The Evolution of New Businesses

[Dangergirl]

I'm in as well. I received the book last week and have only read through the preface.

[Mr. Now]

Mr. Now notes that there seems to be plenty of interest in this book thread.

Each Sunday evening, I post a Part. Part 01, then Part 02, etc.

Each Part is a pulled quote or set of quotes from this book-- Chapter and verse.

The discussion of the Part ensues. Mr. Now provides structure and direction, but no answers per se.

Ground Rules:

Mr. Now's responsibility is to focus attention on essential concepts as I understand them. I call attention to these, and ignore non-essentials found in the book.

The participants responsibility is to participate in discussing the Part.

We process through page 260. Thereafter we reassess. I commit to this thread per Ground Rules, through page 260.

***



Summary:

1, One Part per week. Each Part focuses attention on a concept deemed essential to understanding.

2, Each Part is a quotes line or lines pulled from the book.

3, Mr. Now facilitates and guides, and refrains from providing direct answers. Instead, Mr. Now asks potentially annoying but always useful leading questions and invites discussion. The thread therefore lives or dies as a function of active discussion/participation.

4, The scope is Intro/Preface through page 260. Facilitation by Mr. Now beyond page 260 is "to be determined" after pages before 260 are processed.

[efficacy]

I'm... ordered last night.

[Mr. Now]

ORIGIN and EVOLUTION OF NEW BUSINESSES
PART 01- Intro through page 21



Procedure:

Look up the quotes listed by page number, and examine them in context.

Consider the questions.

Think and consider posting an answer.

When posting an answer, precede it with the page#/quote/questions text, below.

Cut and paste it that text into your post, then provide your post text.

Jump in and comment on answers that look really "on" -- or really "off".



Xxiii
“education in business administration was at best a minor factor in successful business startups”.

Questions:
How is this possible?
What does this mean to you personally, given your “training?”

Xv
“…most businesses start out with limited funds, limited professional managemnet, and limited planning.”

Questions:
Knowing this, what is your excuse for not starting now?
How much do you think you need? Where did you get that number from?

Xv
Author:
“I had little background in the field. . Apart from 2 unsuccessful attempts to start a venture, I was mainly steeped in the corporate approach to business.”

Question:
Is the author qualified to academically study and report validly on what winning entreprenuers actually do?

Xvi
“…observation suggested that execution might be of greater importance than strategy in startups…”

Question:
WTF does this mean to you? Read the quote in context—examine the page.

page 6 bottom
“Frank Knight refined the risk-bearing idea to argue that profit represents the entreprenuer’s reward for assuming responsibility for unmeasureable and unquantifiable risk, which he called “uncertainty”.

Question:
What is unquantifiable risk? If a risk is unmeasureable, does it exist? What is risk?


Page 12 bottom
21 million businesses, “….and only 4 percent reported revenues of more than 1 million…”

Question:
Can you get wealthy running a business that grosses less than 1 million a year, assuming you can capture 20% or more net profits per annum??

Page 13
Although Birch and others had gathered statistical data on [fast growing firms], there was little reliable research on the hows and why of their success.”

Question:
Do entreprenuers have a more realistic grip on reward-to-risk ratios than the average Joe? Do they think in probabilities? Do they factor in soft rewards into the calculation, such as increased potential of discovering 1-off and 2-off opportunities as a result of BEING in a business? Do entreprenuers THINK DIFFERENTLY than most other people? If so, how?

Page 15
“…more than 80 % o fthe INC founders I studied bootstrapped theier venture with modest funds derived from personal savings, CREDIT CARDS, 2nd MORTGAGES, and so on….”

Question:
What percentage of people are willing to completely lose 10K and some time and effort, to find out if they are wrong, on an idea that seems like it might pay 10 times that amount back per annum for the next 3 years?

“…lacking a strategy, they adapted to UNEXPECTED opportunties and problems….”

Question:
WTF? How can people start a business with little or no planning? WTF? How can these same people completely change the business focus, when they recognize a larger 1-off or 2-off derivative opportunity? What kind of beliefs are necessary to support this kind of behavior?

“…Sam Walton built a distribution center in 1969 more than two decades after opening his first store…”

Question:
Why didn’t Sam Walton get VC/investors and start big? Why didn’t he get VC-type investors after he had a bunch of stores?? Why did he chose to finance growth from profits ??



This is the BIG one:
Page 17

“ALTHOUGH IT MAY SEEM COUNTER INTUITIVE FOR SOME READERS, HIGH UNCERTAINTY (FROM TECHNOLOGICAL CHANGE OR DEREGULATION, FOR INSTANCE) HELPS ENTREPRENUERS WHO START BUSINESSES WITH LIMITED ENDOWMENTS. ALTHOUGH THEIR MOST LIKELY PROFIT IS LOW, THE UNUSUALLY RESOURCEFUL, HARDWORKING, OR LUCKY ENTREPRENEURS WHO START BUSINESSES IN UNCERTAIN FIELDS HAVE A **SMALL** CHANCE OF A **LARGE* *PAYOFF.

