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4.1 Entrepreneurial Process
LEARNING OBJECTIVES
1. Understand the constituent elements of the entrepreneurial process.
2. Gain appreciation for how the elements fit together to form a whole.
In this chapter, we examine the ways in which entrepreneurial ventures combine the classic
entrepreneurial process with sustainability concepts. This combination encompasses design
approaches and corporate competencies that generate new offerings that achieve revenue growth and
profitability while enhancing human health, supporting ecological system stability, and contributing
to the vitality of local communities. This chapter shows the interconnections across sustainability,
innovation, and entrepreneurship to give the reader greater understanding of a current global
phenomenon: the search for new products, technologies, and ways of conducting business that will
replace the old with designs intended to help solve some of society’s most challenging issues.
When products are designed and business strategies are structured around systems thinking that is
associated with sustainability, the outcome, as in any system composed of interacting and
interdependent parts, emerges as larger than the sum of its constituent elements. So we should keep
in mind, as we dissect the entrepreneurial process into its core elements, that we do so for analytic
purposes—first to understand the individual parts and then to see how they come together. Once that
picture is clear, the reader will have gained new insights into what entrepreneurs active in the
sustainability innovation space actually do. The Walden Paddlers case discussed in Chapter 4
"Entrepreneurship and Sustainability Innovation Analysis", Section 4.5 "Adaptive Collaboration
through Value-Added Networks", is a representative example of this approach.
Bear in mind that sustainability, innovation, and entrepreneurship are terms used to represent a wide
range of ideas, depending on the context. However, just because they have come into common use
and have been interpreted broadly does not mean they cannot be defined in focused and practical
ways to help guide entrepreneurial individuals in business. Individuals and companies are, in fact,
implementing sustainability designs and strategies through the use of innovative initiatives. At the
present time, these three terms—sustainability, innovation, and entrepreneurship—are our best and
most accurate descriptors of what is happening in the marketplace. No one term covers all the ground
required. In the following sections, we examine entrepreneurial process and then discuss
sustainability concepts to explain how the necessary parts merge to create a holistic picture.
Entrepreneurial activity can seem mysterious for those not familiar with the phenomenon. US culture
has created heroic myths around its most famous entrepreneurs, reinforcing the idea that
entrepreneurship is about individuals. As a consequence, many people believe those individuals are
born entrepreneurs. In fact, it is more accurate to talk about entrepreneurship as a process. More
frequently than not, a person becomes an entrepreneur because she or he is compelled to pursue a
market opportunity. Through that activity—that process—entrepreneurship unfolds. A typical story of
entrepreneurship is one in which the entrepreneur is influenced by his or her engagement with
favorable conditions, circumstances in which an idea comes together successfully with a market
opportunity. An individual has an idea or sees a problem needing a solution and generates a way to
meet that need. A new venture is initiated and, if successful, an ongoing business created. Thus
entrepreneurship—the creation of new ventures as either new companies or initiatives within larger
organizations—is about the process of individuals coming together with opportunities, resulting in
specific customers being provided with new goods and services.
For purposes of this discussion, entrepreneurship is not constrained to starting a company. While
that definition is commonly assumed, entrepreneurship and entrepreneurial innovation can occur in
a variety of settings including small or large companies, nonprofit organizations, and governmental
agencies. Entrepreneurship emerges under widely diverse circumstances, typically in response to new
conditions and in pursuit of newly perceived opportunities. We focus here not on the average new
venture set up to compete under existing rules against existing companies and delivering products or
services comparable to those already in the market. Rather, our focus is on entrepreneurial
innovators who forge new paths and break with accepted ways of doing business, creating new
combinations that result in novel technologies, products, services, and operating practices—that is,
substantial innovation.
In that regard, our approach is aligned with entrepreneurship as defined by twentieth-century
economist and entrepreneurship scholar Joseph Schumpeter, who pointed out that change in
societies comes as a result of innovation created by entrepreneurs. His emphasis was on innovation
and the entrepreneur’s ability through innovation to generate new demand that results in significant
wealth creation. Peter Drucker, a twentieth- and twenty-first-century scholar of entrepreneurship,
echoed similar ideas many decades later. Entrepreneurship is innovative change through new venture
creation; it is the creation of new goods and services, processes, technologies, markets, and ways of
organizing that offer alternatives with the intention of better meeting people’s needs and improving
their lives. Innovation encompasses the creative combination of old and novel ideas that enables
individuals and organizations to offer desired alternatives and replacements for existing products and
services. These innovative products and ways of doing business, typically led by independent-thinking
entrepreneurial individuals, constitute the substitutions that eventually replace older products and
ways of doing things. Sustainability entrepreneurship and innovation build on the basics of this
accepted view of innovation and entrepreneurship and extend it to encompass life-cycle thinking,
ecological rules, human health, and social equity considerations.
