Business Emergence

B Balanced Organizational Learning Benchmarking ▶ Ambidexterity ▶ Model for Managing Intangibility of Organizational Creativity: Management Innovation Index Bankruptcy Biblical Principles of Business ▶ Firm Failure and Exit ▶ Church and Entrepreneurship Basic Dimensions of Democracy Biologic Agents ▶ Quality of Democracy and Innovation ▶ Translational Medicine and the Transformation of the Drug Development Process Basic Science Black Belts ▶ Translational Medicine and the Transformation of the Drug Development Process ▶ Six Sigma Bench to Bedside ▶ Translational Medicine and the Transformation of the Drug Development Process Blind-Variation and SelectiveRetention Theories of Scientific Discovery ▶ Scientific Creativity as Combinatorial Process E.G. Carayannis (ed.), Encyclopedia of Creativity, Invention, Innovation, and Entrepreneurship, DOI 10.1007/978-1-4614-3858-8, # Springer Science+Business Media LLC 2013 B 138 Boom and Bust ▶ Business Cycles Bootstrap Transaction ▶ Entrepreneurship and Financial Markets Brain Science ▶ In Search of Cognitive Foundations of Creativity Brainstorming Boom and Bust a brainstorming session. There are three kinds of brainstorming: verbal brainstorming, nominal brainstorming, and electronic brainstorming. Verbal brainstorming refers to brainstorming sessions where group members verbally express ideas one at a time. Nominal brainstorming refers to brainstorming sessions where group members generate ideas individually without communicating with other members of the group. Electronic brainstorming refers to brainstorming sessions where group members generate ideas simultaneously. An invention means highly advanced creation of ideas utilizing the principles of the domain subject. Brainstorming is one of the creativity techniques for idea generations and an invention such as a better product, a new process, or a useful cultural innovation. A joint invention can be obtained through brainstorming sessions. A joint invention is an invention which is made cooperatively by two or more people who provided activities necessary to form the invention. ▶ Ideas and Ideation Theoretical Background and OpenEnded Issues Brainstorming and Invention Aytac Gogus BAGEM, Center for Individual and Academic Development, Sabanci University, Istanbul, Turkey Synonyms Idea generation Definitions Brainstorming means using the brain to storm a creative explanation for an issue (Gogus 2012). Brainstorming is a method of generating ideas, clarifications, and solutions; therefore, there is a strong connection between brainstorming productivity and domain learning (Gogus 2012). Brainstorming is a group activity to propose ideas and then discuss them as Brainstorming as a Method for Improving the Creativity of Groups According to Baruah and Paulus (2008), “the brainstorming technique was first popularized by Alex Osborn (1953, rev. 1957, rev. 1963), an advertising executive, who suggested brainstorming as a technique with the following four specific components to creative ideas: 1. Criticism is ruled out. Adverse judgment of ideas must be withheld until later. 2. “Free-wheeling” is welcomed. The wilder the idea, the better; it is easier to tame down than to think up. 3. Quantity is wanted. The greater the number of ideas, the more the likelihood of useful ideas (generated). 4. Combination and improvement are sought. In addition to contributing ideas of their own, participants should suggest how ideas of others can be turned into better ideas; or how two or more ideas can be joined into still another idea” (Osborn 1963, p.156). Brainstorming and Invention Osborn (1963) claimed that face-to-face groups that verbally exchange ideas should perform better than same number of individual brainstormers who work alone on the same problem since face-to-face group should be able to benefit from the diverse perspectives and abilities of their group members by cognitively stimulating each other to generate many ideas (Baruah and Paulus 2008; Osborn 1963). In addition, there are social and cognitive factors that lead to increased production gains in group brainstorming such as increased accountability, competition, upward comparison, and social and cognitive stimulation (Baruah and Paulus 2008; Dugosh and Paulus 2005). Brainstorming as an Approach to Creative Idea Generation and Invention of Ideas Brainstorming is an approach to creative idea generation and invention of ideas and technologies. On creative idea generation literature, idea quality is usually defined as a combination of originality (new or unusual) and feasibility (useful or practicability in implementation). Brainstorming allows generating ideas, sharing ideas, and establishing connections between ideas by analyzing, synthesizing, and evaluating, and thus participating in formation of an invention. A joint invention can be obtained through brainstorming sessions. Brainstorming groups may form an invention by using objective aspects of a joint invention through subjective engagement among participants (Kageyama 2010). Inventor and Formation of an Invention The person who was involved in distinctive structural elements and contributed to either “establishment of a model” or “the conception based on a principle” should be recognized as the inventor (Kageyama 2010). The purpose of invention is commonly referred to as the problem to be solved and stages of formation of an invention are (Kageyama 2010): 1. Conception 1.1. Mere intuition 1.2. Conception based on a principle 2. Embodiment of conception 2.1. Establishment of a model 139 B 2.2. Experiments/calculation 2.3. Modification of model 2.4. Completion by repeating process from 2.1 to 2.3 B Invention as Knowledge Transformers Some of the discoveries and inventions may be explained in terms of knowledge transformers. The knowledge transformers, like the knowledge generation transmutations, change the logical content of the input knowledge through the inference process of deduction, induction, or analogy (Sim and Duffy 2004). Sim and Duffy (2004) argued that it is reasonable to suggest that these knowledge transformers provide the basis to model the types of learning in design. The seven pairs of knowledge transformers are: 1. Abstraction/detailing 2. Association/disassociation 3. Derivations/reformulation/randomization 4. Explanation/discovery 5. Group rationalization/or clustering/decomposition/ungroup 6. Generalization/specialization 7. Similarity comparison/dissimilarity comparison The investigation shows that there is some evidence to show that the creative process can be explained through knowledge transformers (Sim and Duffy 2004). Nominal Brainstorming Versus Verbal Brainstorming Evidence from numerous studies in social psychology and group psychology has shown that groups generate better ideas and higher quality with nominal brainstorming than with verbal brainstorming (Barki and Pinsonneault 2001). Three major categories of barriers explain the improved performance of nominal brainstorming groups over verbal brainstorming groups as below: • The emergence of judgments during generation • Members giving up on the group • An inadequate structure of the interaction (Isaksen and Gaulin 2005) B 140 Two promising areas for overcoming the barriers include: • The use of technology such as Electronic Brainstorming (EBS), Group Support Systems (GSS), Group Decision Support Systems (GDSS) • The use of trained facilitator (Isaksen and Gaulin 2005) Electronic Brainstorming (EBS) Electronic brainstorming (EBS) has been proposed as an approach that promotes group synergy and stimulation while facilitating the construction of chains of thought to build on good ideas and to think in novel directions, thus spurring new ideas and improving creativity and originality (Barki and Pinsonneault 2001). However, there is not strong empirical evidence supporting such a stimulation effect on idea quality. The theoretical explanations that suggest that EBS groups ought to generate ideas of higher quality than nominal brainstorming groups have received mixed empirical support (Barki and Pinsonneault 2001). Barki and Pinsonneault (2001) compared the effectiveness of four small group brainstorming methods (nominal brainstorming, verbal brainstorming, EBSanonymous, and EBS-non-anonymous) in terms of three indices of idea quality (total quality, mean quality, and number of good ideas). The results indicated that nominal small group brainstorming was found to be the most effective for total quality and for number of good ideas (Barki and Pinsonneault 2001). EBS groups were more productive and more satisfied with the interaction process than FTF groups and large EBS groups outperformed nominal groups, whereas small nominal groups outperformed EBS groups (Barki and Pinsonneault 2001). In addition, the three factors manipulated in the experiment (i.e., Group History, Contextual Cues, and Topic Sensitivity) did not significantly improve the quality of the ideas generated by EBS groups (Barki and Pinsonneault 2001). As a result, how to improve the efficiency and effectiveness of EBS is an issue to discover to be able to provide the most effective way to brainstorm while EBS has important Brainstorming and Invention implications for electronic collaboration and virtual teamwork in both academic and organizational settings. Implications for Theory, Policy, and Practice A cognitive perspective suggests that group brainstorming can be an effective technique for generating creative ideas: A cognitive perspective points to methods that can be used so that group exchange of ideas enhances idea generation. Groups of individuals with diverse sets of knowledge are most likely to benefit from the social exchange of ideas. Although face-to-face interaction is seen as a natural modality for group interaction, using writing or computers can enhance the exchange of ideas. The interaction should be structured to ensure careful attention to the shared ideas. Alternating between individual and group ideation is helpful because it allows for careful reflection on and processing of shared ideas. (Brown and Paulus 2002, p. 211). On the other hand, empirical findings gained from brainstorming research suggest that lose coordination and motivation in a team can hinder the effectiveness of brainstorming (McGlynn et al. 2004). In addition, brainstorming in interdisciplinary team and social interaction may not always assist the generation of creative ideas (McGlynn et al. 2004). Rossiter and Lilien (1994) present six principles of high-quality creative ideas by “brainstorming” as stated below: 1. Brainstorming instructions are essential and should emphasize, paradoxically, number and not quality of ideas. 2. A specific, difficult target should be set for the number of ideas. 3. Individuals, not groups, should generate the initial ideas. 4. Groups should then be used to amalgamate and refine the ideas. 5. Individuals should provide the final ratings to select the best ideas, which will increase commitment to the ideas selected. 6. The time required for successful brainstorming should be kept remarkably short (Rossiter and Lilien 1994, p. 61). Brainstorming and Invention Rossiter and Lilien (1994) suggest using the I-G-I (Individual-Group-Individual) procedure by following six steps: 1. Chairperson announces the problem and gives brainstorming instructions to five to seven individuals seated around a table in the same room. (Rationale: This “silent groups” format preserves individuality but introduces a possible social facilitation effect from the presence of others.) 2. Individuals, without talking, write down or key into personal computers as many ideas as they can in the specified time period, usually 15 min. (Rationale: Immediate recording of ideas helps to remove the “production blocking” problem whereby mental rehearsal of initial ideas blocks the production of further ideas.) 3. Chairperson records individuals’ ideas, in rotation, one idea for per person per rotation, on a group-visible flip chart or electronic screen. (Rationale: The rotation procedure removes some of the anonymity of a “talk in any order” group while at the same time producing a list of ideas that are recorded without authorship.) 4. Group clarifies and discusses ideas, combining or refining them as it seems fit. Ideas are taken one at a time, and each individual is asked for reasons of agreement or disagreement as well as to make constructive suggestions for improvement. (Rationale: Groups are efficient and usually superior for combining and refining ideas.) 5. The revised ideas are then recorded by the chairperson in a group-visible final list. (Rationale: Memory reliance is again minimized and also a degree of democratic anonymity is reinstated.) 6. Revised ideas are rated or ranked by individuals privately, with no discussion. Best idea or ideas chosen by pooled individual votes. (Rationale: Democratic voting increases commitment and pooled individuals’ judgments usually provide more accurate prediction.) (Rossiter and Lilien 1994, p. 67). 141 B Conclusion and Future Directions During group brainstorming, group members should generate many ideas, think of uncommon ideas, combine, evaluate, and improve ideas, and avoid from untimely and inappropriate criticism. Learning may result from the brainstorming process, as it provides a momentum to engage in constructing ideas and self-explanations. Osborn (1953) provided detailed suggestions for best practice before, during, and after a brainstorming session as summarized below: • Before Brainstorming – Prepare the group – Prepare the task – Prepare the environment • During Brainstorming – Dealing with judgment – Maintaining group commitment – Enhancing the process structure • After Brainstorming – Follow-through – Evaluation – Implementation As the best-known tool for group idea generation, brainstorming has become the most widely used method with creativity, productive thinking, and creative problem solving abilities that are stated goals of most programs designed for the gifted and talented (Isaksen and Gaulin 2005). Brainstorming is widely taught in gifted and talented programs (Isaksen and Gaulin 2005). There are three main concerns regarding the previous researches. First, some previous research about the comparison between verbal brainstorming and nominal brainstorming had an unnecessary focus since individual and group idea-generating approaches should not replace each other, but should supplement each other (Isaksen and Gaulin 2005; Osborn 1953). Second, the leadership role and responsibilities of a trained facilitator is essential for managing a successful brainstorming session (Isaksen and Gaulin 2005; Osborn 1953). Third, brainstorming has not been treated as an isolated event, rather than as a part of a larger process since brainstorming was introduced as one idea-generating tool B B 142 within the entire creative problem solving process (Isaksen and Gaulin 2005; Osborn 1953). Brainstorming Teams Brainstorming Teams ▶ Conflict and Creativity Cross-References ▶ Creative Problem Solving ▶ Creativity and Innovation: What Is the Difference? ▶ Creativity in Invention, Theories ▶ Ideas and Ideation ▶ Invention and Innovation as Creative ProblemSolving Activities ▶ Invention Versus Discovery ▶ Inventive Problem Solving (TRIZ), Theory ▶ Levels of Invention ▶ Models for Creative Inventions References Barki H, Pinsonneault A. Small group brainstorming and idea quality: is electronic brainstorming the most effective approach? Small Group Res. 2001;32: 158–205. Baruah J, Paulus PB. Effects of training on idea-generation in groups. Small Group Res. 2008;39:523–41. Brown VR, Paulus PB. Making group brainstorming more effective: recommendations from an associative memory perspective. Curr Dir Psychol Sci. 2002;11: 208–12. Dugosh KL, Paulus PB. Cognitive and social comparison processes in brainstorming. J Exp Soc Psychol. 2005;41:313–20. Gogus A. Brainstorming and learning. In: Seel NM, editor. Encyclopedia of the Sciences of Learning. Springer; 2012;1:484–88. Isaksen SG, Gaulin JP. A reexamination of brainstorming research: implications for research and practice. Gifted Child Q. 2005;49(4):315–29. Kageyama K. Formation of invention/joint invention and recognition of inventor/joint inventor. J Intellect Prop Law Pract. 2010;5(10):699–712. McGlynn RP, McGurk D, Effland VS, Johll NJ, Harding DJ. Brainstorming and task performance in groups constrained by evidence. Organ Behav Hum Decis Process. 2004;93:75–87. Osborn AF. Applied imagination: principles and procedures of creative problem-solving. New York: Charles Scribner’s Sons; 1953, rev. 1957, 1963. Rossiter JR, Lilien GL. New “brainstorming” principles. Aust J Manag. 1994;19(1):61–72. Sim SK, Duffy AHB. Knowledge transformers: a link between learning and creativity. Artif Intell Eng Des Anal Manuf. 2004;18:271–9. Brain-Writing ▶ Idea-Marathon System (IMS) Breakthrough Technology ▶ Innovation and Entrepreneurship Bridging Knowledge Management to Wisdom Management ▶ Method for Creating Wisdom from Knowledge Brilliance ▶ Genius BtoBtoU ▶ Co-Conception and Entrepreneurial Strategies Business ▶ Entrepreneur: Etymological Bases ▶ Heroic Entrepreneur, Theories Business Angels ▶ Angel Investors Business Climate and Entrepreneurialism Business Climate and Entrepreneurialism Dimitri Uzunidis Research Unit on Industry and Innovation/ CLERSE–CNRS (UMR 8019), University of Lille Nord de France, Research Network on Innovation, Dunkerque, France Political Economy, Research Unit on Industry and Innovation University, University of Littoral Côte d’Opale, Dunkerque, France Synonyms Business relations; Embeddedness; Entrepreneurial opportunities; Externalities; Industrial atmosphere; Organization; Territory The definition of the business climate is not simple and homogeneous. There exists no official definition. We can distinguish three kinds of definition. (1) The first is based on the opinion of entrepreneurs over the short term. National statistical offices question, for example every 3 months, entrepreneurs to know their opinion about the economic short-term period (evolution of demand, of production, of stocks, of prices, orders, their workforce, and so on). It is a qualitative indicator based on the personal opinion of domestic entrepreneurs. (2) The second definition consists of measuring macroeconomic indicators also for a short-term period. For example, trend of the Gross Domestic Product (GDP), of domestic consumption, of exports, of domestic investments and of the public sector balance, and so on. This information is intended for foreign investors who have business projects in a given country. So for a short-term period, we have an objective macroeconomic indicator. It is not based on entrepreneurs’ personal opinions, but on objective information. In general, the national office for foreign investment is linked to the department of foreign affairs. (3) The last definition is the indicator developed by the World Bank, «Doing business», which provides measurements of business regulation for local firms. 143 B A large range of indicators have been defined: starting a business, dealing with construction permits, the supply of electricity, registering property, obtaining credit, prospecting investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency. So to synthesize, we will define the business climate as follows: a set of macroeconomic indicators which give information about the economy (rate of economic growth, demand, investment, and so on); social (evolution of the workforce); and legal (ownership, business law,. . .) conditions in a given country, and finally a set of individual entrepreneurs’ opinions about the economic and social situations over the short term. But, to be exhaustive, we have also to consider the nature of business networks between entrepreneurs and businesses (large and small), and between entrepreneurs and a large range of institutions (units of research, departments, banks, administrations, and so on), because global or qualitative indicators are inadequate for measuring by themselves the business climate. These networks are constituted of financial and information flows and also transfers of workforce (high-skilled and low-skilled workers), on a national or local level. They can be the product of a political decision, but also of informal practices over a long time period. The main condition for the existence of a social network is its stability in the short term, even if its composition can change in the long term. The main characteristic of the business climate today is its great instability, for three important reasons: (1) for a structural reason: the capitalist economy is based on permanent (technological, economic, and social) change (Schumpeter 1982, 2008); (2) for a medium-term reason: since the 1980s governments have developed policies of deregulation to encourage market synergies. The weight of the public sector is less important, whereas market regulation is more developed; (3) for a short-term reason (and as a consequence of the two previous reasons): the short-term economic situation is more and more unstable. Since the 1990s, the number of economic crises is higher in developing and in developed economies in a world context where the interdependencies between economies are more complex. B B 144 Business Climate and Entrepreneurialism Business Climate and Entrepreneurialism, Table 1 Three levels of business relations Business relations at the level of the: Territory (as a geographical area) Parameters Distance versus speed Organization (intra- and inter-organization) Hierarchy versus market Intra-firm versus inter-firm Vertical versus horizontal Supervision versus contract Code versus contents Context versus understanding (awareness + interpretation) Individual (entrepreneur) Field of action and challenge Transfer: flow Relations of competition/ cooperation Coordination strategies, actions, routines Communication concept, ideas, knowledge Source: The author What are the resources and socioeconomic elements which have defined the business climate where individual entrepreneurs, enterprises, and institutions function? How do business relations emerge from the business climate? And, (in a synergic relation) how does the business climate build business relations? In the first part of this entry, we will show that for the entrepreneur the business climate is determined by his business relations resulting from the nature of the business system in which he is integrated (Granovetter’s concept of embeddedness). In the second part, we will analyze how the business climate promotes entrepreneurship. We have constructed our demonstration on a certain number of authors (economists, sociologists, and historians) that we consider as the key writers on our subject: Marshall and Pigou (Pigou 2001) for the analysis of the territory; Coase and Williamson for the analysis of the organization; Menger and Simon for the analysis of the individual entrepreneur; Braudel, Wallerstein, Nelson and S. Winter (Nelson and Winter 1985) (for historical analysis) and Granovetter (for the analysis of social networks). The Business Climate and Business Relations Business relations influence the creation of a business climate which can be positive for business growth. These business relations are linked to externalities which facilitate cooperation between enterprises and public institutions, between banks and firms, and between these organizations and markets. These relations can be also highly competitive when a new market appears as a result of creation of a new activity or following an innovation. Business relations are developed at three different levels (territory, organization, and institution), and they are based on flows of information, learning, knowledge, technology, and so on (see Table 1). 1. Business relations are developed at a territory level, by definition according to geographic borders. The business relations in this geographic area have been built over a long-term historical period (Braudel 1992; Wallestrein 2004). This is the result of a long historical tradition based on dialectical relations between competition and cooperation. 