They are getting older

Brand new statistics show that over the half of Finnish entrepreneurs are over 45 years old. Younger individuals still seem to dislike this kind of behavior. Figures published by the Statistics Finland show that the total number of entrepreneurs declined from 2008 to 2009 by over 3.600 individuals being now about 237.000. Among 18-24 years old we have 5000 entrepreneurs which is only 2.3 percentage of the total number of employed population at that age.

This numbers also include the farmers which causes a possibility of age-based bias if the numbers are compared internationally. This, though, partially explains the huge drop decline in the entrepreneurial population between 1990-2009.

[source: Statistics Finland]

Global Entrepreneurship Monitor

Greetings from Washington D.C.

The latest global report was published yesterday. Interestingly, among other issues it shows how the recession has affected entrepreneurial behavior across countries. This is shown basically in the change of the ratio between necessity and opportunity-based entrepreneurship. Necessity has risen in some countries, like Ireland.

As a positive note the GEM report tells us that "today, 250 million people between 18-64 years old are actively engaged in starting or running new businesses in 59 economies...". Nice. Report also shows that "63 million of these early-stage entrepreneurs expect to hire at least five employees over the next five years. 27 million anticipate hiring twenty or more people in newly created jobs." These are the important entrepreneurial individuals who actually contribute to the economic growth (or development depending on the phase of the economy). Unfortunately, there is continuous lack of them in Finland.

How to change the current state of affairs?

Get your GEM Global Report 2011 here.

Less growth without discovery of growth opportunities

Our tentative firm-level results show that the engagement in entrepreneurial orientation (EO) in family firms enhances the changes for achieving growth in turnover and in the number of employees. Thus, it is likely that risk-taking, innovative and proactive behavior is later rewarded by firm growth. Our study examined the relationship between entrepreneurial orientation and the discovery of growth opportunities in a data comprising 223 family firms included in the Innocas data set.

In addition to EO's positive effect on firm growth, our results show that the discovery of growth opportunities is positively associated with firm growth. It also mediates the relationship between entrepreneurial orientation and firm growth. This suggests that EO itself may not be enough, but firms have to be alert and aware of the ongoing changes in the markets. EO in family firms enhances the chances of recognizing suitable opportunites (e.g. new product-market combinations, new niches) for growth which again increase the chances for achieving firm growth. Accordingly, we argue that family firms like any other firm need to renew their strategies and discover new opportunities for the future in order to be able to secure the continuity of their businesses.

Adapted from:
Stenholm P., Pukkinen T. & Heinonen J.: Firm Growth in Family Businesses- The Role of EO and the Discovery of Growth Opportunities. A paper accepted to be presented at the 16th Nordic Conference on Small Business Research, Kolding, Denmark 20.-21.5.2010.

Discovering or creating opportunities?

In its most simplistic form the process to meet the unknown opportunities seems to be two-fold. Opportunities are discovered or their might be created. These different ends of entrepreneurial behavior have remarkably different background and outcomes. For example, their ontological assumptions are "from two different worlds".

If we choose to assume the opportunities are discovered, then we assume to opportunities are out there to be discovered - an assumption based on the realist philosophy (Alvarez & Barney 2007). Based on this we do expect that opportunities come from exogenous changes in an industry or market. Hence, the adaptation to and seizing of these opportunities is dependent on the abilities and alertness of entrepreneurial individuals and managers (Kirzner 1997). This also means that the decision making takes place under the context of risk. The decision maker is able to gather information on the possible outcomes (and their probability) associated with each decision to be made (Alvarez & Barney 2007). Similarly, the assumption of discovery lets us to expect that due to central role of active explorative search (Leiblein 2007) any firm trying to discover new opportunities has to have employers with diverse background and experience, who in addition, have possibilties for informal interaction (Kleinbaum & Tushman 2007).

On the other hand, if we choose to assume that opportunities are created by the actions and reactions to produce new products and services, then our view of the world is evolutionary realist (Alvarez & Barney 2007). Based on this, we expect that opportunities do not exist independent of entrepreneurial individuals or managers, but they are - of course - created. Under this assumption the context of decision making also differs from the discovery assumption. Here, decision making occurs under the context of uncertainty - decision maker is not able to gather enough information associated with the decisions and their outcomes (and their probability) (Alvarez & Barney 2007). At the firm level the assumption of opportunity creation leads us to expect that a firm has to obtain enough individuals with imaginative and iterative capabilities (Leiblein 2007) in order to be able create new opportunities.

Despite their differences, these alternatives lead to similar outcomes - innovations and potential success. But at the same time they are affected by the environmental as well as firm- and individual-level circumstances (Leiblein 2007). For instance, the pace of chance in the market or in an industry and hence the probability of unmet needs differ. Are the right opportunities discovered early enough or are the creation of new opportunities meeting the needs of the market? Furthermore, the aspirations, capabilities, resources and their un-filled combinations (Leiblein 2007) are related to the choices made in order to meet the prerequisites of firm growth and success.

Interestingly, among others the question remains: In which circumstances different innovation strategies and innovation types are more or less suitable to meet the chances in the competition environment?

