovative efforts to see what still needs improvement. It was Steve Jobs himself who was responsible for all innovation things at Apple. Being the CEO, this enabled him to steer the entire organization the direction he wanted. Everything important went through him and he believed his chief responsibility to be making new ideas work. According to insiders, over ninety per cent of all Apple employees had never met Jobs in person. Instead, Jobs often met with only 100 of the employees, the so-called Top-100 with whom he discussed strategy and used as a managerial tool as discussed in the following example. Entrepreneurial Management Steve Jobs style One of Apple‘s greatest strengths is its ability to focus on just a few things at a time, an entrepreneurial trait difficult to imagine at a corporation with a market value of $320 billion. Saying no at Apple is as important as saying yes. “Over and over Steve talks about the power of picking the things you don’t do,” says one recently departed executive. Obvious? Perhaps. Yet few companies Apple‘s size – and very few of any size – are able to focus so well and for so long. Jobs himself is the glue that holds this unique approach together. Yet his methods have produced an organization that mirrors his thoughts when – and this is important – Jobs isn’t specifically involved. Says one former insider: “You can ask anyone in the company what Steve wants and you’ll get an answer, even if 90% of them have never met Steve.” 114 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation No decision-maker at Apple is far removed from Steve Jobs. Through his tight-knit and largely long-serving executive team, Jobs quickly sees everything that goes on at the company. He also routinely reaches outside these inner and outer circles to collaborate on critical projects with key employees. This organization chart, which includes most but not all Apple executive officers, is based on Fortune’s reporting, in addition to some limited information Apple releases publicly. There is a small group at Apple that most certainly has met Steve Jobs. It’s called the Top 100, and every year or so Jobs gathers these select few for an intense three-day strategy session at a proverbially secure, undisclosed location. Everything about this Top 100 meeting is shrouded in secrecy, starting with its very existence. Those tapped to attend are encouraged not to put the meeting on their calendars. Discussing their participation is a no-no, even internally. Attendees aren’t allowed to drive themselves to the gathering. Instead they ride buses that depart from Apple‘s Cupertino, Calif., headquarters to places like the sumptuous Chaminade Resort & Spa in Santa Cruz, Calif., which satisfies two Jobs requirements: good food and no golf course. Apple goes so far as to have the meeting rooms swept for electronic bugs to stymie snooping competitors. The Top 100 meeting is an important managerial tool for Jobs. He and his chief lieutenants use it to inform a supremely influential group about where Apple is headed. The elaborately staged event also gives Jobs an opportunity to share his grand vision with Apple‘s next generation of leaders. The Top 100 meeting is part strategic offsite, part legacy-building exercise. Jobs generally kicks things off personally. Each session is as wellcrafted as the public product debuts for which the CEO is so famous. For presenters, the career stakes are high, and the pressure is nerveracking. “The Top 100 was a horrifying experience for 10 or so people,” recalls one former vice president, who took the stage some years ago. “For the other 90 it’s the best few days of their life.” Jobs sometimes uses the occasion to unveil important initiatives. “I was at a Top 100 when Steve showed us the iPod,” says Mike Janes, who 115 Chapter 5: Entrepreneurial Management worked at Apple from 1998 to 2003 and remains close to Apple executives. “Apart from a tiny group, no one knew anything about it.” To be selected for the Top 100 is to be anointed by Jobs, an honour not necessarily based on rank. Jobs referred to the group, but not the conclave, in an interview several years ago with Fortune. “My job is to work with sort of the Top 100 people,” he said. “That doesn’t mean they’re all vice presidents. Some of them are just key individual contributors. So, when a good idea comes … part of my job is to move it around [and] … get ideas moving among that group of 100 people.” Privately Jobs has spoken even more strongly about the Top 100’s importance. “If he had to recreate the company, these are the 100 people he’d bring along” is how one former Apple executive describes Jobs’ characterization. Source: Fortune, 2011. The Apple example illustrates that the successful mature and existing firm needs to make someone responsible and accountable for the innovative performance. Essentially, they have to act more like an entrepreneurial start-up then they are used to. In order for them to learn entrepreneurial management, they have to become entrepreneurial. That requires a completely different set-up of functions, a different corporate culture and someone with enough leadership qualities to guide it in the right direction. The bottom-line is that the company is open to opportunities and willing to adapt quickly to changes in the environment. 