2. Business relations are also developed inside an organization and between organizations: In our case, an organization can be an enterprise, a bank, a nonprofit organization, a unit of research, a ministry, and so on. To find resources, enterprises develop relations with other, different organizations and institutions (banks, ministries, and so on). In a general sense, firms’ strategies are built on two types of model: the hierarchical model (organization) or the horizontal model (market). According to the level of transaction costs (Coase 1937), the enterprise is structured on one or another model: either the scheme of the large (and concentrated) firm, or of the small (and decentralized) firm. Business Climate and Entrepreneurialism 145 B Business Climate and Entrepreneurialism, Table 2 Business climate and business relations Business climate According to indicators: Objective: Macroeconomic indicators and measurement by institutional indicators (as for example «Doing business») Subjective: Entrepreneurs’ personal opinions Business relations Territory (geographic) Organizations Enterprises (interrelations/ Individual entrepreneur intra-relations) Own resources of the entrepreneur Business opportunities Limited economic rationality Source: The author 3. Individual entrepreneur: The entrepreneur is an economic and social performer. He takes decisions according to a set of information and resources to achieve a given objective (e.g., to develop a new business, to obtain a loan, to develop cooperation with another partner, and so on). This individual entrepreneur plays his part in a given society which has given values, roles, and codes of practice. According to this social environment, he is a rational individual. It means that he takes decisions based on the information and resources available to him. His rationality is limited, though, because he takes decisions in a given social context (Menger 2007; Simon 1997). The concept of business relations is the result of new area of research in social sciences characterized by the emergence of the concept of social capital (see the entry on social capital). In a general sense, social capital is a set of social relationships owned by an individual, and which are valorized to give access to new resources. In this way, individuals can find a new job or a business opportunity, apply for a loan, and so on. But the theory (or the theories) of social capital has (or have) been developed in different ways. For our subject, according to Mark Granovetter (1985) analysis is fundamental, because he shows that business activities are supported by both formal and informal social relations. The formal relationships are constituted by relations with other enterprises and entrepreneurs, financial institutions, departments, nonprofit enterprises, and so on. On the other hand, informal relationships are formed by family, friends, neighbors, etc. Thus, Granovetter shows that business relations (in other words market relations) are embedded in the social framework. In the Granovetter analysis, the rational individual (in a traditional neoclassical sense) does not exist, because his behavior is partly determined by the social context where he operates. The behavior of individuals is determined by the social context. Business relations are inserted in the business climate, which is defined objectively (macroeconomic indicators and so on) and also by subjective indicators (entrepreneurs’ personal opinions). Business relations are developed simultaneously at three different levels: territory, organization, and individual entrepreneur (see Table 2). Business Climate and Entrepreneurship The key elements of the business climate are the business relations that are developed at three different levels (geographic area, organization, and individual entrepreneurs). In this following part, we will explain these three elements according to the given economic theories. Our objective is not to do an exhaustive account, but to bring to light some key authors, as we wrote above. The territory was introduced into economic theory at the end of the nineteenth century by A. Marshall (and before that by Von Th€unen). Marshall (1919) argues to show the influence of B B 146 the territory on economic analysis, that there is an «industrial atmosphere» which influences the development of the local labor market. This phenomenon is linked with competencies and professional experience of workers, and also with the location of firms in a given territory. According to Marshall, an «industrial district» merges skilled workers, a set of players (entrepreneurs, bankers, public authorities), and know-how belonging to the particular industrial district. Firms in this territory have developed between them relations of cooperation. Entrepreneurs have a long history in the territory where they live. They share the same values, codes, and social behavior. Business relations develop in this geographic area in both formal and informal ways. The Marshallian analysis has given us a large range of studies during the twentieth century, and especially since the 1980s, with for example the concept of «innovative milieu». “Evolutionary Economics” developed the concept of «path dependency» to explain the interactions between firms, institutions, and workforce which are the product of an historical evolution. Braudel and Wallerstein underline the historical dimension of social and economic evolution. The transformation of economic and social behavior is very slow. Routines map out a given path of evolution. These interactions between enterprises, institutions, and workforce are the product of mutual synergies between local players (public and private) over a long-term period. These business relations are developed, thanks to defined conditions: basic resources, workforce skills, financial, technological, information resources, and so on. The existence of common social values and social practices are the engine that synergizes these resources. The innovative capacity of the firm is not only influenced by its own resources, but also by its environment. A strong synergic relation is built up in this way between local players, but if the path dependency is very strong, firms which compose this innovative milieu can collapse if they become too heavily dependent on these initial resources. Firms are located in the given territories. They were attracted by different types of resources, as Business Climate and Entrepreneurialism noted above. But the firm, as an organization, is not static. It changes according to its strategy, which is partly built under pressure due to the competition. In the traditional neoclassical theory, the market is always more efficient than the organization. Coase shows that the market is not always cheaper, because there are a number of transaction costs entailed in using the market: for instance, costs of obtaining goods or information. Coase shows that firms will grow when they can arrange to produce what they need internally and somehow avoid these coats. Thus, firms can by their strategy transform the market and the territory where they function. Even information is not free. The cost of information can be high, and the entrepreneurial function is, according to (Kirzner 1997), to discover opportunities for investment or profit based on information they already own. The traditional neoclassical theory argues that entrepreneurs have to maximize their profit as a function of their own resources and the market price. Simon underlines that the entrepreneur, as a given individual and rational player, does not own all the information that he needs, and consequently targets his objectives according to a set of social factors. Thus, the entrepreneur is influenced by the social and economic context where he operates. In consequence, and according to Granovetter, the entrepreneur as an individual performer is embedded in a given social context. Individuals define their objectives (e.g., to set up a firm, develop an innovation, get a loan, find a better job, and so on), according to their own resources (financial, knowledge, information) and their personal ambitions (to become rich, to be an important person, to develop a social enterprise, and so on). They are embedded in a given social context. So, there are differences among individuals (and of course among entrepreneurs). Everyone has not the same behavior in front of the market. Entrepreneurs play their part in business relations which create (and of which they are the product) trust, solidarity, competition, cooperation, cunningness (according to the theory of opportunism of Williamson), and so on (Table 3). Business Climate and Entrepreneurialism Business Climate and Table 3 Business climate a synthesis Business relations Territory Key authors A. Marshall A. C. Pigou Organization R. Coase O. Williamson C. Menger Individual entrepreneur H. Simon I. Kirzner O. Williamson History Social F. Braudel I. Wallerstein R. Nelson and S. Winter M. Granovetter Entrepreneurialism, and entrepreneurship: Key concepts or ideas Industrial atmosphere Externalities Dialectical relation Market/organization Individualism, methodology Limited rationality Entrepreneurial opportunity Opportunistic behavior Long-term period Historical change Path dependence Social network Embeddedness Formal/informal relations Source: The author 147 B in an informational space, has become the background for the development of new business relations. Indeed, the systemic nature of the relationships which characterize an economic and social milieu explains what gives (or does not give) incentives to business creation. However, ought we to reduce entrepreneurship and innovation, products of the milieu, only to inter-individual exchanges, resulting in a new productive combination? Is entrepreneurship only the result of a specific organization of economic relations? Current research takes into account the fact that the business climate does not refer only to economic and financial interactions but also to the social structures which are at the origin of innovative and entrepreneurial behavior. In addition, institutions (such as State and local authorities) play an important role in the organization and the evolution of socioeconomic structures. In turn, the business climate contributes to entrepreneurship, thanks to the supply management of specific (cognitive, technological, financial, etc.) resources. Cross-References Conclusion and Future Directions The business climate is defined by macroeconomic indicators and entrepreneurs’ individual opinions over the short term. It is the product of business relations which are developed in a synergic process in a given territory or economic milieu geographically localized (which is defined as a set of resources within given geographic borders). Business relations are developed in a given social context. Over a long-term period, entrepreneurs build relationships between them, which are the result of socioeconomic practices. These practices feed social behavior based on cooperation, competition, and common or divergent interests. However, taking into account that entrepreneurship is historically developed from a given socioeconomic and geographical milieu, in contrast the logic of capitalist dynamics resides in going beyond geographical borders. The development of information technologies, ▶ Clusters ▶ Entrepreneur ▶ Entrepreneurship Policies ▶ Entrepreneurship Policy ▶ Environmental Determinants of Entrepreneurship ▶ Industrial Atmosphere ▶ Innovation and Entrepreneurship ▶ Network and Entrepreneurship References Braudel F. Civilization and capitalism, 15th–18th century, vol. 1–3. 1st ed. Berkeley: University of California Press; 1992. 1979. Coase R. The nature of the firm. Economica. 1937; 4:386–405. Granovetter M. Economic action and social structures. The problem of embeddedness. Am J Sociol. 1985;91(3):481–510. B B 148 Business Climate and Entrepreneurship Kirzner I. Entrepreneurial discovery and the competitive market process. An Austrian approach. J Econ Lit. 1997;35(March):60–85. Marshall A. Industry and trade. London: Macmillan; 1919. Menger C. Principles of economics. 1st ed. Auburn: Ludwig von Mises Institute; 2007. 1871. Nelson N, Winter S. An evolutionary theory of economic change. Cambridge, MA: Belknap Press of Harvard University Press; 1985. Pigou AC. The economy of welfare. 1st ed. Piscataway: Transaction Publishers; 2001. 1920. Schumpeter JA. The theory of economic development. 1st ed. Piscataway: Transaction Publishers; 1982. 1911. Schumpeter JA. Capitalism, socialism and democracy. 1st ed. New York: Harper Perennial Modern Classics; 2008. 1942. Simon H. Administrative behavior. A study of decisionmaking in administrative organizations. 1st ed. New York: The Free Press; 1997. 1947. Wallestrein I. World-systems analysis. An introduction. Durham: Duke University Press Books; 2004. Business Climate and Entrepreneurship ▶ Socialized Entrepreneur, Theories Business Creation ▶ New Forms of Entrepreneurship in a Sustainable Knowledge-Based Service Economy Business Creativity Igor N. Dubina Economic Information Systems, Altai State University, Barnaul, Russia Synonyms Corporate creativity; Everyday Organizational creativity creativity; Definition Business creativity is (1) producing ideas which are new and potentially useful for an organization, (2) solving nonstandard business problem, (3) finding and developing new opportunities for business, and (4) a measurable resource that needs to be effectively organized and monitored. In the current literature, there are many discourses about business creativity as one of the key factors of competitiveness in this dynamic “creative age.” From the second half of the twentieth century, alongside with the shift from “Fordist” to “post-Fordist” economies and the increasing role of creativity in business, the “romantic” understanding of creativity as a manifestation of individual genius has been replaced by pragmatic understanding of creativity as an “everyday” and “everyone” natural phenomenon. In the business context, creativity is understood as a nonstandard problem-solving process, the production of new and useful ideas, or generating and developing new opportunities for business. Any definition of business creativity is based on the combination of novelty and effectiveness. For example, creativity, considered in an organizational context, is often understood as generating ideas which are simultaneously new and appropriate (potentially useful) for an organization. According to this point of view, creativity is defined in a system with the following elements: • A creative employee(s) generating ideas and introducing variations • A domain (a set of available ideas, rules, organizational routines, and patterns of behavior) • An expert(s) evaluating suggested ideas and selecting the variations If an idea, suggested by the employee, is deemed by the experts as new and useful, it is then included in the set of rules, and the domain subsequently is changed. The “new rules” of the domain communicate back to the subject, and the cycle continues. In other words, creativity Business Cycles Business Creativity, Fig. 1 Business creativity in an innovation process (Source: The author’s own conceptualization) 149 B Creativity Intrinsic / Extrinsic B Creation Invention Innovation New and potentially useful ideas Creative idea shaped in an applicable form Invention turned into a successfully commercial product Research Development Commercialization may be defined as engendering original solutions for nonstandard problems or more effective solutions for existing problems, and these solutions (ways, methods, and techniques) are accepted in the organization as the rules of future activities. Business creativity is a much broader concept than merely generating new ideas for future invention and innovation (Fig. 1). Rather, creativity and innovation are more complementary than consecutive business phenomena. Consequently, managing creativity requires a broader conceptualization than merely managing the process of generating new ideas for further implementation into innovation. Cross-References ▶ Corporate Creativity ▶ Creative Management ▶ Creativity and Innovation: What Is the Difference? ▶ Creativity Management Optimization ▶ Four Ps in Organizational Creativity ▶ Simplexity Thinking Business Cycles Jerry Courvisanos The Business School, University of Ballarat, Ballarat, Victoria, Australia Synonyms Boom and bust; Fluctuations in economic activity; Trade cycles Introduction The first rigorous attempt to link the innovation role of the “pioneering entrepreneur” with the boom and bust of business cycles was by Joseph Schumpeter in his two-volume Business Cycles (Schumpeter 1939). This linkage is fraught with danger as it attempts to examine innovative entrepreneurship – which occurs at the individual firm level – with the aggregate pattern on economic cycles at an economy-wide level. Much has been researched and written since then in an effort to overcome the pitfalls of this dilemma, while B 150 preserving the dynamic power of an endogenous entrepreneurial-driven cyclical process. This entry will examine the various mechanisms that have been proposed on how the action of innovative entrepreneurs can lead to prosperity and recession. The analysis begins with a first “simple” approximation of the dynamics of entrepreneurs and cycles, and builds dynamic complexity with further steps into this explanation. Five Approximations to a Cycle The base proposition outlined by Schumpeter is the static full employment system where the only business activity is being conducted under “competitive capitalism” by managers, and not entrepreneurs, who merely compete using the existing technological knowledge. Schumpeter calls this the “circular flow” mechanism and it only applies to a stationary state economy that has no macroeconomic cyclical activity. Once innovation is introduced a discontinuity occurs, leading to cycles, with an array of mechanisms to explain this dynamic. The first run-through of this discontinuity can begin with Schumpeter’s 1928 handbook entry on the entrepreneur in which he alters the focus from the gifts of a few individuals at the fringes of the economy, to entrepreneurs conducting selection processes and combining production factors that situate them “at the heart of the market economy” (Becker and Knudsen 2003, p. 213). This necessitates the entrepreneur to be aware of actual and potential demand for “new combinations” and that these combinations come from learning through experience which results from selecting and adapting ideas already implemented in the field and then learning and further adapting from those selected. The failures and successes in this cumulative evolutionary process determine eventually the result of innovations. The aggregate outcome of this cumulative innovative activity results in investment and production that produces business cycle patterns. It ensures that the innovation process in theory does not become locked into an “administrative” steady state, requiring some exogenous force to release novelty into the dynamic real world. Business Cycles This dynamic role between entrepreneurship and the business cycle can be described as a “kaleidic mechanism.” Shackle (1972, p. 433) defines the kaleidic mechanism as an ephemeral pseudo-equilibrium (or stationary state) based on accepted practices which are subject to sudden readjustment. This leads to a new precarious pseudo-equilibrium based on “delicately stacked” conjectures which give way to these “sudden landslides of readjustment.” Thus, the methodological shift is away from a deterministic method in which history is based on a linear view of the past. Instead, the kaleidic mechanism is sensitive to the short period agency behavioral relations that build up and break down over time with the innovation-investment decision-making processes. With the role of the entrepreneur harnessing productive forces in innovation specified, the second step (or approximation) in this kaleidic mechanism is to provide a clear conceptual notion of the induced endogenous novelty inherent in the entrepreneur. Schumpeter’s productive forces of entrepreneurship are too coarse-grained to grasp a clear picture of the entrepreneur. There needs to be some fine-tuning so that entrepreneurship as a concept can become realized within the macroeconomic picture of the business cycle. This can be achieved through the work of Michał Kalecki, when in Kalecki ([1968] 1991) innovation is specifically identified as endogenous to the investment process, thus integrating the cyclical short period with the long-run growth trend. In this way, the trend and cycle are not considered separately. In this model, inventions that are commercialized through investment “. . .add to profit expectations over and above those generated by the movement of demand in the course of the cycle” (White 1999, p. 347), leading to a cumulative process of cyclical growth. White (1999) identifies two reasons in Kalecki ([1968] 1991) to account for this. One of the reasons is increased productivity in the form of process innovation that incorporates technical progress in new capital equipment, making the previous capital stock technologically obsolete and enabling market demand to be met more effectively. The other is product innovation coming Business Cycles from the stimulus to investment arising from entrepreneurs wanting to be the “. . .first to avail themselves of the technical novelties” and thus, adding a new level of demand (Kalecki [1968] 1991, p. 442). At this third approximation of the dynamics of entrepreneurs and the business cycle, the point of the analysis is the effective demand that is incorporated in the innovation process. White (1999, 350) recognizes “. . .the stream of inventions underlying the process of innovation could be sufficiently erratic to provide the irregularity in economic behavior necessary to produce deviations in demand and output from those anticipated by producers.” With the diffusion of successful innovations, Courvisanos (1996, pp. 114–39) shows that these deviations can be seen as triggers for cyclical investment turnarounds in periods when commitment of orders to investment is highly vulnerable to sharp change, either as too high (over-commitment at expansion peak) or too low (under-commitment at the contraction trough). There can be reinforcement of this process by the inventory mechanism, in which even a small upswing of an inventory cycle at the trough of a business (or Juglar) cycle provides a favorable climate for the spread of investment embodying innovation. This is particularly helpful for explaining the most difficult aspect of any cycle, which is the rise out of a contraction. In this respect, bunching of investment occurs as per Kalecki, with the stimulus from clusters of “basic” innovations as per Schumpeter. Empirical work by Courvisanos and Verspagen (2002) using long-run patent data supports the bunching effect of investment (á la Kalecki) while identifying the clustering of innovation (á la Schumpeter). All this cluster cycle research is distinctly different from the neoclassical real business cycle research agenda in which clusters occur only due to expectational errors as deviations from the natural (equilibrium) rate, and are empirically inadequate in explaining business cycles. The fourth approximation relates to the situation in which when a trigger for expansion occurs, then the investment dynamics become the crucial aspect of the diffusion of innovation. 