CHAPTER 1
1.1 Entrepreneurship
Entrepreneurs are people who decide to develop and market a new product or service.
They feel the need, or even the urge, to purse their luck and build their own businesses.
Many entrepreneurs aim to improve existing products, rather than develop something
completely new (new hairdresser or baker).
Characteristics:
• Compete in existing markets with familiar products
• Know who their customers and competitors are
• Apply traditional marketing, which focuses on identifying and targeting a
particular customer segment and positioning a product to this segment’s need.
High-tech entrepreneurs
High-tech entrepreneurs are people with radically new ideas based on new technology.
Based on new technology, their business often involves redefining existing markets by
altering product categories.
Characteristics:
• Are generally engineers or technology enthusiasts
• Markets are not well defined
Three types of products:
1. New versions of existing products (i.e., me-too or line extensions): the
products have been around from some time but, with a different marketing
approach, can be revived and enjoy sales growth.
2. Incremental innovations: Serious extensions of existing products. These are
similar to what we know, but there is something changed or added (electric
toothbrush)
3. Radical innovations: Draw on new technology to produce products people have
not seen before. These products can often change markets, alter existing market
categories, or even make them obsolete.
Because radical new products affect existing product categorizations, existing market
data often do not apply, so that the business plans that are developed based on existing
market data have less certainty. Entrepreneurial marketing requires a novel marketing
approach that embraces the uncertainty caused by the new technology, and realizes that
the market and latent needs are unpredictable. It involves well-thought-out trail-and-
error or market experimentation, which consists of probing potential markets, learning
from these, and probing again.
This approach is labeled ‘effectuation’ and aims to ‘transform the unexpected into
opportunities’. Effectuation relies on the principle of ‘affordable loss’, meaning that
marketing and other expenditures are limited, enabling the entrepreneur to make
mistakes and change his or her course if necessary. The starting point is, however, not so
much the market but the new technology or application and the resources the
entrepreneur has or can gather via his or her network. The challenge is to help the
customer understand the new product and use experimentation to optimize the product.
Effectual marketing is, most of all, a learning approach and process of discovery.
1
,1.2 Developing your business model
A start-up’s business model explains how the new firm will make money. It explains
why and how a new product and market opportunity become a business
opportunity. In answers the following questions:
1. What is our product?
2. Who are our prospective customers?
3. Why and how much will these customers be willing to pay for our product?
4. How will we distribute the product?
5. How well will we be able to defend our business from competitor attack?
Three requirements for a business model:
1. The start-up’s new product has positive customer value
2. Certain group of customers is convinced that the new product outperforms
alternatives in the marketplace
3. This group is willing to engage in exchange at a price that compares favorably to
the development, production, and distribution cost involved.
4. Size of customer base
5. Sustainability of the start-up’s positioning in the market (withstand attacks).
Customer value = the difference between the benefits a product delivers and the price a
customer has to pay for adopting it (i.e., benefits – price). Note: Switching costs should
also be taken into consideration, e.g., the time and mental effort required of customers
to learn how to use the new product.
Different business models:
1. Integrated business models: where a firm designs, develops, manufactures and
sells its goods and services.
2. Firms focus on particular role, for instance, brand and customer relationship
management, in which firms own and sell brands, but outsource most of the
other activities.
3. Razor blade model: where substantial amounts of income are earned on a
derivative facet of a product system. It is based on the idea of giving away the
handle and earning money selling the blades.
4. Advertisement: Offer a free platform or free app, but advertise on the basis of
the users profile or behavior.
5. Low install and paid updates: First posting games for free and then making
users pay for updates
Business model check on two criteria:
1. Narrative test: Does the story make sense? And Does the proposed product
indeed represent unique value to a group of prospective customers, and will this
group be interested?
2. Numbers test: Do the profit and losses add up? What kind of resources is
necessary and how does this affect cost?
2
,1.3 Products don’t sell, solutions do!
High failure rate exists among start-up, and one prevalent reason is that many
entrepreneurs are focused on the product and forget that their invention is bound to fail
unless it addresses a particular customer need.
Entrepreneurs could seriously increase their chances by realizing that they sell
solutions rather than products. To customers, products are a means to an end.
Customers will be interested in a new technology if it solves a specific probem, and
particularly if it does this better than any other available on the market today.
Salient attributes are those attributes that customers perceive as important and/or
really matter in their evaluations.
1.4 Defining marketing and sales
Markets are places where customers and providers meet for exchange. Marketing
involves identifying customer and competitor information on these markets.
Market-oriented is a joint mindset of discussing customer and competitor information
and using the information in decision-making.
Marketing has been defined as identifying and developing lasting customer
relationships, and a marketer’s time horizon is generally long term.
The difference between traditional marketing and effectual marketing is that
traditional marketing focuses on existing markets whose future can be predicted with
historical data. In contrast, effectual marketing embraces uncertainty and focuses on
new products and markets that are hard to predict at best.
3
, Traditional marketing:
• Begins with the market and looks for (latent) needs to addresses, and then uses a
planned and linear process to fill these needs.
