Posts Tagged orientation

Small Business Risk Taking: History Repeats Itself


“History repeats itself” is a saying I hear on occasion and often wonder about. Today, for example, some businessmen say they cannot work because of uncertain conditions, yet Adam Smith designed capitalism as the “epitome of risk taking” (Bernstein, 1996, p. 19). According to Bernstein, up to the time of the reformation, the stable Protestant tradition stressed abstinence to avoid risk. Protestants considered the danger inherent in risk-taking as akin to gambling. Adam Smith (1904) introduced capitalism believing the danger attached to risk also came with opportunity. Instead of looking at risk as a zero-sum game where someone wins and someone loses, Smith believed trade resulted in a mutually worthwhile pursuit. Smith believed both parties to trade and risk taking could become wealthier contrary to practice before the reformation that relied on exploitation to gain wealth (Bernstein, 1996).

Recent conversations have talked about how unacceptable the transfer of wealth is from the elite to its underlings. Some business people espouse the pre-reformation idea that wealth transfer should only come from exploitation of underlings, while others see wealth transfer more like Adam Smith did. Smith believed business is risky, but full of opportunity and new wealth came to those adventuresome people willing to innovate (Bernstein, 1996). Today with the coming of supply-side economics, some want to return to the days of exploitation and stymie adventuresome entrepreneurs willing to innovate and create new trade. Does history repeat itself? Has the pendulum swung too far in the wrong direction?

I believe an efficient economic system has to balance opportunities with risk taking. If business people do not take risk, I do not see where innovation comes from under such conditions. Stable well-established businesses do not like to remove themselves from their comfort zone and their products and services eventually become stale and do not satisfy consumer needs. Meanwhile, society needs to provide more incentives to entrepreneurs to innovate and create new trade.

What do you think? Is our economic system returning to the stable pre-reformation days bereft of any risk taking relying solely on exploitation? Are you willing to take a risk in today’s economic setting? What incentives do you believe would help entrepreneurs to resume their efforts to innovate new trade? Please leave your thoughts here. Do you want to know more about incentives to small business entrepreneurship to its rightful role? Click here.

References

Bernstein, P. L. (1996). Against the gods: The remarkable story of risk. Hoboken, NJ: John Wiley & Sons, Inc.

Smith, A. (1904). The wealth of nations (5th ed.). London: UK: Methuen & Co., Ltd.

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Balancing Linear and Nonlinear Thinking in an Entrepreneurial Setting


Imagine how entrepreneurs differ in their thinking from people running larger businesses. Linear thinking means a person thinks sequentially. Nonlinear thinking is different because no order exists in how a person thinks. I remember a situation I had highlighting the difference in these ways of thinking. Entrepreneurs embrace a more balanced approach employing both linear and nonlinear thinking skills.

To explain, I remember when I went to residency training for my doctoral work when an professor placed us in teams for a project. I had one member of my team with a military background. Although I found my previous experience with military people positive, I had a different experience with this particular person.

In my experience as an educator I taught several classes at Edwards Air Force Base in Southern California and always found the people in my classes ready and willing to learn. I believe the military training these people received made them disciplined and develop good study habits. I found military students usually completed and turned their work in on time.

The gentleman in my residency class, who I shall call Mr. Roboto, gave me a different experience. Although Mr. Roboto eagerly wanted to take on the project, he quickly assumed the leadership, and dictated terms of the project. The suggestions from other people on the team he quickly dismissed in favor of his own ideas. Reflecting on this experience, I found this person’s approach highlighted linear thinking. Everything Mr. Roboto did expressed the “my way or the highway” approach and gave me a new appreciation of military thinking.

As a seasoned entrepreneur, I had a hard time dealing with Mr. Roboto because he dictated and never listened to anyone else on the team unless they agreed with him. Entrepreneurs often have more nonlinear thinking skills and thrive in a team setting, but Mr. Roboto put himself at the top of the chain of command and did not accept ideas from other team members. I found the approach Mr. Roboto took stifled creativity and more in line with the approach taken by a larger business.

In my studies, I found a better balance between linear and nonlinear skills is more desirable in my area of focus on entrepreneurship. Groves, Vance, and Choi (2011) found entrepreneurs have a greater balance between linear and nonlinear critical thinking skills and more education contributes to improving the balance.

My experience highlights some of the differences in how entrepreneurs think, organize a culture conducive to creativity, and lead. Entrepreneurs normally reject command and control settings and value more flexible organic settings. Mintzberg (1980) described entrepreneurs favoring adhocracy. Adhocracy relies on mutual adjustment in a decentralized, lively setting seeking harmonization. Masood, Dani, Burns, and Backhouse (2006) explained leadership in an adhocracy as visionary, innovative, and risk-oriented. Entrepreneurs collaborate and guide workers using continuous feedback loops.

A hierarchy culture stresses more formal setting and policies guiding what workers do. The hierarchy culture focuses on stability, predictability, and efficiency. Formal rules and policies are the glue holding the organization together (Masood et al., 2006). Mr. Roboto embodied the hierarchy culture, which clashed with the adhocracy culture I worked in as an entrepreneur. Mr. Roboto relied on command and control and avoidance of risk.  No wonder I had such a difficult time in this group.

Entrepreneurs balance linear and nonlinear thinking and a good education helps the entrepreneur employ the right thinking to the proper problem. Entrepreneurs avoid all or nothing thinking and value collaborating with a team. Are you a linear thinker or do you have what it takes to balance linear thinking with nonlinear thinking? Please  leave a comment. Learn more.