Understanding entrepreneurial processes and the larger industrial ecosystem at work requires that we
break down the subject matter into separate pieces and then recombine them. The pieces need to be
examined on their own merit and then understood in relation to one another. We start with
understanding the entrepreneurial process and move to examining the elements of sustainability
innovation. Each piece is a necessary, but not sufficient, part of the puzzle. By examining the pieces
carefully, we can see in Chapter 4 "Entrepreneurship and Sustainability Innovation Analysis", Section
4.1 "Entrepreneurial Process", how the entrepreneurial process unfolds and in Chapter 4
"Entrepreneurship and Sustainability Innovation Analysis", Section 4.2 "Systems Thinking", what
entrepreneurial leaders do to integrate sustainability principles.
Bear in mind that the mental exercise required in the following discussion is useful not only as an
analytic approach for entrepreneurs or investors but also to set out core business plan elements.
Business plans require elaboration on the market opportunity, a thorough understanding of what the
entrepreneur brings to the business and the qualifications of the management team, and a clear
articulation of the product or service offered and why a customer would purchase it. The business
plan also must discuss the resources needed to launch the business and the market entry strategy
proposed to establish early sales, lock in reliable suppliers, and provide a platform for growth. Thus
learning and applying the analytical steps discussed in this section has direct synergies with writing a
business plan.
Analysis of Entrepreneurial Process
Successful entrepreneurship occurs when creative individuals bring together a new way of meeting
needs and a market opportunity. This is accomplished through a patterned process, one that
mobilizes and directs resources to deliver a specific product or service to customers using a market
entry strategy that shows investors financial promise of building enduring revenue and profitability
streams. Sustainability adds to the design of a product and operations by applying the criteria of
reaching toward benign (or at least considerably safer) energy and material use, a reduced resource
footprint, and elimination of inequitable social impacts due to the venture’s operations, including its
supply-chain impacts.
Entrepreneurial innovation combined with sustainability principles can be broken down into the
following five key pieces for analysis. Each one needs to be analyzed separately, and then the
constellation of factors must fit together into a coherent whole. These five pieces are as follows:
Opportunity
Entrepreneur/team
Product concept
Resources
Entry strategy
Successful ventures are characterized by coherence or “fit” across these pieces. The interests and skills
of the entrepreneur must fit with the product design and offering; the team’s qualifications should
match the required knowledge needed to launch the venture. The market opportunity must fit with
the product concept in that there must be demand in the market for the product or service, and of
course, early customers (those willing to purchase) have to be identified. Finally, sufficient resources,
including financial resources (e.g., operating capital), office space, equipment, production facilities,
components, materials, and expertise, must be identified and brought to bear. Each piece is discussed
in more detail in the sections that follow.
The Opportunity
The opportunity is a chance to engage in trades with customers that satisfy their desires while
generating returns that enable you to continue to operate and to build your business over time. Many
different conditions in society can create opportunities for new goods and services. As a prospective
entrepreneur, the key questions are as follows:
What are the conditions that have created a marketplace opportunity for my idea?
Why do people want and need something new at this point in time?
What are the factors that have opened up the opportunity?
Will the opportunity be enduring, or is it a window that is open today but likely to close
tomorrow?
If you perceive an unmet need, can you deliver what the customer wants while generating durable
margins and profits?
Sustainability considerations push this analysis further, asking how you can meet the market need
with the smallest ecological footprint possible. Ideally, this need is met through material and energy
choices that enhance natural systems; such systems include healthy human bodies and communities
as well as environmental systems. Sustainability considerations include reducing negative impact as
well as working to improve the larger system outcomes whenever and wherever financially possible.
Let us examine the different pieces separately before we try to put them all together. The Walden
Paddlers case in Chapter 4 "Entrepreneurship and Sustainability Innovation Analysis", Section 4.5
"Adaptive Collaboration through Value-Added Networks", provides a company example to apply
these concepts in their entirety.
Opportunity conditions arise from a variety of sources. At a broad societal level, they are present as
the result of forces such as shifting demographics, changes in knowledge and understanding due to
scientific advances, a rebalancing or imbalance of political winds, or changing attitudes and norms
that give rise to new needs. These macroforces constantly open up new opportunities for
entrepreneurs. Demographic changes will dictate the expansion or contraction of market segments.
For example, aging populations in industrialized countries need different products and services to
meet their daily requirements, particularly if the trend to stay in their homes continues. Younger
populations in emerging economies want products to meet a very different set of material needs and
interests. Features for cell phones, advanced laptop computer designs, gaming software, and other
entertainment delivery technologies are higher priorities to this demographic group.