151 B Kalecki identified three dynamics. Time lags in investment are seen as critical by Kalecki in the innovation process, an aspect that Schumpeter rejects. There are two time lags. One is the ex ante decision (orders) lag, which identifies the time taken to make the decision to order the means of production (plant and/or equipment). This is due to the need to work out the actual design of the capital stock required and find sources for supplying this capital stock. The other is the ex post implementation, which identifies the gestation period for the expenditure, or the time taken by the capital-supplying industries to produce and deliver the capital stock, and the time taken for the innovating firm to learn how to operate the plant and equipment in an efficient manner. The second dynamic relates to the two-sided feedback loop between profits and investment, which also was famously expounded by Joan Robinson in her “banana diagram.” Retained earnings out of profits provide the wherewithal to invest, and also allow the firm to borrow for investment on the basis of the profits achieved. Of course, the original investment is made with the expectation of future profits out of the innovation that underscores the investment decision. This seems a very intimate two-sided relationship in which one loop supports the other. Here, Kalecki identifies the third dynamic which undermines the strength of this two-sided loop. This is the inherent instability of capitalism as firms’ innovation and investment decisions are exposed to increasing risk and fundamental uncertainty. By raising external funds from loans or equity for investment, Kalecki ([1954] 1991, pp. 277–81) argues that firms suffer from “increasing risk,” which is the marginal risk that increases with the amount of funds obtained externally. External funding is a major issue when commercializing innovation as a start-up venture with no prior profit reserves from the enterprise, thus often requiring venture capital equity funding. Also, for the existing firms, radical innovation in corporate venturing would require large commitment to new means of production, thus requiring external funding on top of any retained earnings funding available. B B 152 From this financial perspective, Kalecki identifies three forms of increasing risk: One is share issue risk, when a large issue of new shares creates the risk of reducing the proportion of the controlling group’s shareholding, thus diluting its voting power in relation to the existing and potential shareholders. Second form of increasing risk is borrower’s risk. Increasing levels of borrowed funds involve higher future interest payment commitments, which are negotiated on the basis of regular payment irrespective of cyclical events and their effects on gross profits. The larger the amount a firm borrows, the greater the increasing cash-flow problem that could arise. The final form is lenders’ risk which increases (in terms of higher interest rate) as lenders extend more funds to a firm, which leads to the increasing possibility of the lender suffering bad debts from the borrowing firm’s cash-flow problems which may even lead to bankruptcy. The role of uncertainty in Kalecki is an institutional factor that creates instability. Incomplete knowledge about future outcomes is significant for innovations other than for merely new product developments or “necessity entrepreneurship.” Such lack of knowledge leads to setting levels of desired excess capacity well above normal engineering-based excess capacity requirements, and to accepting increased transaction costs as the level of financing rises. In this way uncertainty is accounted for and managed in a pragmatic way. It is for this reason that Kalecki rarely mentions uncertainty. As increasing risk originates from incomplete knowledge of the future outcomes of investment, then uncertainty becomes institutionalized as an instability factor when such risk is locked into rising transaction costs, or alternatively, to what is known in the finance literature as “informational asymmetries.” Such efforts can mitigate risk, but not uncertainty. As aggregate profits are the base for the funding of innovation, the fifth approximation introduces the dynamics of the circular flow created by the two-sided feedback loop which exhibits both virtuous and vicious circles. The virtuous circle can be seen in aggregate when an increase in aggregate profits supports knowledge Business Cycles capital through enhanced R&D investment as well as large venture capital funding available to support invention by new start firms in industries that have a successful track record (e.g., pharmaceuticals, biotechnology, ICT), which encourages expansion of investment. Success in this investment has a direct positive impact on aggregate demand, pushing up the expansion path of the business cycle and consequently even higher aggregate profits. This is the “accelerationist” effect of investment, flowing through greater economic activity, higher profits and even further investment in the same new innovations. This builds the expansion phase of the investment cycle. An endogenous innovationbased reinforcement of this virtuous circle is the increased innovation intensity through further R&D and venture capital funding, pushing the expansion phase further into a strong boom. This dynamic circle exhibits innovation intensity deriving from the growth industries of the endogenous innovation effects of a powerful transformative technological paradigm. This results in strong economic development of successfully innovative firms/industries/sectors/regions and provides the bulwark for cyclically rising gross domestic product (GDP). The vicious circle appears in the contraction phase of the investment cycle, when there is a relatively low level of build-up in knowledge capital through R&D and invention. Here replication of the dominant technology takes place with the emerging technologies at too early a life-cycle stage for them to be contenders for structural change. The uneven development here is skewed on the negative side. This leads to a decrease in innovative activity, which discourages investment as well. This has a negative impact on aggregate demand, GDP and consequently on aggregate profits. This is the negative “accelerationist” effect on investment flowing through lower economic activity and the contraction phase of the investment cycle. An endogenous innovation-based reinforcement of this vicious circle is the decreased innovation intensity adding another fall in innovative activity to push the contraction phase further into a strong recession. This vicious circle exhibits innovation Business Cycles intensity that is very weak, deriving from the mature industries of the long-established innovation effects of a monopoly controlled “old” technological paradigm and preventing the expansion of new innovative firms and industries. The extent of the upswing in the next expansion phase of the business cycle depends on how much it is dependent on the older more mature industries attempting to maintain their market power, compared to the ability of the new technology–based industries to take advantage of any new opportunities that have arisen during the downturn and trough. As knowledge capital continues its endogenous innovation push, there is tension with the development of greater economic uncertainty for investment in “new” products and processes. This is Schumpeter’s “creative destruction,” where new innovations take over from older established industries which have had strong market (or monopoly) control, creating uneven structural change as some industries shift technologically while others remain old and mature. Depending on the National Innovation System that exists in the country, this problematic tension to the next virtuous circle will appear as a negative influence at different intensities of the endogenous innovation-based expansion phase in the investment cycle. The extent of this negative influence affects the strength (or lack thereof) of the new expansion phase and the trajectory of the long wave. The five steps of complexity in the dynamics of entrepreneurship and business cycles outlined above are based on the classic proposition of the dynamic investment model with innovation at its center. This comes from Schumpeter, who reasoned that the investment function responds to waves of optimism and pessimism that create clusters of innovation outcomes and then “bunching” of investment. Schumpeter saw these two phenomena of innovation outcomes and investment in such innovations as cyclically linked, thus creating business cycles. Despite the empirical evidence described earlier, there is a logical flaw in this approach because one must question the origin of these waves of optimism and pessimism. These entrepreneurial waves 153 B would be influenced by aggregate economic activity arising from business cycles in the first place. Thus, a tautology exists if the linkage is tightly held between clustering of innovation outcomes (“clust-”) and bunching of investment (“-bun”) to commercialize them. Empirical evidence from a positivist methodology is unable to resolve this tautology. Following the same classic proposition to Schumpeter, Kalecki in his analysis diverges by decoupling the linkage between clustering and bunching. Kalecki sees bunching arising from investment decisions on commercializing innovations as a distinct business process that reflects on uncertainty and susceptibility to cyclical volatility. This is distinct from the clustering that is shaped by the type and extent of innovation. Rothbarth in his critique of Schumpeter’s closely tied “clust-bun effect” makes this distinction clear as follows: Professor Schumpeter, in my view, is right in maintaining that there would be no trade cycle in a system subject to small random shocks only. He is right in the sense that it would be unrealistic under those conditions to postulate such strong dependence of investment on existing profits as would produce a cycle. It does not follow at all that the process of innovation needs to be cyclical to produce the trade cycle. It suffices that innovation brings about that uncertainty, that strong dependence of investment on current profits on which Mr. Kalecki, Mr. Kaldor, and Mr. Harrod rely. It may well be that the process of innovation itself is cyclical, but the trade cycle would be explicable even if that were not so. (Rothbarth 1942, p. 226) The investment decision to commercialize various innovations that exist in the form of patents, other intellectual property rights, and market-based benefits (e.g., first-mover advantage) is a separate business process, but it is crucial to recognize that without the innovation, the investment decision would be purely a replacement (“circular flow”) investment decision based on rate of depreciation and past demand for the output. This limits considerably the uncertainty attached to investment decision-making. Without innovation, uncertainty is contained and the fluctuations of investment would move around a constant trend growth line with no economic growth. B B 154 Taking Kalecki’s investment approach and limiting the analysis at this stage to industrylevel investment cycles, Courvisanos (1996) shows how this extended uncertainty is due to the commercializing of innovations. This results in significantly high levels of susceptibility that leads to enhanced instability in investment cycles and the development of a trigger mechanism to initiate fundamentally new innovations that produce structural change in the trend of “long wave” implications, as basic innovations are diffused and adapted through incremental innovation, thereby producing a bunching effect. In his final attempt at modeling investment, Kalecki ([1968] 1991) identifies that the cycle-trend pattern that innovation has on the investment function is due to higher profitability of more advanced means of production based on new innovations. Thus, the intensity of innovation, in terms of the extent to which high profits from investment could potentially be generated, impacts on the amplitude of investment cycles and shifts the trend path – or trajectory – of investment growth. The intensity in investment of particular innovations that are significant enough to structurally change the operating innovation systems has “virtuous circle effect.” This occurs as innovation intensity rises, increasing the amplitude of the upper turning point of the investment cycle and shifting the trend path upward. However, there is also the “vicious circle effect.” This occurs as investment decisions are made during cyclical contractions to shelf (or modify downward) the commercialization plans of any significantly new innovations, and instead only invest in new capital stock that is absolutely necessary due to depreciation and maintaining market position. This increases the amplitude of the lower turning point of the investment cycle and shifts the trend downward. Thus, the pace of innovation is a shift parameter in the Kaleckian investment function. This shift parameter has been seen to evoke structural change, with extensive economic history of swarm effects created by clustering of basic innovations and their sequential bunching through investment as new innovation systems are diffused to maturity. Courvisanos and Business Cycles Verspagen (2002), by identifying empirically the “clust-bun effect” and cycle-trend patterns, see investment in incremental innovation propelling the investment cycle during the diffusion of basic innovations through the industry and then related industries. Success in activating basic (or transformative) innovation provides the impetus for the initial investment in new technology or product configurations, followed by bunching of investment based around this new technology. Thus, success in commercializing of transformative innovation is the shift parameter for the trend line in industry investment cycles. Schohl (1999) adopts a disaggregative explanation of industry investment in implementing innovation to macro business cycles, using the same kaleidic principle. Rather than aggregative variance of investment in implementing innovation used above, Schohl adopts a heterogeneous agent model in which firms are “innovative” agents all the time but at varying degrees of intensity. Schohl never specifies what “innovative” means, yet it can be assumed that he is referring to investment in implementing innovation when he sets up the “variance of the offer changes.” A firm can only change the “offer” if investment is made into producing the offer of a good or service. The other variance is that of “the profitability changes,” which provides the ability and willingness to invest, a là Kalecki. As more agents “buck the system” and adopt the variant activity, then in macroeconomic terms the system gets closer to the turning point of the cycle. In this way a discontinuity occurs at both the top and bottom turning points when the proportion that adopts the variant activity becomes the majority. Thus, Schohl devises a clear-cut spread model that shows how tightening and widening of the spreads of the two variances results in an aggregate business cycle. Coming from the Austrian economics tradition, Schohl (1999) has a supply-driven philosophy with demand only following the innovative agents along the cycle path. The role of effective demand in the investment in implementing innovation is “hidden” in the “offer change.” What this creates is an automatic deuxs exs machina, where the turning points are symmetrical. The agent model drives Business Cycles the cycle without any behavioral decisions of agents explained; it is merely a “numbers game.” The more agents change to the variant activity, the closer the cycle comes to surmounting the turning point. This approach does not allow for any examination of the dynamics at the trough to see if the lack of profit distribution and finance fragility can be overcome by enough agents so as to generate a strong enough variant activity. In the Kaleckian approach, the profits variant is the driver, but in the Great Depression the lack of both profits and investing finance limited the number of agents switching to the variant activity. It is in such cases that the government is needed to change the dynamics of the turning point. This problem at the trough can be linked to what Rothbarth (1942) identifies as the Kaleckian approach, when the decline of profits during the slump is also the stimulus for change for innovative agents. This stimulus can only translate into investment if the reduced susceptibility is unconstrained. The excess capacity constraint needs to be removed, the gearing ratio constraint needs to fall to low and manageable levels, and the strong demand in niche markets need to be established (Courvisanos 1996). This is the effective demand story missing in the Schohl (1999) model. Conclusion and Future Directions Essentially, any discussion of business cycles in the context of entrepreneurship needs to distinguish between basic transformative (or radical) innovation and incremental innovation. The investment implications of commercializing innovation are very different in both. Business cycles are greatly exacerbated with investment in basic innovation. The reason for this difference is the effective demand story that is integrated into the uncertainty of investment (from Kalecki), that is missing in the purely supply-side story (from Schumpeter). The linked by distinct two-sided model of innovation and investment outlined in this entry provides the only sound basis of researching the dynamics of entrepreneurship and business cycles. Note: The concepts, appraisal, and some major sections of the above entry are taken from 155 B a more detailed account of these issues in Courvisanos (2012). Cross-References ▶ Bankruptcy ▶ Business Climate and Entrepreneurship ▶ Creative Destruction ▶ Financing ▶ Innovation ▶ Research and Development ▶ Risk References Becker M, Knudsen T. The entrepreneur at a crucial juncture in Schumpeter’s work: Schumpeter’s 1928 handbook entry Entrepreneur. In: Koppl R, editor. Austrian economics and entrepreneurial studies: advances in Austrian economics, vol. 6. Oxford: Elsevier Science; 2003. p. 199–233. Courvisanos J. Cycles, crises and innovation: path to sustainable development – a Kaleckian-Schumpeterian synthesis. Cheltenham/Northampton: Edward Elgar; 2012. Courvisanos J. Investment cycles in capitalist economies: a Kaleckian behavioral contribution. Cheltenham/Brookfield: Edward Elgar; 1996. Courvisanos J, Verspagen B. Innovation and investment in capitalist economies 1870–2000: Kaleckian dynamics and evolutionary life cycles. Invest Econ. 2002;LXII (242):33–80. Kalecki M. Theory of economic dynamics. In: Osiatyński J, editor. Collected works of Michał Kalecki, volume II capitalism: economic dynamics. Oxford: Clarendon; [1954] 1991. p. 205–348 [Original book published 1954, London: George Allen and Unwin]. Kalecki M. Trend and business cycle. In Osiatyński J, editor. Collected works of Michał Kalecki, volume II capitalism: economic dynamics (pp. 435–50). Oxford: Clarendon Press [Original published 1968 as Trend and business cycle reconsidered. Econ J. ([1968] 1991); 78(2): 263–76]. Rothbarth E. Review of business cycles. In Schumpeter JA, editor. Econ J. (1942); 52(206/207): 223–29. Schohl F. A Schumpeterian heterogeneous agent model of the business cycle. Quarter J Aus Econ. 1999;2(1):1–20. Schumpeter J. Business cycles: a theoretical, historical and statistical analysis of the capitalist process, vol. 2. New York: McGraw-Hill; 1939. Shackle G. Epistemics and economics: a critique of economic doctrines. Cambridge: Cambridge University Press; 1972. White G. Rethinking Kalecki on the trend and cycle. Rev Polit Econ. 1999;11(3):341–53. B B 156 Business Discourse ▶ Linguistic Dimension of Creativity, Invention, Innovation, and Entrepreneurship Business Emergence Kathleen Randerson1 and Alain Fayolle2 1 University of Grenoble IUT2-CERAG, Grenoble, France 2 EM Lyon Business School, Grenoble, France Synonyms Effectual decision making; Effectuation; Emerging organizations; Market creation; Opportunity creation Definition An opportunity (product, organization, market) can come to be in the absence of deliberate planning. The Cambridge dictionary defines “emergence” as when “something becomes known or starts to exist.” Pioneer strategic management scholars (Mintzberg and Waters 1985) and entrepreneurship scholars (Katz and Gartner 1988; Gartner, 1993) had identified the importance of “emergentness” (Mintzberg and Waters 1985). Mintzberg and Waters set emergentness (when the order, or consistency in action over time, occurs in the absence of intention about it) and deliberateness (when the realized strategy, or patterns in action, forms exactly as intended) on the polar end of a continuum and propose a variety of types of strategies that fall along this continuum. Gartner (1993, p. 232, from Webster 1988) notes the definition “emerge” (1) to become manifest; (2) to rise from or as if from an enveloping fluid: come out into view; (3) to rise Business Discourse from an obscure or inferior condition; and (4) to come into being through evolution. He (Katz and Gartner 1988) identified the four characteristics of emerging organizations, defined as “organizations-in-creation, that is, organizations at the stage in which all properties necessary to be an organization come together” (1988, p. 429). This entry reflects a second mind-set of entrepreneurship. The entry “▶ Business Project” is set in the paradigm where entrepreneurial opportunities, once found or discovered, lead to the analysis of the idea (business plan) and ultimately to new venture creation via efforts of formal planning and implementation. Business emergence stresses the importance of the entrepreneurial process as a set of actions or behaviors, where entrepreneurial behaviors (“enactment”) lead to creation (“emergence”) of an organization (where the verb “organize” means “to assemble ongoing interdependent actions into sensible sequences that generate sensible outcomes” (Weick 1979, p. 3, cited by Gartner 1993). If the first mind-set, often seen as dominant or historical, is a pertinent lens to analyze and act in stable environments, the idea of emergence is particularly useful in those of uncertainty. Opportunity emergence (creation), organizational emergence, and the conditions and principles of emergence in uncertainty will be developed in this entry. Opportunity as Social Construction Entrepreneurial opportunities can be seen as objective realities that appear to alert entrepreneurs or are discovered through an asymmetry of information. They can also be seen as a social construction: They exist through the interpretation of the individuals present. Each entrepreneurial situation relies on distinct information processing capabilities. Opportunity discovery, according to cognitive psychologists, implies the use of formal models or algorithms; information processing is characterized by information which shapes the representation of reality. Social construction of opportunity, according to social or cognitive or social constructionists, will use Business Emergence interpretative or heuristic models to construct their reality by using information from their environment (Vaghely and Julien 2010). Recent research shows that information processing models (analytical versus intuitive) are not exclusive, and an individual can rely on one or the other according to the context or phase of new venture formation. Wood and McKinley (2010) offer a multistage process theory in which they assume that opportunity creation implies several stages, including the conceptualization of the idea by an individual, the objectification of the idea-opportunity, and the enactment of the opportunity into a new venture. They note that not all ideas survive through enactment and identify variables that may influence the passage (or not) from one stage to the next. Emerging Organizations Katz and Gartner (1988) identified a selection bias in most studies of the entrepreneurial phenomenon: Most research was (is) done on firms that had (have) come to be formal. This excludes from scientific study the phases of gestation, prebirth, and birth – even though important decisions (including continuation or termination) are taken at this stage. In order to capture important information occurring during the phase of emergence, he suggests qualifying an emerging organization according to four characteristics: intentionality, resources, boundary, and exchange: 1. Organizational intentionality here refers to the search for information of the potential entrepreneur, in the aim of creating a new organization and, reflecting the vision of the entrepreneur but also that of the various environmental sectors (e.g., capital, technological, and legal). It is to note that organizational intentionality is not synonymous with entrepreneurial intention. 2. Resources refer to the material components that combine to form an organization, for example, human and financial capital, property, credit, and social capital (see entry 157 B ▶ Social Capital). The ease and means of marshaling such resources will strongly influence the future organization and its strategy. 3. Boundary marks the passage from “individual as organization from individual as worker” – establishing a boundary establishes the organization’s identity beyond that of the individual. Examples of organizational boundaryidentifying conditions include obtaining and identifying symbols such as organization name, mailing address, Internet domain, telephone number, and tax identification or tax exemption number. 