Questions:

What is uncertainty?

Is the word “uncertainty” used here instead of “NEW HIGH GROWTH SECTORS” or “THE BIRTH OF NEW INDUSTRIES” ??

Does the author know what he is talking about?


Page 18

“OPPORTUNISTIC ADAPTATION. Those who start uncertain businesses with limited funds have LITTLE REASON to devote much effort to prior planning and research. They cannot afford to spend much time and money on the research; the modest profit doe not merit much, and the HIGH UNCERTAINTY OF THE BUSINESS LIMITS ITS VALUE.”

Questions:

Is it rational to “not plan in a detailed way”, given what the author is saying here?

Could it be that most wanna-be entreprenuers never stop planning and therefore never start? Could it be that little or no planning is 100% rational given the reward-to-risk characteristics of the best start-up opportunities?

How important is the estimation of RISK-ADJUSTED return in figuring out which opportunity to tackle?

How discriminating are the best entreprenuers when considering where to enter?

Assume each startup opportunity costs 10K to explore, and has a 20% chance of paying you back 50 times over the next 3 years. Does it pay to burn 10K 4 times on 4 separate attempts at entry?

What is risk-adjusted return? What effect does this measure have on actual startup bankroll requirements? (think hard about this.)




Page 19

“Entreprenuers can pursue “HEADS I WIN TAILS I DON’T LOSE MUCH” opportunities because they are less prone than average to irrational ambiguity aversion AND they have a talent for exploiting the cognitive biases AND DEFECTS of other individuals.”

Question:

Don't good poker players already have these skills?

Page 22

“..individual entreprenuers…have always accounted for ABOUT HALF OF ECONOMIC ACTIVITY.”

Question:

How heroic are entreprenuers? How much courage do you have to have to even consider starting a business? Besides personal characteristics, what is the #1 CRITICAL decision when starting up?

***

[raydel]

Mr. Now. Thanks again. This looks like a great start. I have posted my answers to the first 4 questions below(those covered in the Preface). The numbers in parentheses next to your page numbers are the page numbers from the version supplied by the author on his website.

- Ray


Xxiii (7)
“education in business administration was at best a minor factor in successful business startups”.

Questions:
How is this possible?
- What is being taught as business administration is off the mark with regard to startups. As Bhide outlines in the preceding pages, business administration and academic study has focused on large businesses. People who attain business administration degrees, while they may be well suited for working and managing in a corporate environment, have not been educated in what is required to create and sustain a business ‘from scratch’. By its very definition “business administration” describes the running (i.e. managing, transacting, and operating) of an existing business. It does not speak to the ideation, inception, and execution of a business idea into a self-sustaining (income generating) entity. It seems that it is this disconnect that Bhide is attempting to bridge with this book.

What does this mean to you personally, given your “training?”
- What this means to anyone whose goal it is to create a business is that, first – an MBA is not required (phew!) It also tells me that a degree in philosophy and several years working closely with successful small business owners can provide some valuable education in lieu of the MBA. Finally, this tells me that training may not be the vital ingredient in the creation of a successful business.

__________________________________________________ __________________________________________________ __________________


Xv (8)
“…most businesses start out with limited funds, limited professional management, and limited planning.”

Questions:
Knowing this, what is your excuse for not starting now?
- My excuse is that I simply have not found the business idea that I want to devote myself to yet. It sounds all well and good to “identify your passion” and then build a business idea around it. It’s harder than it sounds for some of us. While most businesses do not have the items listed above, they all have an idea. I hope that this will change soon and not turn into an insurmountable problem!

How much do you think you need? Where did you get that number from?
- Not there yet.

__________________________________________________ __________________________________________________ __________________


Xv (8)
Author:
“I had little background in the field. . Apart from 2 unsuccessful attempts to start a venture, I was mainly steeped in the corporate approach to business.”

Question:
Is the author qualified to academically study and report validly on what winning entrepreneurs actually do?
- Judging by that quote alone, no. However, the author does acknowledge the shortcoming of academia’s treatment of entrepreneurship. So who could be academically qualified to study entrepreneurs? Entrepreneurs themselves? Perhaps, but they could likely either a) not be academically qualified or b) be busy making money for themselves. Given that the author has made a couple of attempts, he must be familiar with some of the difficulties in starting a business. He must also be well aware of the details of the disconnect between academic study and how it translates into creating a successful startup. I have not studied business academically, so perhaps I am not qualified to answer this question, but my interest and earnest attention, combined with academic study in other areas provide me with some grounds to argue the validity of my observations. Right?

