When and how managers should be more entrepreneurial

Posted by on Apr 23, 2012

In our last article we outlined some of the observed differences in the ways entrepreneurs and professional managers operate, and noted that managers are frequently urged to “be more entrepreneurial“.

This week we’ll provide practical guidelines about when to be more entrepreneurial, and how.

Entrepreneurial management – personality or situational choice?

As we noted in our last article, personality differences between these two groups probably account for some of the differences observed in studies.  To recap, research shows that as entrepreneurs transition from start-up to operations, they behave more and more like managers.  Some of the differences between these two groups are due to the nature of their different challenges.  Breaking new trails and creating something new calls for different strategies and priorities than managing a going concern.

Which situations favour a more entrepreneurial style?

Generally, entrepreneurs are trying to create something entirely new or to adapt something to a market that hasn’t seen it before.

Not only are they breaking new trails, but they lack information about market size, demand, segments, customer preferences and needs, buying and usage behaviour.  In short, they lack most of the experience and information managers count on every day.

This comes much closer to working with a blank sheet than almost anything managers face.  The key strength of the best entrepreneurs is to learn as quickly as possible how to do something they’ve never done before – in some cases, something no one’s ever done before. They face a steep learning curve.

And if they succeed, the learning curve becomes even steeper. When a new idea really takes off, things start changing very quickly! The newer the idea and the stronger it is embraced by the market, the faster the situation will change.  This creates the adrenaline rush that keeps entrepreneurs coming back for more.

In contrast, most managers are accustomed to a less dynamic environment. Many earned their positions through proven capabilities and knowledge.  In most cases, their know-how is managing an ongoing process or operation in the same company, or at least the same industry, in which they’re currently working. While most never have as much data as they’d like, compared to entrepreneurs they have an abundance of good information. In general, managers tend to do similar things, in much the same ways, in the same markets, and to use information and experience to get better and better at it. 

Many managers we’ve met are very good at this. They’ve absorbed and internalized their knowledge into a set of instincts and reactions that are well-honed through experience. When in their element, they can solve problems and reach decisions much more quickly and effectively than anyone who lacks their experience.

A strength misapplied can become a weakness

Yet, as is so often the case, an existing strength deployed in a new situation may be a liability.  We frequently see this when a manager is handed responsibility for an opportunity that requires breaking new trails.

Clearly, some opportunities yield more to the fast learning and adaptation used by entrepreneurs, while others require the methodical discipline more commonly used by managers.  Which is best depends on the characteristics of the opportunities being pursued.

The range of opportunities organizations face can be represented in a classic 2×2 contingency framework as presented in Figure 1.  The vertical axis represents the extent to which information is available about how to exploit the opportunity under consideration.  It ranges from established opportunities that are currently being successfully exploited – high information availability – to entirely new situations in which information availability is low.

 

 

 

 

 

 

 

 

 

 

 

Figure 1: Opportunity Management Contingency Framework

The horizontal axis represents the rate of change in the environment for this opportunity. It ranges from slow change on the left-hand end to fast change at the opposite end.

This framework can be divided into four quadrants, with the lower right-hand quadrant characterized by low information availability and a fast-changing environment.  This quadrant requires an entrepreneurial approach – relentless trial and error to learn what works, and rapid adaptation to learning and change.

The upper left quadrant is characterized by high information availability and a slow rate of change. This is an ideal environment for classic operations management – creating robust business processes, rigorous measurement and control, and iterating down the experience curve to greater and greater efficiency. The other two quadrants require a mix of these two approaches.

How to be more entrepreneurial

Opportunities in the uncertain, dynamic lower right quadrant are best pursued through strategies that focus on rapid learning and change.  Some of the methods commonly seen here include:

  • Play in the stream of change.  Use new technology, climb aboard trends, understand the changes that are happening.
  • Develop contacts whom you can tap to give you a head start in understanding the new.
  • Network extensively.  Find out who knows what about this opportunity.  Ask every contact who else you should talk to. Tap every possible source of knowledge.
  • Determine quickly whether you can hire, contract or buy the information and experience that will help you to leap-frog ahead. Do it if you think the cost of information is justified by the potential return.
  • Practice “ready, fire, AIM”! Get into the market early and adopt an accelerated “multi-loop learning” model.
  • Stay close – very close – to your customers.  In a new product or service model, you’ll learn and adapt faster the more feedback you get from them.  Some may even want to become your partners.
  • Look beyond your business and market models to new ones.
  • Learn how your customers use and view products and services that are not direct competitors but are growing quickly.  Some of them may morph into competitors or replacements.
  • Get to know your competitors – not only to compete more effectively, but also to avoid battles, emulate what competitors do best, and above all, differentiate in ways customers care about. This is a great application for our competitive intelligence process.
  • Update your information relentlessly to keep your finger on the pulse of change.

This is essentially continuous improvement at a strategic level. Many managers are familiar with CI and learning loops, and adept at using them to evolve business processes and operations.

Successful entrepreneurs and change agents use learning loops to accelerate organizational learning and change. We strongly recommend the use of these methods whenever you aren’t sure how to achieve important strategic objectives. The more uncertain and dynamic the situation, the more frequent the need to iterate through the “plan, do, check, adjust” cycle.

In an assignment last year we worked with a group of research scientists from Canadian and US universities whose vision required the creation of an entirely new industry.  Their strategy is essentially to use learning loops to iterate from a vague idea to a plan, and to evolve that plan continuously to integrate new ideas, information and players.  We wrote about it here. It is important to note that these research scientists are in a not-for-profit sector. It would be easy to assume that most or all opportunities requiring an entrepreneurial approach have profit as their motive. Not so! It is important to recognize that opportunities in any sector can fall into the dynamic/uncertain quadrant. The keys are the rate of change in the opportunity environment and the availability of information on how to exploit it.

We think the lessons for managers in all sectors are clear.  While they may feel more comfortable in stable/certain environments, there’s nothing to stop them from taking a page out of the entrepreneurs’ book when they’re called upon to break new trails. Indeed, if they fail to adopt this approach, success is far less likely.

© 2012 Knowlan Consulting Group Inc. All rights reserved. Unauthorized duplication or publication in any form, in whole or in part, is prohibited.

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