5.3 Managing start-ups The management of start-ups has received lots of attention among academics, but also battle-hardened entrepreneurs who have shared their experiences and wisdom with fellow entrepreneurs looking to successfully start-up their own company. Some of the most important findings and challenges specifically for those who are aspiring 116 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation to start-up their own company and manage it for success, are discussed within this section. New and inherently entrepreneurial start-ups have a completely different challenge than those experienced by existing firms. Rather than learning entrepreneurship, they need to learn management. They are very innovative, but need to think ahead too. New ventures need to focus on four major management tasks: 1. The idea 2. Focus on the market 3. Human resources 4. Funding 5.3.1 The idea Quite possibly, the “idea” itself is not the most important aspect for entrepreneurial start-ups. Obviously, the initial idea needs to be good as to be able to start working on it, but it is far from absolute. Very often, the initial idea is only a mere direction, and needs to be tested and changed along the way. The initial ideas behind even some of the most successful start-ups were very different than what made them successful. YouTube, for example, was meant to be a dating website, but the founders found out that sharing videos was actually what their target group found far more interesting. Twitter, now famous for having 140 characters in which their users can write short messages, started out as a SMS service for friends (i.e. when a user sends one SMS to a single friend, the service itself would distribute the same message to a number of different other friends). In short, entrepreneurs might have an idea, but that needs to be finetuned, beta-tested, or changed according to the needs of the intended customers or users. Essential for creativity, and in similar fashion for idea generation, is prior knowledge. In fact, creativity is only possible with knowledge. Looking at the world of start-ups (and specifically in high- 117 Chapter 5: Entrepreneurial Management tech), many founders of new businesses are employees and/or industry experts that have been able to link their prior knowledge about technologies/products to new opportunities. Shane (2000, page) describes how prior knowledge allows experts or the ones holding the knowledge to spot different opportunities in the discovery process. He describes how 8 former MIT scientists that were involved in the invention of three-dimensional printing became entrepreneurs, as they were able to relate this cutting-edge technology with their understanding of how the markets work, how to serve them, and in which ways the technology can be used. These 8 entrepreneurs saw very different opportunities, merely based on their own prior knowledge. The Post-It (the brand name for 3M’s sticky note) was conceived in similar fashion. The Post-It Story Dr. Spencer Silver, a 3M scientist, was busily researching superstrong adhesives in the laboratory. In the process, he discovered something peculiar: an adhesive that stuck lightly to surfaces but didn’t bond tightly to them. Not entirely what he was looking for initially, but still something that could be valuable, he thought. “It was part of my job as a researcher to develop new adhesives, and at that time we wanted to develop bigger, stronger, tougher adhesives,” said Silver. “This was none of those.” What Silver discovered was something called microspheres, which retain their stickiness, but with a “removability characteristic,” allowing attached surfaces to peel apart easily. For years, Silver struggled to find a use for his invention. But that didn’t keep him from touting the merits of his creation to colleagues. “I came to be known as Mr. Persistent because I wouldn’t give up.” Meanwhile, Art Fry, another 3M scientist, was frustrated. Every Wednesday night while practicing with his church choir, he would use little scraps of paper to mark the hymns they were going to sing in the upcoming service. By Sunday, he’d find that they’d all fallen out of the hymnal. He needed a bookmark that would stick to the paper without damaging the 118 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation pages. Thinking back to a seminar he’d attended on Silver’s microspheres, he had what he now refers to as his eureka moment. “The one where you get the adrenaline rush.” Partnering with Silver, they began developing a product. Once they found themselves writing messages on their new notes to communicate around the office, they realized the full potential of the idea. “I thought, what we have here isn’t just a bookmark,” said Fry. “It’s a whole new way to communicate.” Fry decided to make 3M corporate headquarters his proving ground and supplied the entire company with the new adhesive notes. Employees immediately loved them. 3M decided to start marketing these sticky notes and the rest is history, making the Post-It one of 3Ms most successful brands. Source: contact-us/about-us/ These examples illustrate that the discovery of opportunities is very often based on applying existing knowledge to new situations. This knowledge enables individuals to see opportunities that others don’t see. That’s why so many entrepreneurs leave their jobs and start their own businesses, in the same industry, using similar technologies but for different audiences, brought to the market in different ways or having different usability. An increasingly popular means to visualize all the assumptions behind the idea, is a business model canvas, which is a strategic management and entrepreneurial tool (Osterwalder, 2004). It allows the innovator or start-up to describe, design, challenge and invent their business model. It is not wordy, not too specific and not set in stone. Instead, many start-ups might use only one A3 sized paper sheet and put sticky notes in the designated areas (sticky notes, as they need to be changed constantly). Find an example of such a canvas below. It might sound repetitive by now, but it needs to be stressed again. The idea should be rather flexible, that’s why sticky notes are used. The successful entrepreneur and innovator seeks feedback from the 119 Chapter 5: Entrepreneurial Management market, staples himself to the customer and adopt a market focus. The business plan, or in this case business model canvas, is a result of this. Figure 5.2: The Business Model Canvas. Source: Gambier, 2015. 