4. Exchange refers to cycles of transactions that are cyclic and repetitive. They can occur across border of subsystems within an organization and, across organizational boundaries with individuals, the environment, or other organizations. Katz and Gartner (1988) notes that the exchange should be beneficial to the organization (without exchange, the organization will cease to exist), yet they may be inefficient during the early stages (e.g., selling below cost to establish market share). Gartner’s properties of emerging organizations give indications on when to observe the entrepreneurial phenomenon; below are the conditions and principles of emergence in uncertainty. Conditions and Principles of Emergence in Uncertainty The entrepreneurial logic, causal or effectual, is another domain where this distinction is salient. “Effectuation processes take a set of means as given, and focus on selecting between possible effects that can be created with that set of means” (Sarasvathy 2001, p. 245). Here, the individual (entrepreneur) will focus on the means he/she has at disposition and imagine the different outcomes (opportunities). His/her actions will give rise to the opportunity, or business. On the opposite, “causation processes take a particular effect as given and focus on selecting between means to create that effect” (Sarasvathy 2001, p. 245), where the new venture is the effect, and focus is B B 158 set on identifying the optimum means to achieve that effect. On the individual level, the effectuator’s given set of means are the responses to three questions: “Who am I?” – my traits, tastes, and abilities; “What do I know?” – my knowledge corridors; and “Who do I know?” – my social networks. This has since come to be known as the “bird-in-hand” principle. The causation model is static, assumes that the decision makers are independent, and focuses on analysis and prediction; effectuation takes place in a dynamic decision-making environment, involves multiple decision-makers, synthesis, and actions. Both of these logics are viable, and they can “occur simultaneously, overlapping and intertwining over different contexts of decisions and actions” (Sarasvathy 2001, p. 245). Initially, effectual decision making had been embodied in four principles: 1. Set affordable loss: the effectual entrepreneur will identify how much loss is affordable and will focus on experimenting as many strategies as possible with the given limited set of means (as opposed to the model of maximization of potential returns in the causal model). Thus, the idea of risk becomes irrelevant inasmuch as the entrepreneur has accepted the worst possible downside as being acceptable. 2. Form strategic alliances or the “crazy quilt principle”: the effectuation model relies on strategic alliances and pre-commitments from stakeholders to reduce and/or eliminate uncertainty (as opposed to detailed competitive analysis). Each stakeholder will bring new means to the venture, striving to bring only what he/she considers as affordable loss and, allowing contingencies to influence the venture as possible sources of value. With selfselected stakeholders, no need to worry about trust and opportunism, focus on the commitments they make. 3. Leverage contingencies or the “lemonade principle”: effectuation is more appropriate when exploiting unexpected contingencies (when life gives you lemons, make lemonade); Business Emergence whereas when exploiting preexisting knowledge (e.g., a new technology) causal models may be preferable. 4. Control an unpredictable future or the “pilot on the plane” principle: effectuation focuses on the controllable aspects of an unpredictable future, and expresses the logic “To the extent that we can control the future, we do not need to predict it”; whereas causation focuses on the predictable aspects of an uncertain future, expressing the logic “To the extent that we can predict the future, we can control it.” Two other principle have been formalized since: the co-creation of the opportunity (Sarasvathy and Venkatraman 2011, p. 118), that is, the opportunity is the fruit of the actions of the effectuator and of his/her self-selected stakeholders, and the importance of failure as a learning experience. In the effectual mindset, ideas can come from transforming situations into opportunities (Read et al. 2011). The four most common transformation types are deleting/supplementing (any form of (re)-combination of elements related to the original product or service, or from unrelated domains), composing/decomposing (reorganizing material that is already there, that is, taking stock in what you have to offer and pulling it apart to recombine it in a new way), exaptation (employing existing technologies, products, services, or elements thereof for a use they were not intended to serve), and reweighing (increasing and decreasing the relative emphasis of features or attributes of a product or a market, that is, changing the emphasis of a feature so that it carries a lesser or greater emphasis on a new and differentiated offering). Markets can also emerge in an effectual manner. As noted previously, if causal decision making processes are more appropriate in stable markets, effectual modes are more appropriate when the market does not yet exist: new markets are surprises – highly improbable and thus difficult to predict before they actually come to exist (Sarasvathy and Dew 2005). Sarasvathy and Venkatraman (2011) show as examples failed Business Environment predictions (radio, “Gone with the Wind,” US market for Japanese cars, computers, and personal computers) and successful market creations (Starbucks, metal ploughs, the light bulb, uncollateralized loans) (Sarasvathy and Venkatraman 2011, p. 119). They note that successful entrepreneurs appear as visionaries after the fact, but a close look at their early day stories shows the action of pulling together “a variety of stakeholder commitments, in returns for a shot at shaping the vision; co-creation of a vision that concurrently gets embodied into the components of the new market emerging from the process that is the primary result of the entrepreneurial process. Here, the familiar story of uncommitted prospects haggling over a mouthwatering pie is replaced by the reality of self-selected stakeholders actively engaged in shaping committed ingredients into unanticipated new confections” (Sarasvathy and Venkatraman 2011, p. 120). Conclusion and Future Directions In times and/or economies of high uncertainty, the causal, planning decision-making method is at odds to serve its intended purposes: reduce risk, exploit a preexisting opportunity, and maximize returns. Research has linked effectuation to firm performance (Read et al. 2009). Entrepreneurship is still seeking its identity: Research has shown “mixed results” (Sarasvathy and Venkatraman 2011), and scholars evolve in micro-communities, for example, conceptions of entrepreneurial processes, psychological characteristics of entrepreneurs, alertness-opportunity creation-creative destruction, entrepreneurial networks and resource accumulation, and corporate entrepreneurship and venturing, among others (Schildt et al. 2006; Gartner et al. 2006). A new and exciting avenue of research consists of viewing entrepreneurship not as a discipline, but as a method (Sarasvathy and Venkatraman 2011), where it can be opposed to the scientific method. 159 B Cross-References ▶ Business Project ▶ Social Capital B References Gartner WB. Words lead to deeds: Towards an organizational emergence vocabulary. Journal of Business Venturing. 1993;8(3):231–240. Gartner WB, Davidsson P, Zahra SA. Are you talking to me? The nature of community in entrepreneurship scholarship. Entrepreneurship Theory and Practice. 2006;30(3):321–331. Katz J, Gartner WB. Properties of emerging organizations. Acad Manage Rev. 1988;13(3):429–41. Mintzberg H, Waters JA. Of strategies, deliberate and emergent. Strategic Manage J. 1985;6(3):257–272. Read S, Song M, Smit W. A meta-analytical view of effectuation and firm performance. J Bus Venturing. 2009;24:573–87. Read S, Sarasvathy S, Dew N, Wiltbank R, Ohlsson AV. Effectual entrepreneurship. New York/Oxon: Roteledge; 2011. Sarasvathy S. Causation and effectuation: toward a theoretical shift from economic inevitability to entrepreneurial contingency. Acad Manage Rev. 2001;26(2): 243–63. Sarasvathy S, Dew N. New market creation through transformation. J Evol Econ. 2005;2005(15):533–65. Sarasvathy S, Venkatraman S. Entrepreneurship as method: open questions for an entrepreneurial future. Entrepreneurship Theory Pract. 2011;35:113–135. Schildt HA, Zahra SA, Sillanp€a€a A. Scholarly communities in entrepreneurship research: a co-citation analysis. Entrepreneurship Theory Pract. 2006;30:399–415. Vaghely IP, Julien PA. Are opportunities recognized or constructed? An information perspective on entrepreneurial opportunity identification. J Bus Venturing. 2010;25(2010):73–86. Webster’s Ninth new collegiate dictionary. Springfield, MA: Merriam-Webster Inc; 1988. Weick, K. The sociat psychotogy of organizing (2nd ed.) Reading. MA: Addison Wesley; 1979. Wood MS, McKinley W. The production of entrepreneurial opportunity: a constructivist perspective. Strategic Entrepreneurship J. 2010;4:66–84. Business Environment ▶ SME Growth and Influence of Internal and External Environmental Factors B 160 Business Incubator Karim Messeghem1, Sylvie Sammut2 and Chaffik Bakkali2 1 University of Montpellier 1, Montpellier Recherche Management, AES, Montpellier, France 2 University of Montpellier 1, Montpellier Recherche Management, ISEM, Montpellier, France The concept of business incubator first developed in the United States in the late 1950s (Lewis 2002). It has become more widespread at the international level since the 1980s (Hackett and Dilts 2004; Bergek and Norrman 2008). Entrepreneurial accompaniment is an activity that tends to develop when an entrepreneurial society emerges (Audretsch 2007). Support for entrepreneurial initiatives comes in the form of accompaniment structures promoted by the state, local groups, businesses, or training and research organizations. Although initially these structures were used to support creators with restrictions, in a context of deindustrialization, they rapidly transformed into a springboard for ambitious, innovative projects with high added value. The practice of incubation is therefore nothing new, but it is tending to increase in specialization. This evolution has given rise to a wide variety of incubators. In parallel, abundant literature has developed to include a number of trends (Hackett and Dilts 2004). However, as stressed by Hackett and Dilts (2004), “most of this research is atheoretical” (p. 74). The research tends to be highly descriptive and normative, leaving to one side the incubation process. It is thus necessary now to shed light on the “black box” that is the incubation process (Hackett and Dilts 2008; Schwartz and Gothner 2009). This chapter aims to do just that. The specific aim is to develop a better understanding of incubators and of their diversity. To do this, two focuses will be made: Business Incubator one on the groups of incubator and another on the skills required by the accompaniers. Taxonomies of Incubator There is a considerable amount of literature in English dealing with the concept of incubator (Aaboen 2009; Aernoudt 2004; Bergek and Norrman 2008). According to these authors, business incubation has developed in a context that is favorable for entrepreneurship, offering a reassuring environment for people with projects, providing them with a certain number of services (premises, advice, etc.), making it easier for them to make contact with other entrepreneurs, participating in the discovery process – taking advantage of opportunities, contributing to the development of their legitimation strategy, and, of course, increasing their levels of knowledge and skill. Business incubators must therefore adopt an overall approach, based on their environment, so as to identify and make use of the resources available locally (Autio and Klofsten 1998). As the needs of businesses today are heterogeneous, in addition to the general missions presented above, the incubators try to specialize (Grimaldi and Grandi 2005). Given this diversity, several authors have tried to classify accompaniment structures by proposing taxonomies of incubator (Aernoudt 2004; Albert et al. 2003; von Zedtwitz 2003). The term “incubator” is used in the English sense, that is, including structures whose support is targeted at the pre-creation stage (“incubators” in the strictest sense of the term) and those whose support focuses on post-creation follow-up (“incubator” in the looser sense of the term). The taxonomy developed by Albert et al. (2003) synthesizes all the main groups of incubator. It is only necessary to add social incubators identified by Aernoudt (2004). Table 1 presents finality, dominant activities, objectives, and targets of the different groups of incubator. Economic development incubators are set up locally and are thus not standardized. They are Business Incubator 161 B Business Incubator, Table 1 The main characteristics of the different groups of incubator Economic development incubators Finality Nonprofit Dominant Generalist activities Objectives Job creation Academic and scientific incubators Nonprofit High tech Promotion of technologies Reconversion/ Development revitalization of the business spirit Economic Citizenship development Targets Support for specific populations or industries Development of SMEs and networks (clusters) Small craft, commercial or service companies In certain cases, hightech businesses Image Social incubators Nonprofit Social Job creation Private investor incubators Profit High tech Development of the business spirit among employees Profit through the resale of shares from a portfolio of businesses making it possible to spread out risks Cooperation between the businesses in the portfolio Holding on to talents Economic development Creation of social wealth Integration of certain social categories Financial resources Projects internal to institutions prior to creation External projects Business incubators Profit High tech Intelligence Access to new technologies and new markets Profits Internal and external Projects of Technological start-ups projects, in general in a highly social nature relation with the professions of the business Source: Adapted from Albert et al. (2003) and Aernoudt (2004) generally inserted into local economic development programs. Academic and scientific incubators benefit from state subsidies. They make technology transfer easier and promote the development of business culture in universities. They are at the crossroads of three cultures that have everything to be gained from being preserved: academic, scientific, and industrial. Social incubators have the particularity of generally pursuing a dual objective: developing economic activity while preserving social logic. They also benefit from local and/or national subsidies. Business incubators are set up in large companies, one of the ambitions of which is to develop their potential for innovation by giving the employees the opportunity to express their entrepreneurial talent. Private investor incubators are the expression of venture-capital companies or business angels. By creating incubators, the latter aim to reduce the distance separating them from the businesses they finance, thus reducing the asymmetry of information that disadvantages them. To illustrate these groups of incubator, Insert 1 gives an example of a scientific incubator: the BIC in Montpellier, in the south of France. B B 162 Incubators are organizations which mobilize human resources to carry out their activities. The quality of the accompaniment service depends on the skills of the accompaniers (Hannon 2005). The second part of this chapter will be devoted to this aspect. Insert 1 Presentation of the BIC in Montpellier The BIC (Business Innovation Centre) was set up in 1987 in the form of an ECEI. It accompanies innovative business creators in the Greater Montpellier area. It supports businesses with a considerable potential for development in the following sectors of excellence: health, biotechnology, information and communication technology, and higher tertiary. In 2007, it received the prize for best world incubator awarded by the NBIA (National Business Incubation Association). Three key missions have been developed: accompaniment, training, and accommodation. Out of a total of 12 employees, 6 use their talents as project manager 50% of the time in the pre-creation phase, and 50% in the post-creation follow-up phase. These accompaniers are highly qualified engineers or commercial specialists who master all the skills associated with developing a business plan, financial engineering, marketing, and organizational management. The businesses are housed either within the BIC itself, or in Greater Montpellier. Within the BIC, there are two sites that can be used: Cap Alpha (specialized in biopharmacy, biotechnology, and renewable energy) and Cap Omega (specialized in information and communication technologies). Regardless of the structure chosen (onsite or outside these two incubators, but within Greater Montpellier), the BIC must be familiar with all the activities of the businesses in order to better accompany them. Business Incubator The training courses proposed by the BIC are in line with the phases of development of the innovative business. In the pre-creation phase, the BIC proposes three standard training courses: “Etincelle,” which makes it possible, over 2 h, to raise awareness of the various stages in the business creation process thanks to accounts from creators themselves. “Trajectoire,” a 2-day training module, allows participants to acquire the basics of methodology before actually creating their business. “Cre´ation d’entreprise innovante” is an extended training course over 20 days. It allows participants to reflect in depth on the feasibility of their projects. In the post-creation phase, two training courses are proposed for business directors wishing to create their own businesses: “Focus,” which, on the basis of themed training courses (half day or one full day), allows participants to reflect on the management issues involved in an innovative business. “De´collage,” which makes exchanges easier by organizing group or individual training courses on site – that is, within the newly created business. The theme is defined ex ante, and the accompaniment takes place over a period of 10 months. The Skills Required Within Incubators The theory set out in this chapter is that there are two categories of skill. Generic skills are those that all accompaniers (incubator managers) have, regardless of the type of structure. There are also skills specific to each type of incubator. Generic Skills The trio of knowledge, know-how, and life skills allows to analyze generic skills. Although this Business Incubator trio has its own limitations, based essentially on the fact that the boundaries can seem rather blurred between the three, it is nevertheless relatively practical and this explains why it is used so widely. Knowledge is all that the project manager must master, regardless of the project accompanied. This knowledge can be analyzed on the basis of the three phases in the model developed by Shane and Venkataraman (2000): detection, evaluation, and seizing opportunities. This knowledge first of all concerns the phase upstream of the creation or detection of opportunity. Creativity methods and intellectual protection law are essential tools for helping the creator develop new ideas and protect them. Following this phase of entrepreneurial maieutics, it is possible to start evaluating the opportunity, in other words, analyzing the feasibility of the project, based on a concept such as the business model. Knowledge of this tool is essential for helping the creator to develop a management system that makes it possible to appropriate entrepreneurial income. Evaluating the opportunity also supposes knowledge of the environment and, in particular, the specific sector of activity. The accompanier must be aware of the specificities of the sector, its perspectives for evolution, the rules of the competition game, the legal restrictions, etc. In the exploitation phase, the accompanier must be capable of providing assistance in putting together the business creation dossier and in particular in developing the business plan. This instrumental knowledge is a necessary condition, but not sufficient for the success of the project. The accompanier must also master the specificities of SMEs and, more precisely, the organizational emergence process. It may be possible to understand this process by using grids such as the Gartner model (1985), which focuses on systematic and processual reading. The accompanier must help the creator to manage the young company in its creation and post-creation phases. The knowledge that needs to be mastered can be approached via the key fields in management, 163 B Business Incubator, Table 2 The knowledge needed to accompany the entrepreneurial process Detecting/ creating Phases opportunity Mobilized Creativity knowledge techniques Propriety law Evaluating the opportunity Business model Sectors of activity Seizing opportunity Management techniques Business plan Networking Source: Authors (2011) such as strategy, marketing, finance, HR, accounting, law, and taxation. Incubators must provide business creators with assistance to help them to immerse themselves in business networks. Accompaniers must therefore have excellent knowledge of the players liable to be of help, to provide advice or funding. Table 2 groups together all the different types of knowledge using the three phases in the model by Shane and Venkataraman (2000): detection, evaluation, and seizing opportunity. The second aspect of generic skills is composed of the accompanier’s know-how. In order to explain how incubators function, Aaboen (2009) makes an analogy with businesses that offer services for professionals. This type of business deals with customer relation management processes that are based on qualified personnel composed of “knowledge workers.” From this analogy, two levels of know-how appear: in management of the structure and in management of the relations with those accompanied. The first level becomes essential from the professionalism perspective. An incubator is an organization that must use a management system. Its small size may lead it to prefer project logic. It is vital that project management tools and techniques be mastered. Follow-up of a creation project supposes that objectives be defined, the different resources from the structure and its environment be obtained, and that time be mastered. Incubators rely more often than not on public funding. The managers of these structures must negotiate their budget and justify their choices. They must guarantee the follow-up of B B 164 their activities and can for this reason be called on to set up a system for evaluating their performances. It is important for the running of their activities that a system also be set up to exchange good practices between accompaniers. This system can be inspired by the principles of knowledge management. The second level refers to the relationship with the incubatees. When providing follow-up for a creator, mastery of accompaniment techniques, such as interview techniques or coaching, is essential. The accompanier’s aptitude for transferring knowledge to the person with the project is also a key form of know-how (Sammut 2003). This skill requires in particular the transformation of tacit knowledge into explicit knowledge, and vice versa. These different forms of knowledge can create dependency in decision-making, which can prove to be detrimental, particularly in the post-creation phase. Making the creator autonomous is thus an essential skill that the accompanier must absolutely master (Sammut 2003). It allows the creator to find solutions on his own to any future problems that he may encounter as the director of a business. Finally, there are two other forms of know-how. The first is knowing how to respond to a particular problem with a solution that is not generic, but that takes into consideration the specificities of the project – a made-to-measure response, in other words. The second is the ability to bring the person with the project into contact with external partners in such a way as to make up for the lack of integration into networks that is so characteristic of creators. Life skills are the last aspect of this type of skill. The concept is vaguer than the previous aspects and has been criticized given that it does not correspond to a definition of the skill in its context. It is nevertheless very much present in the skill referentials and is of interest from a managerial point of view for this reason. Life skills can be defined as a set of relational skills. Goleman (2006) distinguishes two types of life skills: social conscience and social skill. The accompanier’s empathy and openmindedness are the key elements in his social conscience. These two types of life skill were Business Incubator identified by Fayolle (2004) as skills that make easier the relationship between the accompanied and the accompanier. They make it possible to reduce the distance between both parties’ mental representations. The accompanier’s involvement in the mission is another element that forms part of this social conscience and is represented by considerable availability. Social skills refer to the accompanier’s relational qualities. These qualities allow the