References:
Alvarez, S. A., and J. Barney (2007). "Discovery and Creation: Alternative Theories of Entrepreneurial Action," Strategic Entrepreneurship Journal, 1 (1-2), 11-26.
Kleinbaum, A. M., and M. L. Tushman (2007). "Building Bridges: The Social Structure of Interdependent Innovation," Strategic Entrepreneurship Journal, 1 (1-2), 103-122.
Kirzner, I. M. (1997). "Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach," Journal of Economic Literature, 35 (1), 60-85.
Leiblein, M. J. (2007). "Discussant Comments. Environment, Organization, and Innovation: How Entrepreneurial Decisions Affect Innovative Success," Strategic Entrepreneurship Journal, 1 (1-2), 141-144.

Some thoughts on the entrepreneur...

Does this, a week ago mentioned, individual “entrepreneur” actually operate in an uncertain and unpredictable environment?

First, his institutional setting is fairly stable and predictable. The illegal status of selling home-made DVDs of the latest films and TV-series is not likely to change in the near future. Second, he has clearly carefully chosen a market niche where at least the nation-wide established players are not likely move. Also the choice of market place clearly indicates that the entrepreneur is aware of his market niche and the risk involved. At the same time he is able to contact his potential customers, i.e. the not-so-well-off people who have to probably work a couple of jobs and don’t have the time or money to subscribe to these other vendors, and, if it comes to it, he has a good possibility to the melt into the crowd and so avoid the default risk. (Having visited “The Greatest City in America”, it is rather obvious to me that this entrepreneur does not cooperate with the local law enforcement.) Nevertheless, consider the situation from the five forces framework of Michael Porter (1980) it seems that he might have secured a position for competitive advantage.

Also, operating in such a market niche this individual clearly has the capability to endure and take more risk than the average entrepreneur. However, again based on personal observations in the city of Baltimore, it is rather unlikely that he would be the only one having this capability. Also, as mentioned, it is fairly easy to get yourself copies of the latest TV-series and distribute them via DVDs. As such, these would not qualify as resources that are valuable, rare or inimitable (cf. Barney 1991). This raises the question why don’t we witness more competitors enter this market niche? One answer might be that he operates as part of a network of vendors who have cartelized and divided the market: one has the subway another operates for example in public parks. However, it has been shown that colluding is difficult in cases where market entry is easy. More likely, this entrepreneur has developed a unique set of capabilities and resources that are required in this type of competitive environment. These capabilities are hard to copy, not because they are necessarily inimitable, but because developing them takes time and requires tacit knowledge and learning processes. In other words, it may be possible that this individual holds a dynamic capability to renew and change his capabilities according to requirements of the situation (Teece et al. 1997). A capability that gives him an advantage over potential entrants, by enabling him to explore as well as exploit the environment and its resources (Zollo & Winter 2002).

References

Barney, J. 1991. Firm resources and sustained competitive advantage. Journal of Management, 17(1): 99-120.
Porter, M. E. 1980. Competitive Strategy: Techniques for analyzing industries and competitors. The Free Press: New York.
Teece, D. J., Pisano, G., & Shuen, A. 1997. Dynamic capabilities and strategic management. Strategic Management Journal, 18(7): 509-533.
Zollo, M., & Winter, S. G. 2002. Deliberate learning and the evolution of dynamic capabilities. Organization Science, 13(3, Knowledge, Knowing, and Organizations): 339-351.

Entrepreneurial activity and sources of competitiveness

At one metro station in downtown Baltimore is a spot, a mysterious spot, where you are able to update yourself with the latest turns in your favorite TV-series. Of course by assuming that you have favorites on TV and that you have actually missed the latest dramatic turns a day before. Well, no worries, your problems will be solved. In that particular spot you'll find a dude that has the abilities and willingness to provide you visual goodies, dvds - straight from the owen. His distribution channels also reach to the latest movies which gives him a second niche. And you are his one and only business opportunity.

But you are such an uncertain one. Maybe you did see the break-up, deal-gone-bad or that unsolvable crime actually solved before you woke up drooling on your sofa. No doubt you are not that willing to encourage his not-so-legal business venture after all. In addition, maybe you have a deal with Netflix, maybe you have a DVR or you'll have some time to spare at hulu.com. Why you then should pay for couple of dvds???

However, this fellow is maneuvering his venture every day by taking the same risks of getting caught or left without a buck against nation- or even Internet-wide competitors. His venture is under continuously uncertain and unpredictable conditions which is, in addition, rather directly affected by legislation.

For Average-Joe the situation seems odd. The risk compensated return is not that desirable after all. Questions arise:

• Does he know something about the market the others (we, customers, competitors) do not know?
• Are the officers of law for some reason on his side or just too busy with other cases of law offending?
• Hence, does he have some institutional competitive advantage plus entry barrier for new entrants?
• Or put it in a simply way - Is he just so ignorant about the downside risk and sees only positive outcomes of this venture - even if it would only produce loss for him?

We are not claiming that illegal business activities should be encouraged. Instead we use this real-life case to shed some light on the sources of competitiveness in a really really micro level. What do we then need in order to bring this type of observed case to the general level? Financial statements - the cost structure and profitability of the business. Thus, we would be able to analyze the success of the venture and possible innovation(s) embbeded in it. Similarly, we would able to compare this business activity with general development in that specific industry. In addition, this data would provide groundings for evaluating the predictors of the sources of competitiveness in any industry.