Related to sustainability concerns, certain demographic shifts and pollution challenges create
opportunities. With 50 percent of the world’s population for the first time in history living in urban
areas, city air quality improvement methods present opportunities. Furthermore, toxicological
science tells us that industrial chemicals ingested by breathing polluted air, drinking unclean water,
and eating microscopically contaminated food pass through the placenta into growing fetuses. We did
not have this information ten years ago, but monitoring and detection technologies have improved
significantly over a short time frame and such new information creates opportunities. When you
combine enhanced public focus on health and wellness, advanced water treatment methods, clean
combustion technologies, renewable “clean” energy sources, conversion of used packaging into new
asset streams, benign chemical compounds for industrial processes, and local and sustainability
grown organic food, you begin to see the wide range of opportunities that exist due to macrotrends.
When we speak of an opportunity, we mean the chance to satisfy a specific need for a customer. The
customer has a problem that needs an answer or a solution. The opportunity first presents itself when
the entrepreneur sees a way to innovatively solve that problem better than existing choices do and at a
comparable price. Assuming there are many buyers who have the same problem and would purchase
the solution offered, the opportunity becomes a true business and market opportunity. When
opportunities are of a sufficient scale (in other words, enough customers can be attracted quickly),
and revenues will cover your costs and promise in the near term to offer excess revenue after initial
start-up investment expenditures are repaid, then you have a legitimate economic opportunity in the
marketplace.
It is important to understand that ideas for businesses are not always actual opportunities; unless
suppliers are available and customers can be identified and tapped, the ideas may not develop into
opportunities. Furthermore, an opportunity has multiple dimensions that must be considered
including its duration, the size of the targeted market segment, pricing options that enable you to
cover expenses, and so forth. These dimensions must be explored and analyzed as rigorously as
possible. While business plans can serve multiple purposes, the first and most important reason for
writing a business plan is to test whether an idea is truly an economically promising market
opportunity.
The Entrepreneur
The opportunity and the entrepreneur must be intertwined in a way that optimizes the probability for
success. People often become entrepreneurs when they see an opportunity. They are compelled to
start a venture to find out whether they can convert that opportunity into an ongoing business. That
means that, ideally, the entrepreneur’s life experience, education, skills, work exposure, and network
of contacts align well with the opportunity.
However, before we talk about alignment, which is our ultimate destination, we look at the
entrepreneur. Consider the individual entrepreneur as a distinct analytic category by considering the
following questions:
Who is this person?
What does this person bring to the table?
What education, skills, and expertise does this person possess?
Like the opportunity, the entrepreneur can be broken down into components. This analysis is
essential to understanding the entrepreneur’s commitment and motivations. Analysis of the
entrepreneur also indicates the appropriateness of the individual’s capacities to execute on a given
business plan. The components are as follows:
Values. What motivates the individual? What does he or she care enough about to devote the
time required to create a new venture?
Education. What training has the individual received, what level of formal education, and how
relevant is it to the tasks the venture requires to successfully launch?
Work experience. Formal education may be less relevant than work experience. What prior
jobs has the individual held, and what responsibilities did he have? How did he perform in those
positions? What has he learned?
Life experience. What exposure to life’s diversity has the individual had that might strengthen
(or weaken) her competencies for building a viable business?
Networks. What relationships does the individual bring to the venture? Have her prior
experiences enabled her to be familiar and comfortable with a diverse mix of people and
institutions so that she is able to call upon relevant outside resources that might assist with the
venture’s execution?
If any one category could claim dominance in shaping the outcome of an innovative venture, it is that
of the entrepreneur. This is because investors invest in people first and foremost. A good business
plan, an interesting product idea, and a promising opportunity are all positive, but in the end it is the
ability of the entrepreneur to attract a team, get a product out, and sell it to customers that counts.
While management teams must be recruited relatively quickly, typically there is an individual who
initially drives the process through his or her ability to mobilize resources and sometimes through
sheer force of will, hard work, and determination to succeed. In challenging times it is the
entrepreneur’s vision and leadership abilities that can carry the day.
Ultimately, led by the entrepreneur, a team forms. As the business grows, the team becomes the key
factor. The entrepreneur’s skills, education, capabilities, and weaknesses must be augmented and
complemented by the competencies of the team members he or she brings to the project. The
following are important questions to ask:
Does the team as a unit have the background, skills, and understanding of the opportunity to
overcome obstacles?
Can the team act as a collaborative unit with strong decision-making ability under fluid
conditions?
Can the team deal with conflict and disagreement as a normal and healthy aspect of working
through complex decisions under ambiguity?
If a business has been established and the team has not yet been formed, these questions will be
useful to help you understand what configuration of people might compose an effective team to carry
the business through its early evolutionary stages.