__________________________________________________ __________________________________________________ __________________


Xvi (9)
“…observation suggested that execution might be of greater importance than strategy in startups…”

Question:
WTF does this mean to you? Read the quote in context—examine the page.
- This quote is certainly a loaded one. In the context of creating a business, it tells me that extensive planning (the daunting task of trying to figure out what will and will not work and how to address every conceivable possibility before acting) may not be as important as it seems to be. While it seems to be the biggest hurdle to creating a business, in actuality, execution (just doing it) is the real challenge. It tells me that success is attained by acting, not so much by planning. Especially given that the type of planning potential business creators have been trained to do may not be effective in the endeavor. This is a principle I have also encountered in the world of work. I have developed several software systems with small teams of developers and there was always a conflict between two lead programmers. One programmer wanted to spec every detail of the system out before he started coding, arguing that if we properly plan before executing we can create the system more efficiently and will not have to modify it much once it has been released. The other programmer who wanted to ‘bang it out’ and fix bugs as they present themselves, arguing that we could not anticipate every variable and we'd be better served getting it into the operating environment as soon as possible. In the systems that were successful (i.e. that made money for the companies who used them) the latter method was more often used. That’s not to say that planning is worthless. The earlier programmer was quick to point out how much extra work we had to do to fix the unavoidable bugs users encountered once the product was in use. The trick seemed to be finding the proper balance between planning and acting. I imagine the same applies to the formation of businesses as well. So, while the observation tells me not to get perpetually hung up by planning, I do not want to forget that strategy and execution are both necessary, with execution being the more important of the two.

[CardMinger]

Mr. Now,

I was going to respond but I think it best that we start a new thread for the first responses so that mods can later create a "Digest" sticky.

I was going to copy/paste your text into a new post but didnt want to make it look like it was my post and thought you should be the one to do it.

Obviously it's up to you if for some reason you don't think we should start a new thread.

I also have one suggestion for the procedures: people should "grunch" their answers - meaning write their own answers before reading the answers of others...what do you think?

By the way thanks a lot for putting in the time to do this...I think it will be interesting and very helpfull to a lot of people here...especailly myself!

CM

[CrayZee]

If this is the same as the book by Bhide, I thought it was very good. Def. worth a read...yeah, it's a little dry. I thought the venture capital chapter was the most boring because I lacked interest in that at the time.

I found this one in a stack of free books at the public library about 4 years ago...totally random.

[Mr. Now]

"Xvi (9)
“…observation suggested that execution might be of greater importance than strategy in startups…”

Regarding your answer, Mr. Now says:

You may want to examine the Agile methods in your software work. Also, because you are in software, you are special. Bhide tells you why later in the book.

see also:
http://agilemanifesto.org/


www.agilemanifesto.com

[Mr. Now]

This is in response to CardMinger, the OP, suggesting that each Part be a separate thread such that it can become part of a Digest of "stickies" for this forum.

I post here, away from Part01, such that Part01 will not become messy with this content.

Mr. Now's response:

CardMinger,

Earlier I think that the reading belongs under the Ask MrNow thread, but since you start a new original post "Evolution of New Businesses", here, I just go with it.

I think what is best is to stick with the structure we have here. You start the new thread, I say OK I'll do it, I respond with structure, ie PART01, PART02, etc. All the parts thus are contained, the thread heading is correct, we are on our way.

As for "grunching", other responses, etc, my current belief is that it is best for anyone that wants to post about a Part to simply do so in their own style. This thread under your OP with the structure I lay out will likely develop perfectly.

Learning and teaching are messy processes and the thread as structured supports diverse learning styles. The natural evolution of the thread content will be interesting to observe. The structure is there. You create the thread, I create the substructure. We are there.

I believe there is enough structure here to a) support the objective of bringing the key points of this book to attention and b) make it simple to anyone discovering the thread to follow it. The key is the 'Parts' sub-headings which provides easy to follow structure. The entire thread is self-referential, ie, it explains itself.

Mr. Now is pleased to be of service. My intention is to help manifest an entreprenuerial success story from the ranks of 2+2 players. Said success story is defined by Mr. Now as:

" a 2+2 reader on my threads doing a startup that grows to 2MM annual revenue and 30% net profit within 36 months of startup."

You are out there. At least one of you can do this.


This is totally doable and Bhide's book indirectly describes exactly what to watch for and what to do. I say indirectly because his observations are academic and his descriptions are quite "wooden", lacking passion and energy.

The form of the book is dry and wooden, but do not be misled. The insightful and essential content is very much there. What he calls 'disequilibrium' actually has other "street" slang names.

This thread is a collaborative effort. As I said earlier, it lives or dies on the answers-- not the questions from Mr. Now. Let us hear from everyone.

My current belief is that this thread has sufficient structure to later become a single sticky, with the many constituent Parts (and responses) contained therein.

Recall that I commit to leading the examination of this book through page 260 and no further as of Now.

[debater]

Ordered today. I am in

Debater