References

Groves, K., Vance, C., & Choi, D. (2011). Examining entrepreneurial cognition: An occupational analysis of balanced linear and nonlinear thinking and entrepreneurship success. Journal of Small Business Management, 49(3), 438-466. doi: 10.2307/259034.1999-08070-001 10.2307/259034 10.1287/orsc.9.5.543.

Masood, S., Dani, S., Burns, N., & Backhouse, C. (2006). Transformational leadership and organizational culture: The situational strength perspective. Proceedings of the Institution of Mechanical Engineers — Part B — Engineering Manufacture, 220(6), 941-949. doi: 10.1243/09544054JEM499

Mintzberg, H. (1980). Structure in 5’s: A synthesis of the research organization design Management Science, 26(3), 322-341. doi: 0825-1909/80/2603/0323^1.25

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How a Turnaround is Like Founding a New Company


Once I took a position as the chief financial officer of an organization with a history of over 100 years. The institution in its early years thrived because of its location bordering a city nearly the size of Chicago with a booming coal mining industry. The location bordered on the one of the Great Lakes cutting off half the circumference of the target market.

Eventually, the coal mining industry declined and the city bordering the organization dwindled in population because of lack of other industry in the area. Recreation supplied the next biggest industry in the area because of ideal conditions for snowmobiling, cross-country skiing, and other winter sports. In the summer, the area provided ideal conditions for hunting and fishing. These industries failed to provide enough jobs and opportunities to keep the city alive.

The organization I worked for had its numbers drop by nearly 70% because the organization depended on people within a hundred mile radius of it. When I arrived I found the finances in a shambles and an accumulated deficit resulting in a negative net worth. At first, this condition alarmed me, but I knew I had a calling to turn this ship around.

A turnaround of this magnitude is like starting a new business because it needs a radical transformation. Fortunately, the executive team committed to a radical transformation of finding a new model for the organization that would turn around the organization and create positive cash flows. Weekly we explored new ideas and acted on cutting drains on the organization’s cash flows. In this way, the turnaround is more difficult than starting a new business because a new business does not have to deal with getting rid of existing programs causing a drain on cash flows.

The result of these efforts balanced the organization’s budget and identified new programs capable of producing positive cash flows. When I did my doctoral research I discovered that many companies that go public have accumulated deficits of the same magnitude and about 70% of them eventually fail. This revelation surprised me and I thought about how many companies can use the same help a turnaround expert provides. Big and small companies have similar failure rates. ‘

Although the cause is different, the need to identify a working model is the same. Without transforming an organization by finding a working model that produces positive results any organization will subject itself to failure. This revelation also caused me to think about the benefits of going public versus remaining private. Often, companies go public far before they rightfully should and prematurely remove the founder whose role it is to find a working model.

Public companies start to create more bureaucratic settings, while the organization needs to stay nimble enough to allow the working model to develop and meet consumer needs. Bureaucratization adds costs and reduces flexibility to adapt to make the model work. I believe many companies act too fast to go public because they believe it provides a safety net for raising capital. I believe a slower more deliberate growth may benefit many companies and allow the founders to keep their company and learn how to manage it instead of getting shown the door.  Founders work hard and if they are serious should hold on to their creation and learn how to improve it.

I believe other consultants place too much emphasis on getting big too fast. Companies might do well to slow down and grow organically than fall prey to seeking the safety net of a public company. Slowing down allows the founder to start to see the forest from the trees and build a sustainable model without risking the founder’s position.  

My company works to build organic growth by building on gaining the experience and education needed to grow organically. I believe a serious entrepreneur has an attachment to his or her creation and needs a different focus to preserve an identity with the company the founder creates.

What is your goal in founding a company? Would you prefer to stay involved in the company you create or do you want to exit and put the company in someone else’s hands? Please leave a comment to let me know your view.

If you are serious about preserving your identity with the company you want to create I urge you to try the services of my company by signing on now.

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Entrepreneurial Leadership Skills


In today’s global setting, an entrepreneur needs certain leadership skills. Good leadership skills for an entrepreneur include the ability to communicate, show self-confidence, solve problems, give and receive feedback, and negotiate. A good entrepreneurial leader compassionately listens to problems posed by his or her team. The entrepreneur uses both logic and compassion to solve problems (Abbasi, Siddiqi, & Azim, 2011).

Todorovic and Schlosser (2007) suggested the entrepreneurial leadership orientation is effective when the entrepreneur exhibits charismatic organizational characteristics coupled with good citizenship. Leader-follower relations under such conditions promotes agility, freedom, risk-taking, and innovation. Top-down autocratic leadership styles hinder performance. A good entrepreneurial leader has more characteristics attributable to a (bottoms up) servant-leadership style (Joseph & Winston, 2005).

What about you? Do you have what it takes? Click here if you do.

References

Abbasi, M. H., Siddiqi, A., & Azim, R. u. A. (2011). Role of effective communications for enhancing leadership and entrepreneurial skills in entrepreneurial skills in university students. International Journal of Business & Social Science, 2(10), 242-250. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=6478501&site=ehost-live

Joseph, E. E., & Winston, B. E. (2005). A correlation of servant leadership, leader trust, and organizational trust. Leadership & Organization Development Journal, 26(1), 6-22. doi: 10.110/01437730510575552

Todorovic, Z. W., & Schlosser, F. K. (2007). An entrepreneur and a leader!: A framework conceptualizing the influence of leadership style on a firm’s entrepreneurial orientation-performance relationship. Journal of Small Business and Entrepreneurship, 20(3), 289-308. doi: http://www.jsbe.com/

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