Resources
Successful entrepreneurial processes require entrepreneurs and teams to mobilize a wide array of
resources quickly and efficiently. All innovative and entrepreneurial ventures combine specific
resources such as capital, talent and know-how (e.g., accountants, lawyers), equipment, and
production facilities. Breaking down a venture’s required resources into components can clarify what
is needed and when it is needed. Although resource needs change during the early growth stages of a
venture, at each stage the entrepreneur should be clear about the priority resources that enable or
inhibit moving to the next stage of growth. What kinds of resources are needed? The following list
provides guidance:
Capital. What financial resources, in what form (e.g., equity, debt, family loans, angel capital,
venture capital), are needed at the first stage? This requires an understanding of cash flow needs,
break-even time frames, and other details. Back-of-the-envelope estimates must be converted to
pro forma income statements to understand financial needs.
Knowhow. Record keeping and accounting and legal process and advice are essential resources
that must be considered at the start of every venture. New ventures require legal incorporation,
financial record keeping, and rudimentary systems. Resources to provide for these expenses must
be built into the budget.
Facilities, equipment, and transport. Does the venture need office space, production
facilities, special equipment, or transportation? At the early stage of analysis, ownership of these
resources does not need to be determined. The resource requirement, however, must be
identified. Arrangements for leasing or owning, vendor negotiations, truck or rail transport, or
temporary rental solutions are all decision options depending on the product or service provided.
However, to start and launch the venture, the resources must be articulated and preliminary costs
attached to them.
The Product/Service Concept
What are you selling? New ventures offer solutions to people’s problems. This concept requires you to
not only examine the item or service description but understand what your initial customers see
themselves buying. A customer has a need to be met. He or she is hungry and needs food. Food solves
the problem. Another customer faces the problem of transferring money electronically and needs an
efficient solution, a service that satisfies the need. Automatic teller machines are developed and
services are offered. Other buyers want electricity from a renewable energy source; their problem is
that they want their monthly payments to encourage clean energy development, not fossil fuel–based
electricity. In any of these situations, in any entrepreneurial innovation circumstance in fact, as the
entrepreneur you must ask the following questions:
What is the solution for which you want someone to pay?
Is it a service or product, or some combination?
To whom are you selling it? Is the buyer the actual user? Who makes the purchase decision?
What is the customer’s problem and how does your service or product address it?
Understanding what you are selling is not as obvious as it might sound. When you sell an electric
vehicle you are not just selling transportation. The buyer is buying a package of attributes that might
include cutting-edge technology, lower operating costs, and perhaps the satisfaction of being part of a
solution to health, environmental, and energy security problems.
Entry Strategy
Another category to examine carefully at the outset of a venture is market entry strategy. Your goal is
to create something where nothing previously existed. Mobilizing resources, analyzing your
opportunity, producing your first products for sale—none of these proves the viability of your
business. Only by selling to customers and collecting the payments, expanding from those earliest
buyers to a broader customer base, and scaling up to sufficient revenue streams to break even and
then profit do you prove the enduring viability of the enterprise. Even then, a one-product operation
is not a successful business; it is too vulnerable. A successful entrepreneur should consider additional
products or services. Living through the early stages of a venture educates you about the customer
and market and can point you to new opportunities you were unable to see previously. Your product
concept at the end of year two may be, and often is, different from your original vision and intent.
The process of entrepreneurship melds these pieces together in processes that unfold over weeks and
months, and eventually years, if the business successful. Breaking down the process into categories
and components helps you understand the pieces and how they fit together. What we find in
retrospect with successful launches is a cohesive fit among the parts. The entrepreneur’s skills and
education match what the start-up needs. The opportunity can be optimally explored with the team
and resources that are identified and mobilized. The resources must be brought to bear to launch the
venture with an entry strategy that delivers the product or service that solves customers’ problem.
Disparities among these core elements are signs of trouble. If your product launch requires
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engineering and information technology expertise and your team has no one with that knowledge,
your team does not “fit” with the product. If you launch the product and have insufficient funds to
sustain operations, perhaps you did not adequately calculate the capital resources required to reach
the break-even point. Each category must be analyzed and thoroughly understood and all puzzle
pieces joined to create the integrated picture required for financial success. In Chapter 4
"Entrepreneurship and Sustainability Innovation Analysis", Section 4.2 "Systems Thinking", we will
look at the core elements of sustainability innovation.
KEY TAKEAWAYS
Entrepreneurship is the creation of new ways of meeting needs through novel products,
processes, services, technologies, markets, and forms of organizing.
Entrepreneurial ventures can be startups or occur within large companies.
Entrepreneurship is an innovation process that mobilizes people and resources.
Key to entrepreneurial success is the fit among the entrepreneur/team, the product
concept, the opportunity, the resources, and the entry strategy.
EXERCISE
1. In small teams, identify a successful entrepreneurial venture in your community and
interview the entrepreneur or members of the management team. Define and describe the
key elements of the entrepreneurial process for this enterprise. Analyze the fit between the
entrepreneurial founder and the product or service, the fit between the product and the
opportunity, and the fit between the resources and the entry strategy.
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