5.3.2 focus on the market If the idea is not set in stone, entrepreneurs need to realize that they need to bring their ideas to the market, at some point. That means, having to deal with critique, feedback and perhaps realizing the intended target group simply does not accept this new idea. It might even be too novel, too sophisticated; the potential customers simply don’t understand the innovation, or don’t see uses for it. If the idea itself is too genius, it might be hard to sell it. Too often do engineers, programmers and high-tech innovators focus on creating a very sophisticated product or service. But customers care whether they see a use for a product. They generally don’t care about sophistication 120 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation (perhaps some hard-core nerds and likeminded tech-savvy individuals being an exception to the rule). These innovations struggle to make it to the mass market, and only some early adopters might buy these products. In marketing and innovation, this notion is being referred to as the inability to cross the chasm (Moore, 1991, page) as explained below. Crossing the chasm means to market and sell products not only to some early adopters, but to mainstream customers. This often is a real struggle for start-ups firms. Figure 5.3: Crossing the Chasm Source: Moore, 1991. Tech enthusiasts and visionaries might be willing to try something new and sophisticated, but the mainstream market typically doesn’t. The Linux operating system was found to be far better and more stable than the former, but the latter customer groups simply found it too hard, with the interface being everything but user-friendly. Instead, they preferred Microsoft Windows, which might not have been as sophisticated or stable, but much easier to use for those mil- 121 Chapter 5: Entrepreneurial Management lions of people using it. Another example is that of the Segway Personal Transporter. Although almost everyone in the Silicon Valley believed this product to be the next big thing, it failed to meet their expectations miserably. The balancing of this battery-powered electric vehicle was so genius that all the tech enthusiasts and experts expected sales to skyrocket quickly. Steve Jobs once said that it would be “as big as the PC”, and world-famous venture capitalist John Doerr deemed the Segway to be more important than the internet (source). But, unaware of this, consumers did not want to buy one, as they didn’t see it being useful. Instead, you might see some tourists operating there on guided city-tours, but they are not common-sight as was expected. Genius engineering, but not carefully adopted to the market. Segway, in turn, have started turning things around when they introduced its Hoverboards, which are a success among teenagers and young adults. Entrepreneurs that do not want to make the same mistake really have to adopt a market-focus. They need to staple themselves to their potential customers and get as much feedback as they can, checking whether the assumptions behind the idea hold true. Innovation is perceptional, meaning that the innovators have to get out of their offices and take it to the street and get as much feedback as they can. In the end, “businesses are not paid to reform customers, they are paid to satisfy them”. (Drucker, 1985). Remember, the initial idea is not cast-in-stone yet, it needs to be tested and checked. Your customers are a valuable information source, collect as much feedback as possible and change the idea where needed. So, focus on the market and develop the idea according to what is needed there, what customers value, rather than what you believe to be valuable or quality. 122 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation 5.3.3 human resources Attracting quality personnel, in time, is perhaps one of the biggest challenges for any business, including start-ups. Typically, costs need to be kept to a minimum as there always will be a lack of funds in the beginning. Yet, the entrepreneur simply cannot do everything by himself, nor should he or she want this. At some point, additional personnel needs to be recruited. But not all individuals are willing to work for a start-up as it is almost by definition hectic, a lot of hard work and requires a level of flexibility not often wanted. Quality personnel might be hard to find, but the entrepreneur needs to go out of his or her way look for them, and get them enthusiast. There is simply too much to do, the founder needs to spend the time wisely, focusing on core activities and not getting lost in the details. Some start-ups that are successful will grow very fast, sometimes by 400% in only a couple of months or a year. That means the founder need to think of whom to recruit and select, based on what qualities or skills? There is no textbook cookie-cutterstandard approach to this, so the entrepreneur needs to base much of it on intuition, but should also look for individuals that have experience with start-ups and have a proven track record. Those may be rewarded in salaries, or even equity in the firm. The bottom-line is, starting to hire others might be daunting at first, and probably the entrepreneur should have started doing this before it is even realized. The message here being: just do it! But do not go berserk with the funds available. 