accompaniment to take place in good conditions. Respecting decisions and psychological support are the key elements. Respect effectively makes it possible to obtain and conserve the creator’s trust, while psychological support helps the creator to go beyond his periods of doubt, thus preventing any deterioration in the accompaniment relationship. Pedagogy also makes it possible for the accompanier to transmit knowledge more easily to the person with the project (Fayolle 2004). Specific Skills Generic skills are the common foundation of the accompaniment profession. The second category of skills can be qualified as specific skills. Their specificity lies in the fact that they depend on the nature of the accompaniment structure. On the basis of the taxonomy of incubator presented in the first part of this chapter, five categories of specific skills are identified. Economic Development Incubators and Territorial Skill The aim of economic development incubators is to promote economic initiative in a given area by creating conditions for the emergence and development of new localized activities. Since the 1980s, geographical areas have been committed to a competitive dynamic by trying to reinforce their attractiveness. Incubators were designed to encourage and attract new businesses, who were in turn supposed to play a part in the creation of value and job creation. The specificity of these incubators lies in the large number of key players involved in their funding. The accompanier must therefore be able to find his marks in this multidimensional area. To do so, it is necessary for the accompanier to develop good understanding Business Incubator 165 B of the role played by each key player so as to be able to integrate into the local networks. Political skills are also needed to negotiate with key players with sometimes opposing forms of logic. Accompaniers in business incubators must enable and/or enhance (1) the creativity of the incubated intrapreneurs, (2) their managerial capacities, and (3) their socialization. Academic and Scientific Incubators and Technological Skill Private Investor Incubators and Financial Skill B The aim of academic incubators is to bring together two universes that are sometimes unfamiliar with each other: academia and industry. This is because successful projects developed by incubatees will find an opening in the industrial sphere. The accompanier must therefore have a scientific culture and good knowledge of the world of business. One major characteristic of these projects lies in the significance of the funds involved, implying that the accompanier must also have good knowledge of funding channels (banks, business angels, venture-capital businesses, and so on). The accompanier must master the various mechanisms associated with technology transfer and the protection of intellectual property. Social Incubators and Social Skill By definition, social incubators support projects with a social vocation. These projects can be trade-oriented or not, and concern a wide variety of sectors of activity in the field of social economy, such as culture, sustainable development, ecology, insertion, etc. Adherence to the field of social economy is determined by certain characteristics such as a particular status (e.g., a cooperative or association), as well as a dynamic based on solidarity and reciprocity with regard to the interface with the market, civil society, and the state or its local representatives. Here, the specific skill thus lies in perfect knowledge of social economy, law, and the various statuses possible within a social economy (e.g., in France, the SCOP status – a worker’s cooperative). Business Incubators and Intrapreneurial Skill Business incubators provide support for projects developed by existing companies. This intrapreneurial mode of organization involves implementing autonomy factors so as to allow certain selected employees to bring their project to fruition thanks to their entrepreneurial skills. The last type of incubator corresponds to private investor incubators. Venture-capital companies and business angels are often behind the creation and funding of this type of accompaniment structure. The typical activities of these private investors consist in financing projects that they consider to be potentially profitable. Private investor incubators make it possible to reduce the asymmetry that investors are subject to in their relationships with entrepreneurs. The latter try in this way to benefit from physical proximity with the businesses that they finance (Barrow 2001). This proximity thus allows them to detect businesses that may not turn out to be profitable, but also those that have a greater potential for growth than initially predicted, so as to be able to adjust their level of participation. The main specific skill here lies in the accompanier’s capacity to perpetually assess the potential of the accompanied businesses to create value. It is this capacity that we refer to as financial skill. This supposes that the accompanier masters the various methods of evaluation. Conclusions and Future Directions The development of incubators results in questions being raised regarding their management practices and the skills of their accompaniers. The quality of the service provided effectively depends greatly on the skills of those who accompany the incubatees. Two categories of skill have been identified. The core is composed of the generic skills that are essential, regardless of the type of project accompanied. These generic skills are based on the trio of knowledge, know-how, and life skills which is widely used in incubators. In order to take into account the wide range of incubators, a taxonomy based on five categories of incubator has been proposed. Thus, five types of specific skills have been identified. B 166 The configurational approach seems to be an interesting future direction to conceptualize the management of incubators. By adopting this approach, it could be possible to propose a specific HR management model for each group of incubator. For example, specific model of remuneration or specific model of recruitment could be envisaged. Cross-References ▶ Accompaniment of Business Creation ▶ Business Start-up: From Emergence to Development Business Intelligence Hannon PD. Incubation policy and practice: building practitioner and professional capability. J Small Bus Enterp Dev. 2005;12(1):57–78. Lewis DA. Does technology incubation work? A critical review of the evidence. Athens: National Business Incubation Association; 2002. Sammut S. L’accompagnement de la jeune entreprise. Revue Française de Gestion. 2003; 3(144):153–64. Schwartz M, Gothner M. A multidimensional evaluation of the effectiveness of business incubators: an application of the Promethee outranking method. Environ Plan Gov Policy. 2009;27(6):1072–87. Shane S, Venkataraman S. The promise field of entrepreneurship as a field of research. Acad Manage Rev. 2000;25(1):217–26. von Zedtwitz M. Classification and management of incubators: aligning strategic objectives and competitive scope for new business facilitation. Int J Innov Manag. 2003;3(1–2):176–96. References Business Intelligence Aaboen L. Explaining incubators using firm analogy. Technovation. 2009;29(10):657–70. Aernoudt R. Incubators: tool for entrepreneurship? Small Bus Econ. 2004;23(2):127–35. Albert P, Bernasconi M, Gaynor G. Incubateurs et pépinières d’entreprises: un panorama international. Paris: L’Harmattan; 2003. Audretsch DB. The entrepreneurial society. New York: Oxford University Press; 2007. Autio E, Klofsten M. A comparative study of two European business incubators. J Small Bus Manag. 1998;36(1):30–43. Barrow C. Incubators: a realist’s guide to the world’s new business accelerators. New York: Wiley; 2001. Bergek A, Norrman C. Incubator best practice: a framework. Technovation. 2008;28(1–2):20–8. Fayolle A. Compréhension mutuelle entre les créateurs d’entreprise et les accompagnateurs: une recherche exploratoire sur les différences de perception. Manag Int. 2004;8(2):1–14. Gartner WB. A conceptual framework for describing the phenomenon of new venture creation. Acad Manage Rev. 1985;10(4):696–706. Goleman D. Social intelligence: the new science of human relationships. New York: Bantam Book; 2006. Grimaldi R, Grandi A. Business incubators and new venture creation: an assessment of incubating models. Technovation. 2005;25(2):111–21. Hackett SM, Dilts DM. A systematic review of business incubation research. J Technol Transf. 2004;29(1): 55–82. Hackett SM, Dilts DM. Inside the black box of business incubation: study B—scale assessment, model refinement, and incubation outcomes. J Technol Transf. 2008;33(5):439–71. ▶ Information Monitoring and Business Creation Business Model Robert H. Desmarteau1, Anne-Laure Saives2 and W. David Holford2 1 Department of Strategy, Social and Environmental Responsabilities, School of Management Sciences (ESG), University of Quebec at Montreal (UQAM), Montreal, QC, Canada 2 Department of Management and Technology, School of Management Sciences (ESG), University of Quebec at Montreal (UQAM), Montreal, QC, Canada Synonyms Economic model; Strategic system Definition A business model is the representation of a given firm’s competitive strategy which, in the image of Business Model a sketch, determines how the firm organizes its human, physical, and financial resources to create, capture, and share value. As to the “how to’s” of organizing, a consensus emerges toward identifying four elements or specific logics to be considered: “customers,” “expertise,” “network,” and “revenues, economic value-added.” The Concept During the financial bubble of 2000, a proliferation of the term “business model” as symbolized by “start-ups.com” first found its origins within an accounting dissertation published by Bellman in 1957 (Bellman et al. 1957). This up-untilrecently forgotten or orphaned notion is best characterized by its conspicuous absence within the classical literature, or as Teece (2010) recently stated, “The concept of Business Model has no established theoretical grounding in economics or in business studies.” In parallel to this epistemological vacuum, one single click on the Google search engine generates 300 million plus listings. In short, one is faced with the flagrant academic obligation to examine both the significance and scope of the concept of business model. What utility does the concept provide? How does one represent the concept? What is its relationship to competitive strategy? According to Magretta (2002), a good business model is above all a good narrative tool (good story) on how a firm functions (e.g., Wal-Mart founder Sam Walton (in his words) “Put good sized stores into little one-horse towns which everybody else was ignoring” (Magretta, in Teece (2010))), a good story from which one can then judge its capacity to respond to Peter Drucker’s age-old questions (Magretta 2002): (1) Who is the customer? (2) What does the customer value? (3) How does one make money in this activity? (4) What is the underlying economic reasoning that justifies the firm’s ability to provide value for its customers in a costeffective manner? For many, it is the art of design, or again, the architecture as proposed by Teece (2010) to describe the explicit or implicit concept of the business model: “Whenever 167 B a business enterprise is established, it either explicitly or implicitly employs a particular business model that describes the design or architecture of the value creation, delivery, and capture mechanisms it employs. [. . .] In essence, a business model embodies nothing less than the organizational and financial architecture of a business.” In other words, the “blueprint” image ingeniously proposed by Osterwalder (2004) captures the essential concept of business model. A History of the Concept of Business Models Circumscribing the historical origins of the concept of business models is an audacious exercise which emphasizes a filiation of principal ideas so as to generate new understandings across the proposal of sensible linkages which are more or less expected. The first point of reference among the historical foundations of business model concepts can be revealed across Ansoff’s (1965) bidimensional conceptualization of corporate strategy whereby the product and the market are combined: “the product-market scope, the grow vector, and the competitive advantage – describes the firm’s product-market path in the external environment” (p. 99). This resolutely deterministic approach was to guide the development of several instruments to strategically “position” firms. Among the most well known are (1) “Portfolio Analysis” from the Boston Consulting Group Perspective created by Bruce Henderson in 1968, (2) “Profit Impact of Market Strategy Project” (PIMS) (Schoeffler et al. 1974), (3) Market Attractiveness/Business Position Assessment (Rothschild 1976), and (4) General Electric’s Strategic Business Unit (SBU) (1971; Hall 1978). The years which followed this effervescence led toward a third dimension – of a voluntary nature – embodied within competencies related to organizational strategic practice (Normann, 1977, 1983). “We want a concept which includes not only ideas about the market and the role of the company in the external environment (i.e. what is to be dominated), but also what is to be done to transform these ideas into B B 168 concrete arrangements. [. . .] The business idea expresses the unifying principle of such a system. [. . .] A description of the business idea involves description of: the niche in the environment dominated by the company, in other words the company territory; the products of the ‘system’ that are supplied to the territory; the resources and internal conditions in the company by means of which dominance is acquired” (Normann 1977, p. 34, 37, and 38). Closely following the pronouncement of this new paradigm, the tridimensional representation of strategic practice took shape across the work of Buzzell (1975, 1978) involving the definition of the notion of the market, and materialized itself at the level of the firm across Abell’s (1980) reflections: “I shall make the working assumption that the market will be redefined in terms of customers groups, customers functions, and technologies as individual businesses are redefined in these dimensions” (Abell 1980, p. 25). During the 1980s, the “function, client, and technology” tridimensional representation of corporate strategy became an epistemological rallying point. As an example, (Thompson and Strickland’s 1983) understanding can be mentioned: “The three dimensions of defining ‘What Is Our Business?’ Derek Abell has expanded on the importance of a customer-focused concept and suggests defining a business in terms of three dimensions: (1) customers groups, or who is being satisfied, (2) customers needs, or what is being satisfied, and (3) technologies, or how customer’s needs are satisfied” (Thompson and Strickland 1983, p. 62). Finally, in a convincing and concluding manner, Ansoff, in 1987, recognizes the advantage of the tridimensional model: “Instead of the two dimensions of the original matrix it is more realistic to describe the geographic growth vector along the three dimensions which the firm can use to define the thrust and the ultimate future scope of the business: dimension of the market need, dimension of product technology, and the market geography which defines the regions or nations states in which the firm intends to do business” (Ansoff 1987, p. 84). Since the beginning of the 1980s, the conceptualization of corporate strategic practice has multiplied the Business Model tridimensional representation. Examples such as Johnson et al. (2008b) SAD (strategic activity domain) and Allaire and Firsirotu’s (1993, 2004) “strategic system” both combine the “market need, market geography, technology” triad, and by integrating the “value network” dimension, pave the way toward the notion of business models. To materialize the transition from the tridimensional vision of corporate strategic practice to the representation of the business model concept, one must recognize Chesbrough’s (2003) emblematic contribution which represents the concept of business model within a construct which breaks down the value creation process into six key functions: (1) define a customer proposition based on specific value-carrying benefits; (2) identify a target market encompassing the given customers; (3) define a value chain based on necessary complementary assets; (4) describe the revenue-generating mechanisms based on cost structure and anticipated production margins; (5) after having identified potential competitors, specify the firm’s position within a value network linking suppliers, customers, alliance, and collaboration partners; and (6) formulate a competitive strategy which will allow the innovating firm to gain a competitive advantage over its rivals. In the ensuing years, the literature on business models provided an abundance of contributions whereby diverse epistemologies confronted one another in their attempts at apprehending the object of study. Nevertheless, based on specific dominant contributions, a consensual thread emerges across authors such as Chesbrough (2003, 2006), Johnson et al. (2008), Jouison and Verstraete (2008), Verstraete and Jouison-Lafitte (2011), Osterwalder and Pigneur (2010), and Teece (2010). These authors integrate the definition of the business model within an exercise which eventually translates a firm’s strategic choices “into acts of creating, capturing, and sharing value.” To fulfill or actualize these “acts of creating, capturing, and sharing value,” strategists from IBM’s “Institute for Creation Value" (Giesen et al. 2009) defend the consensual notion of business model across the aid of four elements which can didactically be Business Model associated to articulated and evolving logics (Desmarteau and Saives 2008): (1) “customer” logic in which the firm conceives a value-laden proposal by exceeding their expectations within a framework of sustained relationships; (2) “expertise” logic, in which the firm combines key necessary resources, processes, and competencies to create/capture/share value; (3) “network” logic which relies on a network of partners to seize upon conjoint opportunities of value creation and sharing by exploiting Chesbrough’s notion of “Open Innovation” (“‘Open Innovation’ means that valuable ideas can come from inside or outside the company and can go to market from inside or outside the company as well” (Chesbrough 2003, p. 43)); and (4) a “revenues” and “economic value-added” logic (Stewart 1991) whereby the firm conceives revenue-generating mechanisms as well as a cost structure of its resources by relying on capital cost overruns. The Strategic Energizing of the Concept The competitive strategy energizes the business model or more specifically its underpinning in action. In other words, the creating, the capturing, and the sharing of value are induced by the driving of one or of all of the logics across energizing properties related to innovation, inimitability, and renewal. Innovation implies access to market. Starting from Schumpeter’s (1942) teachings, Baumol (2002) distinguishes innovation from invention in that innovation constitutes an opportunity for change whereby all means and resources are implemented toward the successful introduction of an invention to market. As for periodic renewal, it rests on the firm’s capacity to change the dynamics of a business model, this, by reason of time’s irreparable erosion of any given competitive advantage and on the need to concretize change so as to construct a lasting advantage and durability of the firm (Demil and Lecocq 2010). Finally, inimitability is based on the firm’s capacity to combine rare resources so as to construct its distinct identity and on its capacity to institutionally lock these same 169 B resources (Hamel 2002; Teece 2010) by means, among other things, of patents or, again, distinctive partnerships. B Conclusions and Future Directions In summary, the concept of business model is the representation of a given firm’s competitive strategy which, in the image of a “blueprint” (Osterwalder 2004), determines how the firm organizes its human, physical, and financial resources to create, capture, and share value. As to the “how to’s” of organizing, a consensus emerges to identify four elements which can be associated with specific logics: “customers,” “expertise,” “network,” and “revenues, economic value-added.” At the praxeological level, certain practitioners call for a census of business models as well as for a classification and inventory of business model elements (Zook and Allen 2011) or a taxonomy of business models envisaged by firms. Others, in front of an infinite number of possibilities as well as the specific context of firms, consider the feat to be unrealizable. At the methodological level, certain researchers attempt to circumscribe the modes of change and evolution associated to business models. At the epistemological level, so as to guide the practice of this subtle art of modeling, the words of Jean-Louis Le Moigne become useful: “Modeling, is orchestrating! How does one model? By specifying, as much as possible, the why’s of these how’s” (Le Moigne 1990–1977, p. 23). Hence, across the exercise of representation, the concept of business models poses numerous questions which remain unanswered (Saives et al. 2012): at the epistemological level, does the business model require a theory of the firm? And conversely, in a somewhat provocative manner, does the firm require a theory of business models? Does the business model bring in to play the “why,” the “what,” and the “how” of the collective existence? The business model is a management instrument that is often coupled to the postulate of the market economy. How does one re-utilize and adapt it so that it can B 170 become an instrument for organizations (with social finalities) which have a plural conception of the economy? This evidently poses the central question of a plural conception of value. Lastly, can the instrument of the business model successfully inscribe itself within the management system (“dispositif de gestion”) (Moisdon 1997)? Does this constitute an opportunity to seize and/or an instrument to surpass? Robust anthologies on the concept of business model will soon come forward to satisfy this epistemological void, since here, as in elsewhere, nature abhors vacuums. Cross-References ▶ Business Start-Up: From Emergence to Development ▶ Creative Destruction ▶ Entrepreneurial Opportunity ▶ Entrepreneurship in Creative Economy ▶ Innovation Opportunities and Business Start-Up ▶ Open innovation and Entrepreneurship ▶ Partnerships and Entrepreneurship (Vol Entrepreneurship) ▶ Product Development, Business Concept, and Entrepreneurship ▶ Schumpeterian Entrepreneur ▶ Social Entrepreneurship ▶ Spin-off ▶ Start-up ▶ Strategic Thinking and Creative Invention ▶ Venture Capital and Small Business References Abell DF. Defining the business: the starting point of strategic planning. Englewood Cliffs: Prentice-Hall; 1980. Allaire Y, Firsirotu M. L’entreprise stratégique: penser la stratégie. Boucherville: Gaëtan Morin; 1993. Allaire Y, Firsirotu M. Stratégie et moteurs de performance. Montréal: Chenelière McGraw-Hill; 2004. Ansoff HI. Corporate strategy. New York: McGraw Hill; 1965. Ansoff HI. The new corporate strategy. New York: Wiley; 1987. Business Model Baumol W. The free-market innovation machine. Analysing the growth miracle of capitalism. Princeton: Princeton University Press; 2002. Bellman C, et al. On the construction of a multi-stage, multiperson business game. Oper Res. 1957;5:469–503. Buzzell RD. Market share: a key to profitability. Harv Bus Rev. 1975;53:97–106. Buzzell RD. Note as a reference source for the analysis of case studies involving issues of market definition and segmentation, 1978. Copyright, the President and Felloes of Harvard College. 9-579-083 Rev. February 27, 1987 (reprod.). Chesbrough HW. Open business models: how to thrive in the new innovation landscape. Boston, MA: Harvard Business School Press; 2006. Chesbrough HW. Open innovation: the new imperative for creating and profiting from technology. Boston, MA: Harvard Business School Press; 2003. Demil B, Lecocq X. Business model evolution: in search of dynamic consistency. Long Range Plann. 2010;43(2–3):227–46. Desmarteau RH, Saives AL. Opérationnaliser une définition systémique et dynamique du concept de modèle d’affaires: cas des entreprises de biotechnologie au Québec. In Actes de la XVIIe conférence internationale de management stratégique, AIMS, Nice, juin, 2008. Giesen E, Riddleberger E, Christner R, Bell R. Seizing the advantage. When and how to innovate your business model, IBM Institute for Business Value, 2009. Hall WK. SBUs: hot new topic in the management of diversification. Bus Horiz. 