Evaluating risks, dealing with uncertain environments, and taking advantage of competitor's weaknesses
When contemplating 'going out on their own,' prospective entrepreneurs know they face a number of potential risks as well as rewards. The attractions of entrepreneurship for the businessperson are the independence it offers; greater freedom and control over the final product, and also the unlimited earning potential that can be derived from owning one's own business. An entrepreneur is not limited to earning a fixed salary. But unlike someone working for a salary, the entrepreneur must also bear the risks of the venture. Some of the most common obstacles faced by budding entrepreneurs include the difficulties of marketing; researching the customer base and potential financial rewards for a new business; dealing with government regulations; writing a business plan, obtaining capital and a good location, and creating partnerships with others (Schulaka 2009: 8). "Individuals are forced to expose themselves to the possibility of either committing an error of commission (taking action only to find their belief was unfounded) or committing an error of omission (not taking action only to regret it when time proves that their passed-over hunch was correct)" (McMullan & Shepherd 2006: 139). Entrepreneurship is a risk, but so is not acting and missing out on an opportunity.
Entrepreneurship offers no guarantees. Many businesses fail but a handful of ventures meet with great success. "Uncertainty is an attribute not only of entrepreneurial settings but also of virtually every environment in which marketing occurs today" (Read et al. 2009:1). There is no set model for operating under conditions of uncertainty but rather a series of models which the entrepreneur can consider when embarking upon a venture. Some may use past outcomes to provide a guideline but the entrepreneur must ask: "Is your environment stable enough that you can reliably base future actions on data from the past?" (Read et al. 2009: 3). Others may focus solely on the goals of the enterprise to determine decision-making, rather than a focus on the exterior environment. However, in most instances of uncertainty, some risk-benefit analysis of competitors and the marketplace is required so that the most appropriate actions will be taken, since businesses do not operate in a vacuum.
On a psychological level, most people are uncomfortable with uncertainty and many observe the principle that "failure is likely in uncertainty. Make small bets, so when you fail, it is not catastrophic, and you can incorporate the learning into the next iteration of the opportunity instead of having to terminate the project" (Read et al. 2009: 3). But an 'expect the worst' mindset may lead to pessimism. Ultimately it is better to cultivate a proactive and positive attitude, and look for possible new relationships.
Successful entrepreneurs act with confidence, even in the face of uncertainty. An excellent example of this is Bill Gates. As a budding entrepreneur, Gates took advantage of his major competitor IBM's arrogance when negotiating with the technology giant. Gates "asked for one thing: unfettered rights to license the OS to potential clones of the IBM PC. IBM, assuming that no PC-clone market would emerge quickly, was happy to grant Gates' wish" but the rapid pace of technology ensured that 'clones' in the form of Dell and HP supplanted IBM's former unquestioned dominance (Cohan & Rangan 2006: 58). "The entrepreneurial mind seeks to understand an incumbent's confirmatory biases because they represent strategic blind spots that may present a rich source of profitable new business. Microsoft's performance shows just how rich those new markets can be" (Cohan & Rangan 2006: 58).
The example of Microsoft also highlights one of the paradoxes of entrepreneurship. On one hand, small start-ups can be uniquely vulnerable to the ups and downs of the market, since they have a fragile customer base and so much to lose. On the other hand, large enterprises like IBM can become too 'comfortable' with themselves and are unable to perceive the need for change. "Successful start-up CEOs, such as the ones running Google, for example, believe that, while the future is so difficult to predict, experimentation will allow them to make sense of it" (Cohan & Rangan 2006: 58). A successful entrepreneur has the confidence to be able to perceive such an opportunity, and the emotional wherewithal to pounce upon it.
Another successful company, Google, likewise tries to remain one step ahead of the competition, a critical element of thriving in the constantly changing, technologically-driven market of today. Google has an entrepreneurial mindset and is always offering new services to users. It has adopted a 'break all the molds' approach to running and growing its company. Provided that entrepreneurs make use of uncertainty in an intelligent fashion, they do have the potential to use their flexibility to exploit volatile conditions and to gain inroads against a more established, seemingly intractable competitor like IBM. The then-tiny Microsoft knew that it had no choice but to act boldly against IBM, and to use IBM's arrogance against it.
Unlike Microsoft, which has fallen prey to accusations that it has become 'stogy' and hidebound to tradition much like IBM, Google has continues to take advantage of risks and opportunities. Despite its great success, it has not grown complacent. Google is willing to fail, provided it learns from its failures. Entrepreneurs are also willing to 'steal' and learn the lessons of success and failure from their competitors. A new entrepreneur cannot always have the available funds to do as much market research as he or she would like, and allowing competitors do to the research is one way to exploit the competition. Sam Walton, the founder of Wal-Mart "measured competitors' shelf space and noted sales prices at Ames, a department store chain" to determine the dimensions of his own stores as well as scouted the business practices of its major competitors Target and Kmart, noting everything down to the organization of their parking lots (Cohan & Rangan 2006: 59).
But despite the brashness entrepreneurs must use when dealing with an uncertain market, they must also act with some degree of caution and realism. "Nothing is more detrimental to a start-up than having to confront an incumbent endowed with large resources at an early stage in its life. By avoiding head-on competition, upstarts fly under the radar, get stronger over time, and then attack the incumbents when the incumbents are not expecting it" (Cohan & Rangan 2006: 60).
Entrepreneurs function as an engine of social change as well as can take advantage of such changes, as is seen in the examples of these now-great companies. The extent to which entrepreneurship avoids or is driven by uncertainty is a controversial issue amongst economists: researchers studying entrepreneurship on a macro level stress how uncertainty can inhibit risk-taking, based upon a risk-benefit calculation, but individuals have used a variety of situations, including risky ones, to capitalize upon their idea during times where there may be high levels of risk.
There is thus a psychological, internally-driven aspect to entrepreneurship despite the need of the entrepreneur to take into consideration external circumstances. In one stream of research, "the amount of uncertainty is considered to be the barrier between prospective entrepreneurs and entrepreneurial action. The second stream highlights the willingness to bear uncertainty and typically proposes that those who decide to act entrepreneurially are distinguishable from those who do not owing to differences in motivation, attitude, or risk propensity" (McMullan & Shepherd 2006: 133). 'More' entrepreneurship flourishes in an environment which promises greater returns and less risk on a macro level, but some individuals will take risks at all times, depending on their psychological inclinations and may succeed.
Uncertainty has increasingly not been perceived as an objective quality by social scientists, but instead conceptualized as a subjective one, based upon the…