5.3.4 financing Financing is probably required in an earlier stage, i.e. if the founder(s) are not able or willing to finance all previous “steps” themselves. As a result, financing typically is among the top priorities of the founder/ innovator, as they need funds to keep things going. Sometimes a little, sometimes a lot, but the ground rule is that the more successful the start-up the more money is needed to keep hiring and expand- 123 Chapter 5: Entrepreneurial Management ing operations, which is almost a paradox. The financing of start-ups is typically done in various rounds or stages. At the very beginning of the start-up, the Family, Friends and Fools (or Founder) (FFF) typically provide the necessary funds to start things up. They are among the first to believe in the new ideas of the people they love. If you are opting for any of these three F’s, please treat them as any other investors, meaning drawing up an official agreement and ask for a specific amount that should enable reaching specific milestones. Gullible grandparents, loving aunts should be omitted, unless they know the risks up frond, can afford losing the money and are business-wise enough to understand what’s going on. Angel investors (i.e. successful businessmen and entrepreneurs who are keen on helping others out in the earliest stages) might be able to lend a helping hand too. These are all forms of seed capital, meaning that those external investors will get an equity stake in the firm in exchange for their investments. Nowadays, additional funding might come from incubators and crowd funding. Be aware of any (local) governmental grants and competitions/challenges for start-ups or innovation too! During later stages, the first rounds of venture capital financing will commence, where additional external financing will be obtained. Often, this is referred to as a Series A round, which is the name for a start-up’s first significant investment round where venture capitalists can obtain preferred stock, typical after FFFs and angel investors have obtained common stock. When successful for a while, the start-up company (that is now a small- to medium-sized enterprise) can opt for an initial public offering (IPO) or an exit (e.g. selling the company for a profit to investors and or larger organizations). N.B. Giving out equity in return for investments is a risky feat. As external investors acquire more and more equity in the founder’s company, so will they increase their importance and influence. Be careful about the selling of equity to those who might not have the same 124 Pastoors · Scholz · Becker · van Dun: Towards Sustainable Innovation objective. Even FFFs, let alone venture capitalists, might force the entrepreneur/founder to do things he or she might not have done otherwise. Training questions: 1. Explain, in your own words, why both the existing firm and start-ups need to learn entrepreneurial management to become successful innovators. 2. Why is it important for existing firms to view changes in the environment as an opportunity? 3. Why is the Business Model Canvas an important and popular tool for entrepreneurs? 4. Explain why innovators need to focus on the market, rather than on the products they want to innovate. Recommended literature Christensen, Clayton (2011). The Innovator’s Dilemma: The Revolutionary Book That Will Change the Way You Do Business, �New York. Duncan, W.J./Ginter, P.M./Rucks, A.C.;/Jacobs, T.D. (1988): Intrapreneurship and the reinvention of the corporation, in: Business Horizons, 31(3), p. 16-21. Gassmann, Oliver/Frankenberger, Karolin/Csik, Michaela (2015): The Business Model Navigator: 55 Models that will revolutionise your business, St. Gallen. Hisrich, Robert/Peters, Michael/Shepherd, Dean (1998): Entrepreneurship, Boston. 125 Chapter 5: Entrepreneurial Management Huff, J.O./Huff, A.S./Thomas, H. (1992): Strategic Renewal and the Interaction of Cumulative Stress and Inertia, in: Strategic Management Journal. 13, p. 55–75. Nidumolu, R./Prahalad, C.K./Rangaswami, M.R. (2009): Why sustainability is now a key driver of innovation, in: Harvard Business Review, 87(9): 57-64. Osterwalder, Alexander/Pigneur, Yves/Smith, Alan (2010): Business Model Generation, Hoboken (NJ). Ries, Eric (2011): The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, New York. Internet resources Dedio, Horace (2013): Apple’s organizational structure, online: Fortune (2011): Entrepreneurial Management: Steve Jobs style, online: Gambier Gigaflops (2015): The Business Model Canvas, online: Philips (2016): Royal Dutch Philips’ strategic goals, online: http:// page

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With sustainability having gained a lot of momentum over the last years and companies implementing strategies to create corporate sustainability, there are lots of opportunities for innovation. Thus, the two concepts of sustainability and innovation should not be considered separately – they are closely interlinked with one another. The main goal of sustainable innovation is to develop new products and technologies that have a positive impact on the company’s triple-bottom-line. To meet this aim, they have to be ecologically and economically beneficial as well as socially balanced.

In order to help companies to improve their sustainable innovation process practically, this book is structured into five possible phases of a sustainable innovation process:

Awareness of a sustainability problem

Identification & Definition of the problem

Ideation & Evaluation of the solutions

Testing & Enrichment of the solutions

Implementation of the solutions & Green Marketing