1978;21(1):17–25. Hamel G. Leading the revolution: how to thrive in turbulent times by making innovation a way of life. Rev. and updated. Boston, MA: Harvard Business School Press; 2002 Johnson MW, Christensen CM, Kagermann H. Reinventing you business model. Harv Bus Rev. 2008a;86(12):51–9. Johnson G, Scholes K, Whittington R, Fréry F. Stratégique. 8ème éd. Pearson Education; 2008b. Jouison E, Verstraete T. Business model et création d’entreprise. Revue Française de Gestion Février. 2008;34(181):175–97. Le Moigne J-L. La théorie du système général, théorie de modélisation. 3e éd. rev. Paris: Presses universitaires de France; 1977–1990. Magretta J. Why business models matter. Harv Bus Rev. 2002;80(5):86–92. Moisdon J-C. (dir). Du Mode d’existence des outils de gestion, collectif, Seli Arslan, 1997. Normann R. Management for growth. Chischester/New York: Wiley; 1977. Traduction of Skapande foretagsledning, Stockholm, Aldus, (1975). Normann R. Reframing business: when the map changes the landscape. Chichester: Wiley; 1983. Osterwalder A. The business model ontology: a proposition in a design science approach, Doctoral Dissertation HEC Lausanne, 2004, p. 172. Business Project Osterwalder A, Pigneur Y. Business model generation. Self Published, BusinessModelGeneration.com; 2010. ISBN 978-8399-0617-3. Rothschild WE. Putting it all together: a guide to strategic thinking. New York: Amacom; 1976. Saives A-L, Desmarteau RH, Schieb-Bienfait N. Après une décennie de Buzz, quelle pertinence pour le concept de modèle d’affaires en stratégie ? Montréal: JFD Éditions; 2012. Schoeffler S, Buzzell RD, Heany DF. Impact of strategic planning on profit performance. Harv Bus Rev. 1974;52:137–45. Schumpeter JA. Capitalism, socialism, and democracy. New York/London: Harper & Brothers; 1942. Stewart III GB. The quest for value. New York: HarperCollins; 1991. Teece JD. Business models, business strategy and innovation. Long Range Plann. 2010;43:172–94. Thompson Jr AA, Stickland III AJ. Strategy formulation and implementation tasks of the general manager. Plano: Business; 1983. Verstraete T, Jouison-Laffite E. A conventionalist theory of the business model in the context of business creation for understanding organizational impetus. Manag Int. 2011;15(2):109–23. Zook C, Allen J. The great repeatable business model. Harv Bus Rev. 2011;89(11):106–14. Business of Church ▶ Church and Entrepreneurship Business Plan ▶ Business Project Business Project Kathleen Randerson1 and Alain Fayolle2 1 University of Grenoble IUT2-CERAG, Grenoble, France 2 EM Lyon Business School, Grenoble, France Synonyms Business plan; Corporate venture, internal; Intrapreneurial project 171 B Definition An identified opportunity can be pursued in a systematic, planned manner. The Cambridge dictionary defines “project” as “a piece of planned work or an activity which is finished over a period of time and intended to achieve a particular aim” and business as “the activity of buying and selling goods and services, or a particular company that does this, or work you do to earn money.” In a first acceptation, a business project is the planned work intended to assess the pertinence of pursuing a business opportunity, the resources and means required to do so, and how to get access to these means and resources (business plan). More recently, entrepreneurship and business practices have been adopted in the social sector (social entrepreneurship: see other entries in this volume); a business plan can be drafted in this case. Moreover, pursuing an opportunity can be the aim of an individual in an organizational setting: This is an intrapreneurial project (related entries in this volume: ▶ Corporate Entrepreneurship, ▶ Entrepreneurial Organizations). The Business Project as a Start-up When the opportunity is exploited by an individual, or group of people brought together for the specific purpose of exploiting the project, the project will be ad hoc and be translated by the production and diffusion of a business plan. The entrepreneur (individual or team) has identified an opportunity. The opportunity can be related to business or to a social need: new product or service, a technological innovation, a novel application of a known technology, and a new means to create value (see entry “▶ Business Model”). To exploit this opportunity, the entrepreneur must round up resources such as people/competencies, funds, or physical assets in order to transform the opportunity to reality. Drafting a business plan responds to several objectives. It is useful to support decisionmaking (for the entrepreneur(s) and external stakeholders) and to communicate the project. Different drafts of the plan will reflect the evolution of the project and be addressed to a specific B B 172 interlocutor for a given request (potential partner, shareholder, bank, etc.). Above all, it is important that the document reflects a fit between the opportunity, the market, the entrepreneur(s), and the new organization. Generally speaking, a business plan includes the following chapters: Executive summary: found directly after the title page, the executive summary should concisely resume the entire business plan in one page or less. Essential information that should clearly appear: what the entrepreneur wants (loan, buy-in, grant, etc.), the business concept, financial information, current business position, and main achievements. It can also comprise a description of: – The future enterprise (creation, development, takeover) – The top management team and their competencies in relation to the opportunity – The opportunity itself and the strategy to exploit it – The market and its potential – The competitive advantages of the good or service – The financial return and the interest for the potential investor or partner – The funding needed, what the enterprise can give in exchange for that funding, and how the funds will be used or the aim of the partnership Team members: the names of the team members and the specific resources (skills, competencies, network, funding) they bring, in relation to the project. Business description: first a landscape view (the industry), then a description of the target market, and finally a view of how future activity will create value in this environment. Business concept: will describe the goods or services, their uniqueness for the market, and the business model (see this word). The description of the offer will include the technical characteristics, eventually illustrated by a photography or blueprint. The aim is to show how the offer responds to a demand, the specific advantages of the offer, and possible further evolution, as well as identified risks. The life cycle, the protection of the idea (IP), Business Project and R&D activities needed to renew the offer may be interesting to develop. General strategy: this chapter should clearly demonstrate that the suggested business is the response to pursue the identified opportunity. It will include the enterprise’s mission statement, how it differentiates from existing firms, the qualifiers of success and how they will be leveraged upon, and eventually further stages of development. It should show the fit between the conclusions of the market study and the offer, the pertinence of the planned strategy. Market strategies: first demonstrate that there is a solvable market to exploit the opportunity. The data presented is generally collected through a market study, leaning on reliable, operational, and prospective information. It is important to show that the target and distribution channels are clearly identified. The following items can be developed: the industry and its characteristics, the segments targeted, how the goods or services will be introduced onto the market, the qualifiers compared to existing offers, the potential customers and their purchasing habits, and the perspectives of the market. A scan of the competition will cover identifying the main competitors, their position, and their strategy. Sales and marketing strategy: will define the distribution circuits, how the price was determined, and how the offer will be advertised, considering factors such as quality, accessibility, price, advertisement, and customer service. Data can include a description of the duo product/market, sales forecast, prices and margins, previsions, and communication. The means and organization (design and development): this section will describe how the future organization will be operated, on the practical and legal levels. The entrepreneur will show that he/she can manage the constraints inherent to production and describe the buildings, equipment or material required, the raw matter and its provenance, the possible extensions and evolutions. The production process will be described in detail; the subcontracted phases will be described separately and include the name of the subcontractor, the conditions of the contract, and why this solution has been adopted. Business Project Legal matters: include the legal structure of the enterprise but also IP matters, partnerships, tax, and contracts (e.g., labor, rental, loans, insurance). The financial previsions: present an evaluation of the financial needs and their structure. The coherence between the financial previsions and the rest of the business plan should appear clearly and include first a presentation of the main hypothesis that found the previsions but also the financial projections over 3–5 years. Three documents should be included: balance sheet, income statement, and cash flow statement, monthly for the first year and quarterly for the following. It is important that the reader identify easily the realism of the hypothesis and measure the level of robustness of the financial structure facing the risks. Including the exit options for investors will increase chances of buy-in. The Business Project as a Corporate New Venture When the opportunity is exploited for an organization, the undertaking will generally take the form of an intrapreneurial project. This entry will draw the portrait of the intrapreneur, review the types of intrapreneurial projects and the differences with entrepreneurial projects, and finally exhibit the outcomes. These projects are often the means for organizations to bring innovations to market. Pinchot and Pinchot (1978) coined the expression “intra-corporate entrepreneur” as “intrapreneur,” referring to an individual who pursues an identified opportunity in an organizational setting. He suggested eight principles that enable to identify an intrapreneur and his/her contract with the organization: 1. To become an intrapreneur, an individual must risk something of value to himself, for example, time or a delayed salary raise. 2. The rewards of success in an intrapreneurial project must be shared between the corporation and the intrapreneur in a well-defined and equitable way. 3. The intrapreneur should have the opportunity to build up something akin to capital (e.g., a cash bonus, additional R&D funds, or “intra-capital”). 173 B 4. The corporation must let the employee entrepreneur who has earned his independence have it as well as the right to fail. 5. To start a new venture, the would-be intrapreneur who has not built up “capital” must seek funding, present and defend a business plan, and agree on a method of sharing the venture’s profit. 6. After a number of players have built up sizable intra-capital, some may become “venture capitalists” within the corporation, investing in the projects of other employees who cannot get corporate backing on agreeable terms and who lack adequate intra-capital. 7. If a new product or service developed by an intrapreneur cannot be sold advantageously to another division of the company, he should have the option of raising intra-capital from the venture capital committee and/or from other successful intrapreneurs, to manufacture and market the new product. The new venture could be organized as a new corporate division, or even as a new corporation largely owned by the parent corporation. 8. As the intrapreneurship system matures, intrapreneurs will be found throughout the company enthusiastically performing many services that are now performed in a less-efficient and inspired manner by corporate employees. Currently, intrapreneurship refers to the intracorporate entrepreneur (Pinchot and Pinchot 1978), or innovation initiated and implemented by employees (Carrier 1996). Internal corporate venturing relates to the creation of new activities inside an existing organization through product or market innovation (Block and McMillan 1993), focusing on the exploitation of the firm’s talents and resources. Corporate entrepreneurship can be defined as a formal or informal activity aiming at the creation of new activities through product or process innovation and the development of new markets (Zahra 1991). The outcomes are similar: innovation (product, market, process) and the development of new markets (e.g., internationalization). As suggested above, a business plan will usually support the intrapreneurial effort to transform the opportunity into organization; the same attention B B 174 will be devoted to communicate the fit between the opportunity, the market, and the new enterprise. Buy-in may be particularly difficult to gain in the corporate setting, as the suggested innovation may perturb the corporate strategy, well-engrained processes and habits, or the organizational culture; the intrapreneur will need to double his/her efforts. Innovation through intrapreneurship carries specific traits: The project finds its legitimacy through the process, funding is conditional and uncertain, and the innovation can take place anywhere in the company and relies mainly on informal networks and specific procedures. The process is heavily dependent on the personality of the intrapreneur, who will benefit strongly and directly from the project’s success. The intrapreneurial process can take several forms: platform, cell, division, or be spontaneous. Spontaneous intrapreneurship is the result of an individual initiative that germed in an organizational context; in this case, the project will need to be sufficiently developed before the intrapreneur will be able to officially take responsibility for it. Intrapreneurial activity can also be induced by the organization. Intrapreneurial units, or small teams, can be appointed by the firm’s direction to develop a specific opportunity. Named “task force,” “team,” and “unit,” this group of people is united for the specific project and will disband once the project comes to term, returning to their initial post or are affected to the newly created activity. The intrapreneurial platform is a device, often sophisticated, set up by the firm to encourage, select, and implement intrapreneurial projects. This platform is not an entity per se, but a set of systems and procedures aiming at encouraging a flow of intrapreneurial ideas. The employees involved in these platforms do this activity in addition to their usual responsibilities. The intrapreneurial division is an independent unit with its own objectives; financial, human, and technical resources; and management system. It has the same purpose as the intrapreneurial platform, but it is autonomous. The employees are involved in this activity full-time, and this implication is reinforced through a specific system of compensation/sanction. Business Project Conclusion and Future Directions The business project, be it in an organizational setting or not, is the act of planning a future business. This can be supported by drafting the business plan, a document that will show that the proposed organization is a pertinent way to pursue an identified opportunity, on a given market. The document will also support decision making (go or no-go) for the entrepreneur(s) as well as external shareholders (potential investors) or stakeholders (e.g., suppliers) and be a valuable communication tool. However, the predictive value of the business plan is controversed: A business plan rarely correctly predicts the financial return of the new business. In many cases, the preponderance of the business plan (document) occults the importance of the project (process). In uncertain contexts, business emergence (see entry ▶ Business Emergence) plays an ever increasing role. Cross-References ▶ Business Model ▶ Corporate Entrepreneurship ▶ Entrepreneurial Organizations ▶ Intellectual Property Rights ▶ Social Entrepreneurship ▶ Start-Up References Block Z, McMillan IC. Corporate venturing: creating new businesses within the firm. Boston: Harvard Business School Press; 1993. Carrier C. Intrapreneurship in small businesses: an exploratory study. Entrepreneurship Theory Pract. 1996;1:5–20. Pinchot G, & Pinchot E. Intra-Corporate Entreprenuership Tarrytown School for Entrepreneurs. 1978. http://www. intrapreneur.com/MainPages/History/IntraCorp.html. Accessed 5 June 2012. Zahra SA. Predictors of financial outcomes of corporate entrepreneurship: an exploratory study. J Bus Venturing. 1991;6:259–85. Business Start-Up: From Emergence to Development Business Relations ▶ Business Climate and Entrepreneurialism Business Start-Up: From Emergence to Development Michel Marchesnay ERFI, Université de Montpellier, Montpelier, France Synonyms Accompaniment; Creation; Growth Entrepreneurship, viewed as either an academic or a practical field, is primarily made up of three interwoven mainstreams: – “Individual traits” of entrepreneur, typified as either a cautious owner-manager (J-B Say), or an audacious risk-taker (J-A Schumpeter 1943) – Global “spirit of enterprising” of Society, typified as either a positive attitude toward risk and innovation (Drucker 1985) or a free market ideology (Williamson 1985) – Last but not least, business creation, start-up and development Academic research on this latter topic started during the sixties. It sharply increased with the industrial world crisis of the mid-seventies, requiring new public policies. By supporting new firms, Governments tried to reduce unemployment of either salaried workers, fired from big industrial concerns, or “disabled minorities” (Small Business Act). But they also designed to promote and develop new technologies, in activity parks, nurseries, clusters, and so on. Ten years later, the emerging worldwide capitalism, usually named “postindustrial,” also “entrepreneurial” (Audretsch 2007), entailed a deep “reengineering” of economic activities, implying to promote their own business creation by new generations. Some countries were revealed to be more flexible and entrepreneurial, as in 175 B North America, with a high rate of new ventures (partly due to foreign newcomers). However, creation of small business firms appears everywhere as a major trait of the new capitalism. Moreover, most part of creations is not registered, those organizations being embedded in either black economy, or the nonprofit and social sectors. Another main feature of “neo managerial capitalism” is its strategic propensity to replace inner recruitment by outsourcing, leading to the development of very small firms and even to selfmanaged units, occupying one or two persons (for instance, a couple). Doing so, some management problems of nascent micro-firms may be paradoxically similar, whatever the nature and level of skill, from one tiny stall of an African woman on her local market to one notorious counselor in international finance! During the last 30 years, academic literature relative to small business creation and creators hugely expanded, as revealed by an increasing amount of specialized reviews, books for the general public, students and scholars, academic papers, workshops, seminar, congresses, and so on. As a result, researchers are faced with a wide span of theories about business creation, dealing with every specific problem, such as entrepreneur profile, management competences, organizational resources, market opportunities, financial needs, innovation perspectives, etc. The topics of academic research are inspired, or even dictated by “social demand,” as a need for accurate information and tools for local development, counseling, entrepreneurship training and education, and so on. Furthermore, a lot of news magazines and popular works deal, for instance, with “how to make your creation successful,” “the heroes of economy.” Three Contrasted Models: Theoretical, Pragmatic, and Systemic The Life Cycle Model: A Theoretical Approach The LCM is more deductive (logical, rational) than inductive (based on factual observations of sampled firms). This model is based on a biological analogy with living human and B B 176 creature. Theoretically, every firm may be typified as getting over several stages, from birth and childhood to old age and death. The LCM deduces that, at each stages, the entrepreneur copes with specific management problems, each ones requiring specific skills, as creativity (stage 1), risk taking (2), managerial skills (3), leadership (4), marketing (5), and so on. Some researchers designed until many as 11 “hurdles” to be jumped during the whole life of the firm! But the best known model, published by Neil Churchill and Virginia Lewis (1983), comprises only five stages. The LCM aims to describe what specialists on management research and education call “success stories.” It intends to demonstrate that, during the early stages, the “boss” must behave as an entrepreneur (a risk-taker), but, during the following ones, as an organization man (a risk manager), in such a way that the founder is frequently replaced by a salaried person as top manager. He/she is most often assumed to maximize growth, willing to build an “empire” and what Schumpeter (1943) called a “dynasty,” as described, among many other “exemplary” cases, with those two following groups. In 1928, Joseph Rapp, both a craft carpenter and a farmer, creates a small joiner workshop in a small village of Eastern France (Alsace), in order to craft and sell furniture. His two sons create, in 1959, the first store, in the nearest city (Mulhouse), and, in 1964, the first super market of furniture (Sumara, changed to Atlas in 1973). In 1978, they start the store chain Fly, and merged the chain Crozatier after its failure. In 2003, the two sons become co presidents. In 2010, this family group is the fourth French furniture retailer, with 261 stores. But they are now at the cross roads, being faced with the third generation. Indeed, the two presidents have 20 thirty years’ old little children (and stock owners). Now, some of them firmly intend to work inside the group, and to hold managerial responsibilities. Thus, the two presidents have to choose between a managerial organization, governed by salaried executives, and a family business Business Start-Up: From Emergence to Development structure. At the cross roads, they decide to design a chart, in order to maintain cohesion between heirs, and so avoid stock sales to “intruders”. The first French chocolate factory was created in 1814 in the South of France (near the Spanish border), by Mr Cantaloup, who inspired the name of the firm, in 1884. The firm grew, after its buy –out in 1962, by Mr G. Poirrier. This entrepreneur first used the brand Cantalou as a subcontractor of big retailing. In 1982, he merged the firm Ce´moi, using that well known brand as an umbrella. The two sons of Mr Poirrier are respectively president of the group and general manager of the subsidiary Sucralliance. In spite of risks, they build factories in Africa (Ivory Coast 1996), and in Spain (2008) in order to make stocking more secure. Nowadays, the Ce´moi group employs 3,000 people and corners 3 % of the world production of cacao. However, it is commonly said that “too simple is wrong, but too complex is unusable.” If the LCM is an appealing tool for early “management” teaching, it appears far from the actual problems of new venturing, as taught in “entrepreneurship.” Indeed, new starting businesses are mostly micro-firms, employing one or two people. Furthermore, a host of inquiries (for instance, Sue Birley 1999) confirm that not only more than half of SME entrepreneurs are unwilling to grow, but that growth reluctance increases as the firms are smaller. Besides the argument of a lack of resources and skills, SME entrepreneurs declare to prefer a “perennial” (and quiet) life, rather than suffer risks inherent in coping with growth uncertainties. The above firm is a good example of strategy of niche. The firm Minilamp, created in 1951, employing 28 people, is the world leader (one competitor in Europe, two in the United States) in the niche markets of both design and manufacturing incandescent lamps. They reinforced this, in 2001, by acquiring a laboratory