When Entrepreneurial Behaviour Will Kill You! :

Entrepreneurship and entrepreneurial behaviour are considered the lifeblood of Asian economies which are dominated by small and medium sized enterprises (SME's). Although entrepreneurial behaviour can occur in any context or size firm it is most often associated with the owner/manager of a new or small venture pioneering into new fields ahead. This image is a positive one as the tiger economies of Asia are perceived as fast moving and dynamic.

However, there remains concern that entrepreneurial thinking and proclivity can be misapplied to market opportunities in the absence of strategic thinking and a marketing mind set. Entrepreneurship can be defined in many ways but it generally entails being innovative, proactive and risk taking to a certain extent. It requires creating and leveraging resources in a way that delivers new levels of customer value through the development of new products, services, and/or markets. On the other hand, strategic thinking requires choice among alternatives and resource commitment. By the very nature of entrepreneurial actions, alternative decision factors are prominent. This may relate to what customers or markets to target or how to position and price a new product.

Some researchers refer to this domain as strategic entrepreneurship as entrepreneurial behaviour requires seeking out opportunities whilst strategic thinking requires taking advantage of them and appropriating the possible value created to the innovator or pioneer. We posit that both streams of this thinking and practice are missing one crucial element. That element, we believe is a market orientation. A market orientation is both a culture and set of behaviours that emphasizes competitor orientation, customer orientation, and inter-functional coordination. For entrepreneurial behaviour to be guided by strategic thinking it must have a lens to be viewed through. That lens is market orientation. Research by Matsuno et al (2002) shows that entrepreneurial proclivity does impact business performance but only through its mediated path of a high market orientation.

Take for example the initial battles that occurred in the PDA market where Palm came out on top but was not in fact the pioneer in this area. Microsoft attempted to scale down the PC without a real effort to think entrepreneurially or outside the box. On the other hand, Apple failed with the Newton due to a limited understanding of market needs despite substantial research. One can see that Palm Pilot has been very successful and they basically started from scratch with the PDA in attempting to understand what usage situations customers would actually apply with the PDA and the functions needed to ensure those needs were met.

These examples point to the complex interaction of entrepreneurial behaviour, strategic thinking, and a market orientation. There is a strong need to balance the opportunity seeking behaviour of the entrepreneur with the sometimes unexpressed needs of the market and customers. Since strategic thinking requires alternative evaluation in terms of resource commitment and direction, it is market orientation that links the process in a manner that maximizes the opportunity for success in entering new markets or developing new services. This is not to say that customers or the market is always right, a market orientation is much broader than that and encompasses both expressed and latent needs. In his book the Innovators Dilemma, Clayton Christensen demonstrates clearly that an over emphasis on customers can stifle the efforts of incumbent firms to innovate as their customers expressed needs may lead to a myopic view of what is happening in the market place and what may happen. Some research points to the fact that a technological orientation may lead to higher performance in some industries, for example fast moving bio technology where customers may not be able to express their needs. At SRC, we consider this a valuable point but to us, a technological or internal orientation still rests upon a market orientation that uses intuition of staff to foresee what may become in the future.

Another problem may arise in terms of how organizations value investments for uncertain products. This is especially so in larger firms that may consider new markets to small for investment and uncertain ROI a hurdle that cannot be bypassed in a typical hierarchy. One of the benefits of an entrepreneurial orientation is that it may lower levels of bureaucracy within an organization and this may allow the organization to seek opportunities that initially seem unviable or time wasting. Many new markets may start of small and this is why companies such as 3M among others often do not subject such opportunities to the traditional firm criteria of more traditional opportunities. In fact, when considering the failure of the Apple Newton, some may actually regard the product as an initial success given the fact that it sold 140,000 units in the first 2 years. One of the problems is the small market in a big company syndrome whereby the 140,000 units sold only contributed 1% of Apples total revenues.

As Clayton Christensen of the Harvard Business School has pointed out a number of times, markets that do not exist cannot be analyzed or quantified, they are unknowable. Managing the unknowable requires a different type of thinking and management that requires learning, reflection and iteration. This type of thinking is eloquently expressed by Robert Flood as a type of systems thinking. In practice, one of the best examples of such an approach that merges an entrepreneurial orientation, strategic thinking and a market orientation is the success of Honda in entering the US motorcycle industry. Often cited as exemplary evidence of clear strategic thinking and execution based on concepts such as the experience curve (propagated by the Boston Consulting Group-BCG), the success of Honda as recounted by the Honda executives themselves suggests a totally different story (BCG submitted a report to the British Government examining the British motorcycle industry decline and used Honda as an example to support many of their own concepts and methodologies). Honda had originally gone to the US to market large bikes which had an already well established market presence as most Americans rode bikes over long distances and at high speeds. The attributes therefore most valued were those offered by larger engines. However, difficulty in accessing distribution and product quality problems led to very poor sales for Honda. By chance, Honda executives (who shared the same apartment to save money) had brought over a few 50cc Supercubs from Japan for their own transportation and took them into the hills for dirt riding as a recreational pursuit. Upon seeing these small bikes, many people enquired where they could purchase them, and although Honda originally resisted these advances (even by Sears), they eventually convinced the corporate office to pursue the small bike market as large bike sales were going very poorly. This then created a distribution problem as no outlets existed for this type of bike. Finally, some sporting stores stocked the 50cc bikes and the rest is history. There is also the very interesting story of the advertising campaign (‘You meet the nicest people on a Honda') developed by a university student which was used by Honda with great success. This account clearly shows the willingness of Honda to experiment and be flexible with a strategy that was clearly not working.

During this period, Harley Davidson attempted to capitalize on the growth in the small bike segment but came up against strong resistance by their dealer network due to the higher profit margins on the big bikes. They were also at a quality and cost disadvantage when compared to Honda. Whether Harley should have gone into small bikes is debatable as potentially their core market in large bikes could have been negatively affected. Perhaps they could have considered alternative distribution methods and a new brand name to protect the brand equity of Harley. In any case, extending your product line is no guarantee of more sales as evidenced by examples in the beer industry where brands such as Coors and Michelob extended into light beers that eventually eroded their position in the regular beer market which was their core market. They now sell less total beer with multiple line extensions then they did with only 1 or 2 core brands.

At the end of the day, entrepreneurial behaviour is crucial to firm performance and value creation but if it is not guided by the lens of a market orientation then you are likely to follow the path of Apple Newton and others whose entrepreneurial proclivity opened the door for others to appropriate value that really should have been theirs. Honda used the concept of market orientation very broadly and did not myopically pursue an entrepreneurial orientation.

That is the essence of strategic entrepreneurship and thinking along these lines will stop you from entrepreneurship that will kill you!

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