MHR 322 Midterm Exam 2025

Entrepreneurship - -the pursuit of opportunity without regard to resources currently controlled • may not know how to physically create a product, but start with an idea despite limited skill set • the study of how, by whom, and with what effects opportunities to create new goods and services are discovered, evaluated, and exploited • process to come up with new things that have never been seen before → science • process used to take science and commercialize it → _____ Opportunity - -situation in which a good or service can be introduced for profit • classified by industry • classified by high technology vs. Low technology • classified by novelty Three, technology, demand, profitability - -opportunities are bounded by _____ constraints: 1. T______ 2. D______ 3. P______ Technology - -what we can make, means of accomplishing a specific end • the processes of invention and innovation expand the set of what is technically feasible • you have come up with a _____ breakthrough and want to capitalize on it, or simply expedite its deployment to have a positive effect on society. Or, you have learned about a _____ breakthrough and you see great potential for a business. Demand - -what people want, set of goods and services that individuals will purchase Profitability - -what you want to sell must exceed costs of production Properties of opportunities - -• exist independent of human cognition • characteristics, distribution, stock constantly changing • have specific characteristics, and characteristics influence outcomes • until exploited, nobody knows if a conjecture (idea) is in fact an opportunity Entrepreneurs - -an individual/team/firm who is attempting to pursue an opportunity, starting with a conjecture Neoclassical economics - -• everyone can recognize entrepreneurial opportunities MHR 322 MHR 322 • risk preferences, opportunity costs, capital constraints (specific differences about people), instead of differences about information, determine who becomes an entrepreneur • rich start more companies than those without access to money • individual differences, not differences in information • not all people become entrepreneurs because they lack these aspects Psychology - -• fundamental attributes of people, not differences in information, determines who becomes entrepreneur • primary difference in discovery is in information processing (entrepreneurial mindset) • person, not the situation, determines propensity to "discover" or become an entrepreneur • not all people can see opportunities because they lack these aspects Austrian economics - -• idiosyncratic information and knowledge creates opportunities for individuals to discover opportunities • systematic search for opportunity not possible • information about opportunities, rather than fundamental attributes, of individuals, determine who becomes an entrepreneur • process depends on factors other than an individual's inherent ability and willingness to take action • not all individuals see opportunities because you don't know what time & place is right Individual opportunity nexus - -• conjecture formulation and action is driven by: Knowledge, information, and psychological traits (act on what you see) People are inherently busy → come up with ideas but can't stop their lives to pursue the idea • not all individuals are equally likely to see opportunities because: Prior knowledge Information corridors • search and conjecture formulation Conjectures can be formed in the absence of search Conjectures can be formed as a result of purposeful search Conjecture - -someone in their head thinks that they have an idea that is probably an opportunity • a formulation of a theory or opinion in the mind of an individual that a specific opportunity exists • an entrepreneur can be incorrect that an opportunity exists • nobody knows if an opportunity exists, or if a specific conjecture that a technology is an opportunity is true Skills - -• how to navigate the entrepreneurial process • how to navigate career as an entrepreneur Spirit - -• ambition, confidence in own ability, interest in career path MHR 322 MHR 322 • logic of action to enable highly educated people to walk away from high value occupations to pursue entrepreneurship O don't have to be creative yourself, could be part of a team Sme - -small & medium enterprise • is likely started by one person to serve a local market and grows to be a small or medium-size business that serves this local market (family business) • business "rewards" for these founders are primarily in the form of personal independence and cash flow from the business (service businesses) Ide - -innovation driven enterprise • aspiring to serve markets that go well beyond the local market and want to sell their offering at a global or at least at a regional level. • interested in creating wealth more than they are interested in control, and they often have to sell equity in their company to support their ambitious growth plans. Roles within entrepreneurship - -o ceo vs. Non-ceo role O founder vs. Employee O professor Roles outside entrepreneurship - -o investor → participate in a bunch of different ones O accountant → tax returns for individuals/start-ups O lawyer → help companies put their corp. Docs/entity together in exchange for piece of the company, serve as advisors, help with funding O professor Idea, technology, passion - -the 3 motivations to start a venture are: 1. _____ 2. _____ 3. _____ Consumer focused - -if you are not _____ _____, you are at risk of running into big trouble • start company to serve passion that someone else wants to pay you for • you can try to sell to everyone, but there needs to be a model/approach where you're doing it for someone else What makes a good idea - -• experimentation • forecasting • porter's 5 forces • vc investment criteria • sahlman's 4 Experimentation - -(learning) • experiments worth doing based on logic MHR 322 MHR 322 Forecasting - -(predictive) • try to predict characteristics of ideas, or conditions, that will lead to favorable outcomes • people make you write a business plan Sahlman's 4 - -1. People O who's involved that's going to make this happen O who's committed and who is not O rated very highly 2. Opportunity O venture to take a risk and turn it into reality O economic conditions/good or service becomes available 3. Context O influences that make the opportunity itself O who/how/why/where the idea formed 4. Risk & reward O if you start today, at some point you'll make money O the space in time is scary, and requires money to start O called a "troft" → give money, lose money