working on special lamps used in research (10 employees). They achieved small Business Start-Up: From Emergence to Development and overspecialised orders for 300 clients in the world, mostly big companies working in the transportation industries (railway, airway, and so on). The Business Model: A Pragmatic Approach The “Business Model” is primarily a pragmatic tool, designed to help anyone willing to start his/her own business to detect, expect, avoid, prevent, and deal with “common” problems in the designing and achievement of their project. However, two different visions of the BM may be observed, focusing either on processes or on procedures. The “process approach” is primarily used by counselors. They help applicant to identify the nature and level of problems linked to his/her project. For instance, as seen later, he/she has to precise motives (and motivation), expectations (economic, social), supports (family, friends, social networks), and so on. Most often, this first stage helps to reveal contradictory and unrealistic designs, even some psychological refusals to take obstacles into account. During the following “constructivist” stage, the counselor helps the creator to build and develop his/her project, but in such a way that it looks unfinished, as a sketch. Indeed the “training process” ever requires more precise, factual, and accurate information, more realistic visions, and so on. That pragmatic approach is primarily aimed to help the creator to “discover” key problems, rather than to apply some “best,” unique, solutions. That methodology is based on uncertainty, inherent to strategic decisions, as underlined by Igor Ansoff (1988). For instance, a lot of future events, often unpredictable (as the arrival of competitors, disruptive innovations, etc.), may require a change in depth of the whole structure of the business model. The “procedural approach” is primarily used by, and for institutions, banks and credit organizations, public agencies, agreement committees, and so on. Those institutions require formal information fitting into their own procedures. Thus, request for some credit must be made as if the 177 B whole set of future decisions concerning resources needs, market definition, technologyproducts designs, and so on were definitively and precisely taken and forecasted. It refers to the so-called heuristic decision: assuming that the “solution” is given, it “just” remains to detect how to resolve some technical problems, by using the one best way (for instance, in matter of finance, the “optimal” leverage ratio). Strategic choices are seen as deliberate, not emergent, as typified in the case of big corporations. For instance, the applicant is assumed to be able to forecast expected sales for several years, workforce, current expenditures receipts, margins, future net cash positions, and so on. Thus, most of innovative creators are deterred from presenting their business models to banks or financial institutions, due to the high uncertainty prevailing for their expected businesses. Fortunately, agencies in charge of those innovating ventures (for instance, hosting inside a Nursery, an Innovation Center, or institutions allowing financial supports) use, inside their committees, a B.M. methodology close to the process approach. Furthermore, more extensively, decision criteria take into account informal data, such as those collected during interviews with applicants. The “Seven W Model”: A Systemic Approach Project evaluations encompass several “unavoidable” topics. Therefore, global appreciation, as a “systemic” approach, results from a “mix” of formal and informal data. Each theme is below identified by its initial W, knowing that it is embedded in a global evaluation of the whole project, viewed as a system. That methodology implies several face-to-face encounters, dialogues, trial and error processes, between the applicant and every protagonist (counselor, colleague, friend, stakeholders. . .). Of course, both the following list and the content of themes are not limited. 1. “Who?” “Who” refers to identity of “nascent” entrepreneurs, including life story (origins, B B 178 education, career, family, etc.), traits of character (energy, adaptability, tenacity, openmindedness, sociability, etc.). Academic research leaves questionable the link between individual identity and entrepreneurial skills. 2. “Why?” “Why” first refers to the factual reasons inducing an entrepreneur to create his/her own business, such as being fired, willing to be his/her own boss, or seizing a technical or market opportunity. Moreover, it refers to more deeply precise goals and intents. For instance, is applicant primarily motivated by searching for either a “survival income,” or a “satisfying return” on his/her investment, or, even more, “highest growth as possible”? Does he/she intend to stay on a long run in this expected job, or does he/she will sell his/her business to a big company, or take another business, once past the highest rate of growth of the targeted market? 3. “When?” It refers to the both forecasting and programming processes. Short seeing applicants prioritize building a business model in accordance with data, ratios, values required by supporting institutions. They postpone underlying problems, hoping to solve them later, once they have obtained agreements. Too often, those creators either create in a hurry, without training, or lack of learning in matter of entrepreneurial skill. It primarily explains the high rate of failures during the early years. Mr Coste, an engineer employed in a giant computer company, is a good example of “opportunist entrepreneur”, as typified by Norman Smith (1983). Indeed, he noticed that French firms were absent on the worldwide “niche” market of some overspecialized metrology equipment. He seized that opportunity to retire. He got agreements for financial supports, added to his departure premium. Unfortunately, he says that he was “badly counselled” during the 1st year. He had not envisaged “classical” start-up problems, such as the licensing problems, the cost and delay of finding and acquiring business Business Start-Up: From Emergence to Development premises, the retaliating reaction of the two (American and German) installed competitors, and so on. Thus, he wasted the most part of his venture capital during the 1st year. Fortunately, the project was promising enough to be further supported by institutions and clients. 4. Where? Location is the key factor of most of the craft or retail shops, and, more generally, for all businesses requiring some physical proximity to clients, suppliers, and stakeholders. However, expected benefits due to the so-called best site are frequently overestimated, due to the unexpected high cost of real estate, cut throat competition, imitation, retaliation, and so on. Furthermore, some businesses primarily require immaterial relationships, as website trade, so that the nascent entrepreneur may choose more distant and quiet spaces, as typified with the “lifestyle entrepreneur.” Moreover, innovative entrepreneurs are hosted in activity parks, clusters, nurseries, innovation centers, and so on. The best location varies according to the content of the “business”, and, consequently, the core competence. For instance, a generalist bookshop must be located in a busy street or a commercial centre, while specialised, second-hand or rare bookshop preferably works in a cheap and quiet place. The more the market is specialised, the more the shop must be, either near to clients (for instance, a scholar bookshop, near the university), or distant (for instance, use of website to trade in rare, ancient books with specialists and amateurs), or be located in a city in which all sorts of books and linked craft activities are traded, as in a “cluster”, or a “Marshallian” district (for example, the medieval town of Montoulieu, in South of France). 5. What? The pronoun “What” deals with both nature and design of business. This one is defined in strategic management by the acronym “T-P-M,” i.e., a “basket” of “technology,” Business Start-Up: From Emergence to Development “product,” and “market.” Every applicant has to deal with the prevailing question of “fit” between those three grounding “pillars” of project feasibility. The main questions to, respectively, ask, answer, and solve are: – What are the definitions and components of the designed product? How is it different, and, as much as possible, “better” than those yet installed in the targeted market? – What are the resources required to get the core competencies to survive (core competencies), and, better, prosper in the targeted market? – What are the tastes, behaviors, and expectations of the targeted users (consumers, firms, administrations, foreign markets)? To what extent does the proposed “service” improves user’s satisfaction, and, more generally, that of stakeholders, including everyone concerned (for instance, more sensitive to ecological problems)? – What are the main expected trends of the business market evolution? Does the product stay with current mainstream, or is it disruptive, anticipative, and innovative? For instance, the “hypo” – very smallgroup (six societies, 35 employees) Sigma Me´diterrane´e works on virtual intelligence. The firm is installed in an activity park, near from the new computer cabled network. The president anticipated that Health Agencies will increasingly have to cope with very old people living at home. The regional rate of growth of old people is around 18 % by year, and the “home solution” is highly promoted by Health Agencies. The firm markets “Logo Box TV, a “domotic” equipment (electronic for home uses. Including TV and Internet, it gives a permanent link between old person at home, and Health and Assistance services. Indeed, it appears to be promising market. 6. Which? Small business entrepreneurs are commonly viewed as being alone, with no support. In fact, all of them, as all people, are embedded in numerous “social areas,” such as family, neighbors, ethnical community, public or 179 B professional institutions, and so on. It explains why the creator has to list those various “stakeholders,” i.e., every person or organization having some potential relationships and interest with the future entrepreneur and his/her business. The prevailing questions are: – Which will govern? Indeed, the applicant may be submitted to other owners, as for instance, family members, or venture capitalists. Consequently, in order to avoid conflicts, or “surprising decisions,” he/she must carefully examine the content of firm statutes, and forecast consequences of family troubles, as divorce, death. Decision power concerning ownership (profit sharing) and management (financial policy) must be defined, above all in case of comanagement and ownership by associates or family members. – Which people will trade with the firm workers? It includes suppliers, retailers, clients, and colleagues. Some of them may create a “dependency effect,” for instance, big retailers or unique suppliers. – Which external people will be positively involved in the success of the project? The “first circle” is made of family, the second one of friends and community members, the third one of institutions supporting such projects, such as financial, promoting, and counseling institutions. – Which external people or organizations are reluctant or hostile to the project? It primarily concerns all firms threatened by new “intruders,” by business and even market innovations. “Intruder” may be even rejected when the so-called invader is not well embedded in the local environment. The newcomer will have to learn more about local networks and habits. 7. Whole Finally, “whole” deals with a global appraisal of all topics mentioned above. Most often, projects are built by using an analytic and procedural view. Thus, each problem is dealt alone, as if it was insulated from the other ones. Every choice actually impacts on B B 180 the whole system, thus requiring a global overview. Moreover, every scenario is unavoidably prisoner of future events, so that it implies adopting an “evolutionary” attitude. Thus the creator has to pay attention to the successive steps – vision, intention, start-up and development – as described below. The Genesis Process: From Vision to Intention From Vision. . . Vision is first of all a cognitive process. Somebody, looking at the future, more or less clearly and early, is induced to consider opportunities. A large number of researchers have studied to what extent more or less hidden motives, logics, norms, events, etc., primarily explain how vision works. In fact, a lot of personal factors may be retained as hypothetical, so that the visionary process varies on a case by case basis. Thus, it justifies the need for counselors to have recourse to individual “storytelling” with each applicant. The well-known two-type dichotomy – “artisan” versus “opportunist” entrepreneurs – by Norman Smith is based on two opposite visionary processes. The so-called artisan has a “limited” vision, as regards space (close environment), time (near future), and business (weak or poor skills). He/she most often makes his/her decision in a hurry. Conversely, the so-called opportunist has an “enlarged” vision, embracing not only stakeholders, but every influential event other than business ones. Thus, he/she waits until his/her project is mature enough (as Mr Coste, described above). A four type’s classification, inspired by the well-known typology by Miles and Snow (1978), is gotten by crossing the two above dimensions, named here “short or long-run vision,” and “narrow or broad-minded,” It allows giving a more accurate description of the working of vision. “Short-sighted” and “narrow-minded” applicant is typically a “follower,” according to the Miles and Snow typology. His/her vision is Business Start-Up: From Emergence to Development usually focused on two quite different businesses: either traditional (for instance, small craft proximity units, service, or retail activities) or fashionable (for instance, video games, snack foods). Both entry and exit barriers are low, so that they cope with many competitors. The shortness of vision may be justified, either by a lack of turbulent events (traditional), or, at the opposite end, by a larger number of unpredictable events (fashion). The exceedingly high rate of turnover (births and deaths) is thus explained by either a too high risk of unprofitability and failure, or a short life expectancy of a fashionable business. – Both a short-sighted and broad-minded entrepreneur is defined as an “adaptor” by Miles and Snow. He/she focuses on one or several business features, such as technical process, consumer or user needs, internal skills, and competencies. He/she incrementally improves his/her business, searching for mastering either a segment or even a niche of an existing market. It implies that his/she has both a good knowledge of current business, and an accurate vision of its evolution, requiring incremental and adaptive changes (often viewed as “innovations” by those creators). A good deal of adaptive creators is previously well trained, as, for instance, an executive chief deciding to create his own restaurant. Other people seize opportunity to transfer their knowledge (know-what or know-how) to different markets. For instance, a well-trained worker in electronics will apply his/her skill to the home security market. – “Prospector,” according to the Miles and Snow typology, may be defined as “narrow-minded,” but “long-run seeing.” They concentrate on their special competencies. Those are due to personal stories, including education, culture, learning, experience, and so on. Moreover, he/she may be a member of some specialized community, such as professional (craft guild), social (ethnic group), local (regional specialty, cluster). The prospector tries to discover opportunities. By appraising the most probable evolutions, and even revolutions in Business Start-Up: From Emergence to Development customs, in products, in technology, in world economy and politic, and so on, he/she searches for any developments in existing or emerging markets, by using his/her competences as a lever. The case of Sigma Méditerranée, mentioned above, is a good example of prospector behavior. – The fourth type is named “innovator.” He/she is assumed to be both long-run sighting and broad-minded, so that he/she is opened to every “message” or “percept” put forward in his/her enlarged environment. It implies very peculiar abilities, so that the innovator, for instance, will be the unique detector of a business opportunity. Indeed, such innovations may often reveal to be highly disruptive. Innovators are described as attaching most importance to future events. They try to encompass as many future contingencies as possible, in every field. For instance, they practice “serendipity,” i.e., the aptitude to find opportunities by interpreting (correctly or not) any “signals,” as described in semiology. The whole set of collected “signs” are drawn from an unlimited “bundle” (Tilton-Penrose 1959) of hypothetical resources. They actually become “useful” resources as soon as the innovator is able to “catch” them, and decides to create an innovative business. However, it must be kept in mind that the “pure” innovator, as defined here, is quite exceptional. Indeed, it first implies that the idea is quite original, “risen from nothing.” But most researchers, following Kirzner (1973), think that the innovator has just “discovered,” “revealed” or “underlined” some discrepancy between “supply” and “demand” in one market, and is able to find the “good way” to fill that gap. It further assumes that innovator must be willing to create his/her business, to achieve a project and bear entrepreneurial risks. It requires that this person possesses, or is able to acquire several and different competencies. Thus, many researchers admit that entrepreneurs are “more or less” innovators, but that many innovators are “more or less” entrepreneurs by 181 B creating and managing their own enterprise. In fact, there is a large span of “innovativeness,” so that even the less innovative creators contribute to modify the competitive scope in their street or in the market place! Moreover, it must be underlined that most of disruptive innovations are nowadays discovered in research laboratories of big companies, or bought from small innovative firms (as patents in genomics, or software, for instance). To Intention Opinion polls show that, instead of an increasingly willingness to create their own business, few of people carry out their “dream.” Pragmatic reasons explain that discrepancy, such as low motivation, low entrepreneurial skill and culture, lack of venture capital, excessive risk, and so on. Of course, there is a world of difference between, for example, a micro-firm created by a female worker, poor, unskilled and unemployed in the suburbs of a African megalopolis, and a start-up created by a small team of highly skilled researchers, hosted in an innovation center, and benefiting from venture capital. However, one similar explanation lies in the both psychological and technical difficulties in achieving such a project and writing it in a business plan. Intent starts as soon as applicant explores avenues to create his own business. He/she visits websites, looks for institutions in charge either of administrative formalities or of counseling, discusses with family members, friends, and colleagues. Countries aiming to promote entrepreneurship have drastically reduced registration formalities (centralized in a unique office, and available on the web). A host of information systems about creation are nowadays easily available. Accompanying activity hugely expanded during the last two decades, as described in other contributions to that encyclopedia. The second stage of intention starts when an applicant contacts and meets expert people in order to gather information, and starts a review of questionable topics, as described above with the “seven W” model. As frequently observed, those early meetings are used for identifying some key points, such as business (T-P-M) B B 182 content, available and required resources (tangible and intangible), and, above all for new applicants, information concerning nearby environment (market, competitors, public institutions, and so on). Both content and development of the following stages primarily depend upon many variables, some of them implying a more advanced formalization, as applications for venture capital, for business center, for bank credit allowance, for counselor monitoring, for micro-credit valuation, and so on. Research shows that, the more the applicant is accompanied during that period, the more he/she increases the probability of success, as revealed by cases and inquiries relative to the failure causes of “young” enterprises (less than 5 years). An entrepreneurship program for a French public institution, entitled “Institute of Rural Management and Economy” (in French: Institut de Gestion et d’Economie Rurales), was formed and practiced during the early Nineties. It was aimed to train local counsellors of around one hundred Rural Management Centres, in order to get accurate competences for creator’s accompaniment in rural areas. It comprised several stages, from idea until actual start-up. During a first informal meeting, untitled “representation”, the applicant freely gives some “prima facie” description of his/her vision, primarily based on subjective perceptions. The counsellor centres the “conversation” on the two crucial links between the “why?” and the “what?, the “competences” and the “market expectations”, as described above. At this time, counsellors conclude that new applicants are commonly used to focus exceedingly on their hypothetical competitive advantage. The most quoted are either technical skills (“I work very well that product or service”), or commercial competence (“I deeply know that market”). Doing so, they (subconsciously or deliberately?) avoid underlining or encountering any other troublesome problems, or weaknesses, may be expecting that they will be solved during the start-up stage, as seen below. Conversely, mature applicants, those having previously started one Business Start-Up: From Emergence to Development or more businesses, tend to be better trained, due to either trial and error learning (including failures) or successful creation(s) (including profitable resale). Inquiries confirm that, the more prior creations, the more clear vision and intents. Financial institutions usually upgrade a credit file when it reveals a high spirit of enterprising, and particularly a high resilience capacity, i.e., an ability to start again, in spite of previous troubles or failures. Otherwise, it must be mentioned that a lot of small business creations, seemingly made by a unique owner-manager, are in fact governed by either big concerns (outsourced or subcontracting small firms), or venture capitalists (start-ups and “gazelles”). Other ones are increasingly created by one person or family governing a (very) small firms network (so-called “hypo group”, as seen above, case “Sigma Me´diterrane´e”). In those three cases, the formal business file, meant for various institutions, will probably be built accurately. The first meetings (“representation”) aim at highlighting problems arising from the targeted project. The second set of meetings deals with the so-called “presentation”, namely, a formal file offering solutions, according to some basic choices. Ultimately, the applicant must be able to build his/her twofold business plan. The first version, designed for institutional files, is mainly based on definitive, deliberate, available and secure data, in order to convince the institution that the applicant has a clear vision, a firm intent, and attainable objectives. The alternative version is designed for the personal view of the applicant. It is mainly based on evolutionary, emergent, random and unsecured data, in order to hold strategic flexibility, and ability to face with unexpected events during the early years. The Start-Up Process: From Birth to Development The start-up period is defined by dated events, as first order by some client, first batch (for manufactured product), official shop Business Start-Up: From Emergence to Development opening, and so on. However, the creator must have solved before as many prior start-up problems as possible. Indeed, the early years are crucial and must be carefully prepared. Failures occurring during that period are primarily due to “classical” mistakes, commonly summarized as “bad, or wrong, management” by both researchers and institutions. Observers and practitioners point to a dichotomy between two kinds of problems to be solved. The first ones deal with long-term (strategic) topics being appraised and solved before effective start-up. The second ones concern short-term (operational) problems, occurring more or less sharply during early years. Avoiding Strategic Troubles Strategic troubles may be analyzed primarily as “misfits” concerning, respectively, coherence between the logic of creation and the nature of the business, the link between key competences and targeted markets, and, ultimately, between ownership and management power. 1. What logic of action ? The mainstream of literature on entrepreneurship defines the spirit of enterprising as a mix of a search for both profit and growth. It thus entails a typology made of four prevailing logics of action. – The “survival” logic. The entrepreneur (for instance, a craft worker, a small retailer), primarily expects a “satisficing” income, similar to revenues observed in his/her nearby environment. He/she desires a quiet life by targeting stable markets, with well-known habits of clients, suppliers, and competitors. He/she expects no sharp changes. “Profit” is just seen as a “normal” margin, as compared to competitors, or a “cash surplus,” used for his/her own (including family) consumption. – The “family,” “community,” or “patrimonial” logic. This entrepreneur aims to preserve and accumulate family capital, made of both productive assets (net value of the business) and private capital (“stone and 183 B land,” financial portfolio). Profit is seen as the best way to enhance patrimony, by practicing self-financing. Internal or external growth appears as just a second best strategy, giving priority to patrimony maximization. Family logic implies both “craft” expertise and market reputation on a long-range perspective. It most often requires a strong common culture between family members, including heirs. For instance, the heirs of the group Rapp (big retailers in the furniture market, mentioned above) are all fervent Catholics. Besides the “nuclear” family, it must increasingly be taken into account a “widened” family, comprising “community” or “ethnic” members. – The “managerial” logic. The managerial entrepreneur is most often well educated and trained on managerial principles and practices (for instance, as a prior executive). He is clearly searching for both profit and growth, by targeting two business objectives: first, reduce costs and increase productivity; second, enhance market power, by internal growth and mergers, by enlarging and diversifying the business portfolio, and so on. Accordingly with the BCG matrix, the entrepreneur is searching for new promising, turbulent, and risky market, financed by earned profits in mature, stable, and secure ones. Thus, he/she reveals a high propensity to “nomadism.” – The “entrepreneurial” logic. Those entrepreneurs delight in venturing businesses. Searching for opportunities to achieve an innovative and risky business, they are unavoidably embedded in emergent and unstable markets. Apart from the case of R&D as a full-time activity, entrepreneurial entrepreneurs are expecting, during the start-up, and most often the “cruising stage,” to hardly need managerial skills. It explains why a lot of them primarily hope that their firm will be acquired by big companies, and that they B B 184 will be recruited unless they try again to find new venturing opportunities. . . 2. Who governs? Who actually has the decision power remains often an unsolved and sometimes avoided question. However, a distinction must be made between two levels of decision, and consequently, of governance. – Governance linked to property rights. Apart from the case where the entrepreneur is the unique owner, start-up capital is usually brought and shared between several people or institutions (including family members and friends, with “love capital”). The entrepreneur must ensure that, whatever the future brings, he maintains his/her decision power. Those events comprise, besides economic or financial ones, social situations, as for instance, personal (health) and family (divorce) problems. Concerning venture capital firms, they most often target the majority of rights to vote, while maintaining the creator as the boss. Another “classical” problem frequently occurs when the entrepreneur has just the commercial lease, entailing potential conflicts with the reversionary owner. It is thus required to carefully prepare legal clauses concerning who decides and pays for improvement or repair investments. – Governance linked to management power. Underlying problems are commonly due to a lack of practical experience, either of technical and organizational problems, or marketing and commercial ones. They crop up when this weakness concerns the “key function,” requiring core or even distinctive competences. For instance, if the entrepreneur, previously a salaried executive, intends to create his/her business in a craft activity, requiring special abilities, the recruited foreman may acquire excessive influence, until he opposes to decisions taken by the boss, as described below. Twenty years ago, an entrepreneur, Mr Berry, started his business IREB on an activity park, in the suburbs of a French southern city. He manufactured, as Business Start-Up: From Emergence to Development a subcontractor, components for Hi Tech big companies, working mostly on French defence and arms markets. Every order requiring original specifications, he recruited highly skilled workers, particularly the foreman. During the 2nd year, in order to get more cash, Mr Berry decided to install an entirely computerized machine, producing large batch pieces, such as screws, bolts, and so on, for factories supplies. The foreman convinced the team to refuse operating the machine, thus putting down the reputations of both workers and enterprise. After 6 months of conflict, the entrepreneur resigned himself to resell the machine. The firm has flourished until today. . . maybe thanks to this obstinate foreman. Solving Start-Up Troubles During the early years, the entrepreneur has to solve “classical” problems, as underlined by both researchers and counselors. They may be classified according their link with strategic choices. Some of them require some reexamination of prior choices, other ones just adaptive reactions. Those troubles are illustrated below by taking several cases of restaurateurs. 1. Reconsidering strategic choices The entrepreneur realizes a misfit between his/her expectations and the actual business. This creator was an appreciated salaried chief in a high class restaurant located in the commercial street of a famous seaside resort. He started his own restaurant in a cheaper and more quiet place of that touristic town. He intended to benefit from his gastronomic competences to attract clients willing to taste his “innovative” recipes. But he quickly observed that clients were primarily attracted by his previous recipes, simpler and cheaper; moreover, his wife calculated that he would earn a higher margin than with the “innovative” ones. He rapidly changed his mind, in order to cope with market expectations. But he was almost frustrated, and hoped to later convince his clients to taste his more original (and expensive. . .) recipes. . . Business Start-Up: From Emergence to Development The entrepreneur seizes opportunities to adapt the fit between his/her competences and market changes. But unforeseen disturbing events may arise, requiring an in-depth strategic change. Philippe sold his baker’s shop – at a good price. He, and his wife, intended to start a less tiring business in the snack food market. However, they had not foreseen the intrusion of so many small shops in the snack market, in the best places, and the rise of the lease cost in town centre. Finally, Philip found a place located in a passer-by road at the town exit. Its attractiveness was enhanced by imminent construction of a new tram line, planned to pass nearby. But, once installed, he learned that people living along that street had protested, so that the city council had changed the lay-out. Now, the tram line was constructed in its own street, with access only for inhabitants, pedestrians, or cyclists. They tried for 1 year to start the business, in spite of those exceedingly disturbing public works, but they were obliged to stop. They just received a” symbolic” indemnity from the authorities. 2. Reacting to start-up problems Scholars on start-up research agree on the most frequent problems, including conflicts, arising during early years. For the sake of simplicity, in spite of their systemic impacts, they will be classified as “internal” and “external.” • Internal problems solving While organizing their tasks scheduling, entrepreneurs must take in a hurry a lot of short sighting and time-consuming microdecisions. Thus, they complain of not having time enough to think about their deliberate strategy. An alternative strategy emerges, based on a host of incremental decisions. This troublesome problem may become more acute in case of dissent between associates or stakeholders. Organizational problems may also occur with the workforce. The entrepreneur must define precisely each profile of accurate competences required for the various jobs. 185 B Some of them are seen to be crucial, either as a part of core competence, or even of “singular,” distinctive ability. For instance, somebody who intends to start a pizzeria must primarily recruit a well trained pizzaiolo, and offer him a high wage, a “good” pizzaiolo being very asked for. It explains why so many pizzerias are family or community businesses, members being both trained to work the job, and supported to create their own business, inside a “community” or family network. In fact, most part of creations just comprises a very few workers. Thus, according to Mintzberg’s classification (1973), a small organization (named “entrepreneurial”), is primarily organized by mutual adjustment. It requires that employees are well integrated, and adhere to the enterprise “culture,” knowing that some organizations are viewed as “convivial” and interactive, and other ones “centralized” and hierarchical. The organizational climate is made up of several factors, extensively described in organizational literature, such as: ethics and dominant values of entrepreneur (including his own story); nature of tasks, requiring or not interactions and cooperation; educative and psychological profile of members, and so on. It has been observed that, passed over a given number of employees (around seven people), mutual adjustment must be replaced by hierarchy, the need of tasks differentiation becoming more important than of human integration. For instance, the entrepreneur will have to recruit a foreman for the workshop, or an assistant for the office. Inquiries show that the entrepreneurs are inclined to recruit people in accordance with their own values, increasing the risk of encountering interpersonal and “clan” conflicts, routine, and so on. Thus, they must prove their ability to balance proximity (empathy) against distance (authority). The introduction of machine or first product lines also frequently reveal B B 186 problems, above all when the manufacturing process is innovative. Moreover, the product must be modified and adapted, according to both client reactions and workers’ learning curves. • Reacting to external problems The entrepreneur knows only the true market of his product (good, service) when early buyers use it and react. A whole set of critics and customers’ satisfactions contribute to product improvement and market targeting. For instance, sweeties based on local tradition were welcomed by early consumers. However, they worried about the targeted people (local consumers, tourists, upper or middle class, and so on). The entrepreneur and her team rapidly solved the problem by adapting packaging and prices, in order to better fit with each delivery process (big retailing, sweetshop, tourism office, export, and so on). Moreover, the entrepreneur may encounter hostile reactions, not only from installed competitors, but also from nearby environment – for instance, if the workshop is noisy or pollutes. In many cases, he must search for better local embeddedness, including social and community relationships, in order to live in a fitting environment. For instance an executive, working in Paris, decided to adopt the so-called “life style entrepreneurship”. He resigned from his job in Paris, and installed his upper restaurant in a village embedded in an under populated area. However, in a first time, he neglected to contact inhabitants, entailing hostile reactions against “the stranger”. He reacted by both meeting them and participating in the life of the village, to such a point that he was later elected as the mayor. His restaurant, mentioned in gastronomic guides, flourishes. He added a hotel later. Other crucial troublesome problems frequently occur with stakeholders, namely, Business Start-Up: From Emergence to Development client and suppliers. Entrepreneurs have usually to deal with hard bargaining relative to payments and credit conditions. It particularly concerns transactions with either big companies or their subsidiaries, including lead times conditions. The entrepreneur may encounter similar problems with banks. It means that he/she must anticipate, as much as possible, that situation by trying to get agreements before starting. On the other hand, it has been observed that some partners have some interest in helping the new enterprise, by offering better conditions. Partnership may even include financial and other supports by public institutions. Of course, this problem is less troublesome when the young firm is coming from an incubator. To sum up, some researchers suggest some “life cycle model,” underlining successive crisis that the nascent firm has to pass over. The most often mentioned and described are the following ones: – Cash flow crisis, due to clients falling behind the times or failing, suppliers pressures, and banking credit cuts. Illiquidity is usually seen as the worst signal, because it implies other management problems. – Human resources crisis, as the departure of a key worker, strike, conflict between associates, and so on. – Environmental turbulences, due, for instance, from external events (from health alerts, diseases attributed to the product, ecological protests, and so on, to public changes concerning norms). – Changes in market structure, due to fashions, tastes, sharp intrusions of big competitors (including franchisees), and so on. – Technological changes requiring a quite different expertise (for instance, new materials in building industry, computerized machine tools). It has been assumed that the start-up period was analogous to the life cycle Business Start-Up: From Emergence to Development model. The nascent enterprise would have to necessarily pass over a set of successive crisis. However, empirical observations underline the extreme specificity of each individual story. The Development Process: From Growth to Networking The slogan” the enterprise must grow or die” is one major pillar of managerial “doxa.” Thus, once the entrepreneur has stabilized his business, public institutions encourage growth. Doing so, the small firm is assumed to increase not only its legitimacy, by creating direct employment, or exporting, but also its competitiveness, by enlarging its market and increasing its profits. Actually, a lot of success stories, enlightened by Medias, are based on growth strategies, as showed below with the case of Pro Natura. Henri de Pazzis, founder of ProNatura, is the prime European example for the retailing of biological fruits and vegetables. Thirty years ago, aged twenty, he starts his bio micro firm with tomatoes. He creates his own brand in 1987, working with specialized retailers. In 2003, he buys out Vita Bio, specialized in bio packaging, in order to work with big retailing. In 2005, he enters into partnership with Activa Capital, and buys out small firms working on the bio market, located in France, Morocco and Africa, in order to enlarge his range of bio products. Moreover, some entrepreneurs, called “snatchers” by Hicks (mentioned in Penrose, 1959, note p. 40), primarily search for shortterm growth and quick profits in rising markets. Once those ones reach maturity, they close their business, or sell it, and start again elsewhere. However, studies show, as already mentioned, that small entrepreneurs are primarily reluctant to growth. In fact, a lot of them develop their business by other ways than “homogeneous,” internal or external growth. Actually, small firms achieve their development among a large span of strategic choices, networking and alliances playing an increasing role. 187 B “To Grow or Not to Grow, That Is the Question” More precisely, the chosen development path depends upon the very nature of each small firm, empirically classified below, according to typical cases. 1. Most of small firms are quite unable to grow. Those small entrepreneurs cannot acquire needed resources, such as financial capital (equity, debt capacity), skills (knowledge, learning), workers, social networks, and markets. This primarily concerns micro-firms and social entrepreneurship in the black economy. However, micro-credit banks may support promising businesses and entrepreneurs by allowing cheaper loans. 2. Many small entrepreneurs are unwilling to grow. Entrepreneurs usually give a lot of alternative arguments to refuse growth, as listed below. – They make, more or less explicitly, a tradeoff between work and leisure. Economists describe that strategy in terms of a rational calculus of compared utility versus disutility for a bigger size. Ethno sociologists underline a weak of spirit of entrepreneurship in various countries or, better, communities. On the contrary, some communities promote entrepreneurial and risk taking values. – Both competitiveness and legitimacy are based on proximity links with stakeholders. Growth, entailing more distance would require in-depth strategic changes. For instance, what is strength with a small size, as personal links with stakeholders, would become a weakness, with more “distant” relationships with bureaucratic organizations. – Growth is viewed as a risky and uncertain undertaking. Growth is first linked to uncertainty, implying no expectable events. For instance, export strategy has to cope with various turbulences, such as catastrophes, riots, revolutions, and so on, called by Ansoff “strategic surprises.” Less B B 188 dramatically, export needs a good knowledge of habits, customs, laws, economy, and language of targeted countries. Similarly, diversification by new products requires a deep knowledge of both technological processes and market complexity. Most often, unpredictable events may always occur, such as sharp innovations, or disturbing “accidents.” Moreover, the expected synergy of new business portfolio may actually reveal to be dissynergies. For instance, a small entrepreneur specialized in an upper regional food category (foie gras) decided to diversify towards big retailing, with a lower margin. His brand image was thus damaged, so that sales in luxury shops, and so profitability, sharply decreased. More generally, the entrepreneur has to make a trade-off between expected growth earnings and evaluated growth costs. Indeed, growth requires new resources, in order to build new capacities. Those that are most often indivisible and irreversible (for instance, a new machine, or a skilled employee). So, they require more other investments to work at full-time. For instance, recruiting a skilled salesman implies that the productive capacity gives enough products and sales to “make profitable” that human investment. As a result, the growth of the firm may spiral up, and thus be endangered, until a financial crisis (cash shortage) and bankruptcy occurs. It explains why so many (too) high growth firms are failing or merged with competitors, bigger companies, or venture capitalists. Alternative Ways for Development Two alternative strategies of small firm development may be underlined as representative of a new capitalism, sometimes called “entrepreneurial capitalism.” 1. “Singularity” strategies That strategy is based on the following precept: “the more my business is singular, the better it performs.” It means that the entrepreneur tries to center on a quite different, Business Start-Up: From Emergence to Development original, specific business. It is based, jointly or alternatively, on three “views”: – The RBV (“resource-based view”) suggests that holding so-called idiosyncratic (external) resources” contribute to singularity. Those are defined as rare, requiring “specific assets” (primarily knowledge), valuable, nontransferable, inimitable. – The CBV (“competence-based view”) concentrates on (internal) skills, learning, knowledge, craft ability, and so on. Either deliberately developed or incrementally emerging inside the organization, those “singular competences” must be developed, protected, and deepened, as a basis of a permanent competitive advantage. – The MBV (“market-based view”) defines “singularity” from the point of view of the latent or emerging demand for such business. It concerns as well luxury consumer goods or services, such as hi-tech manufactured products. 2. Networking strategies Post-managerial doxa promotes outsourcing, as a strategic way of lean management. Doing so, big companies have opened a host of opportunities for small firm creations. Outsourcing refers to either low tech (as, for instance, maintenance, security) or high-tech units (as, for instance, pharmaceutical research laboratories). If the former are outsourced as no contributing to profitability, the latter are outsourced as overspecialized and even singular. Doing so, big companies build hierarchic networks. They hold governance on a whole set of SME, either dependent on orders or partially owned by strategic business units or subsidiaries. Conversely, entrepreneurial literature points out interactive networking made of complementary micro and small firms working together. Each one contributes by bringing its distinctive competence, for instance, to achieve complex projects, requiring high skills, from high-tech to art crafts (as in the performance markets). Thus, those enterprises flourish in spite of their reluctance to individual growth. This behavior is inspired by the Business Start-Up: From Emergence to Development so-called hypermodern attitude, based on the search for individual achievement, while being embedded in “nomad” networks. The entrepreneur, as an owner-manager, either alone or supported by his/her family, community, or associates, creates new small firms by “layering,” as the “one best way” to develop and grow. Indeed, risks are minimized (in case of one firm failure, the whole group is safe) and the owner(s) hold(s) governance. As already described, those groups made of a network of smaller business firms are called “hypogroups.” Conclusion and Further Reading As observed above, create his/her own business has a long time been underlined as a too risky business. It explains why, in so many countries and communities, so many people are reluctant to start and install their enterprise. Actually, inside modern countries and societies, to be his/her own “boss” is increasingly becoming a common way to work, enhanced by network relationships. However, ever more-deepening researches and accurate methodologies are required to improve supports and practices concerning the whole creation process. Cross-References ▶ Accompaniment of Business Creation ▶ Business Incubator ▶ Business Model ▶ Business Project ▶ Clusters, Networks, and Entrepreneurship ▶ Craftsman ▶ Entrepreneurial Capability and Leadership ▶ Entrepreneurial Opportunity ▶ Entrepreneurship and Business Growth ▶ Entrepreneurship and Small Business Agility ▶ Experiential Learning and Creativity in Entrepreneurship ▶ Green Business and Entrepreneurship ▶ Individual Determinants of Entrepreneurship ▶ Innovation Opportunities and Business Start-Up 189 B ▶ Innovative Milieux and Entrepreneurship (Volume Entrepreneurship) ▶ Love Money ▶ Microfinance and Entrepreneurship ▶ Microfirms ▶ Network and Entrepreneurship ▶ Networking Entrepreneurship ▶ Patents and Entrepreneurship ▶ Product Development, Business Concept, and Entrepreneurship ▶ Proximity Relationships and Entrepreneurship ▶ Risk, Uncertainty, and Business Creation ▶ Small Business ▶ Small Businesses and Sustainable Development ▶ Small Businesses - Value, Transmission, and Recovery ▶ Social Capital of the Entrepreneur ▶ Start-Up and Small Business Life ▶ Territory and Entrepreneurship ▶ Venture Capital and Small Business References Ansoff I. 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