Effectual marketing:
• Begins with the entrepreneur’s new technology and product and tries, through
experimentation, to find a customer group whose needs fit the new innovation’s
characteristics best. This process is less predictive and iterative.
Sales is the operational task involving the prioritizing of and meeting potential
customers as well as closing new deals. Consequently, salespeople have shorter time
horizons than marketers.
4
1.1 Entrepreneurship
Entrepreneurs are people who decide to develop and market a new product or service.
They feel the need, or even the urge, to purse their luck and build their own businesses.
Many entrepreneurs aim to improve existing products, rather than develop something
completely new (new hairdresser or baker).
Characteristics:
• Compete in existing markets with familiar products
• Know who their customers and competitors are
• Apply traditional marketing, which focuses on identifying and targeting a
particular customer segment and positioning a product to this segment’s need.
High-tech entrepreneurs
High-tech entrepreneurs are people with radically new ideas based on new technology.
Based on new technology, their business often involves redefining existing markets by
altering product categories.
Characteristics:
• Are generally engineers or technology enthusiasts
• Markets are not well defined
Three types of products:
1. New versions of existing products (i.e., me-too or line extensions): the
products have been around from some time but, with a different marketing
approach, can be revived and enjoy sales growth.
2. Incremental innovations: Serious extensions of existing products. These are
similar to what we know, but there is something changed or added (electric
toothbrush)
3. Radical innovations: Draw on new technology to produce products people have
not seen before. These products can often change markets, alter existing market
categories, or even make them obsolete.
Because radical new products affect existing product categorizations, existing market
data often do not apply, so that the business plans that are developed based on existing
market data have less certainty. Entrepreneurial marketing requires a novel marketing
approach that embraces the uncertainty caused by the new technology, and realizes that
the market and latent needs are unpredictable. It involves well-thought-out trail-and-
error or market experimentation, which consists of probing potential markets, learning
from these, and probing again.
This approach is labeled ‘effectuation’ and aims to ‘transform the unexpected into
opportunities’. Effectuation relies on the principle of ‘affordable loss’, meaning that
marketing and other expenditures are limited, enabling the entrepreneur to make
mistakes and change his or her course if necessary. The starting point is, however, not so
much the market but the new technology or application and the resources the
entrepreneur has or can gather via his or her network. The challenge is to help the
customer understand the new product and use experimentation to optimize the product.
Effectual marketing is, most of all, a learning approach and process of discovery.
1
,1.2 Developing your business model
A start-up’s business model explains how the new firm will make money. It explains
why and how a new product and market opportunity become a business
opportunity. In answers the following questions:
1. What is our product?
2. Who are our prospective customers?
3. Why and how much will these customers be willing to pay for our product?
4. How will we distribute the product?
5. How well will we be able to defend our business from competitor attack?
Three requirements for a business model:
1. The start-up’s new product has positive customer value
2. Certain group of customers is convinced that the new product outperforms
alternatives in the marketplace
3. This group is willing to engage in exchange at a price that compares favorably to
the development, production, and distribution cost involved.
4. Size of customer base
5. Sustainability of the start-up’s positioning in the market (withstand attacks).
Customer value = the difference between the benefits a product delivers and the price a
customer has to pay for adopting it (i.e., benefits – price). Note: Switching costs should
also be taken into consideration, e.g., the time and mental effort required of customers
to learn how to use the new product.
Different business models:
1. Integrated business models: where a firm designs, develops, manufactures and
sells its goods and services.
2. Firms focus on particular role, for instance, brand and customer relationship
management, in which firms own and sell brands, but outsource most of the
other activities.
3. Razor blade model: where substantial amounts of income are earned on a
derivative facet of a product system. It is based on the idea of giving away the
handle and earning money selling the blades.
4. Advertisement: Offer a free platform or free app, but advertise on the basis of
the users profile or behavior.
5. Low install and paid updates: First posting games for free and then making
users pay for updates
Business model check on two criteria:
1. Narrative test: Does the story make sense? And Does the proposed product
indeed represent unique value to a group of prospective customers, and will this
group be interested?
2. Numbers test: Do the profit and losses add up? What kind of resources is
necessary and how does this affect cost?
2
,1.3 Products don’t sell, solutions do!
High failure rate exists among start-up, and one prevalent reason is that many
entrepreneurs are focused on the product and forget that their invention is bound to fail
unless it addresses a particular customer need.
Entrepreneurs could seriously increase their chances by realizing that they sell
solutions rather than products. To customers, products are a means to an end.
Customers will be interested in a new technology if it solves a specific probem, and
particularly if it does this better than any other available on the market today.
Salient attributes are those attributes that customers perceive as important and/or
really matter in their evaluations.
1.4 Defining marketing and sales
Markets are places where customers and providers meet for exchange. Marketing
involves identifying customer and competitor information on these markets.
Market-oriented is a joint mindset of discussing customer and competitor information
and using the information in decision-making.
Marketing has been defined as identifying and developing lasting customer
relationships, and a marketer’s time horizon is generally long term.
The difference between traditional marketing and effectual marketing is that
traditional marketing focuses on existing markets whose future can be predicted with
historical data. In contrast, effectual marketing embraces uncertainty and focuses on
new products and markets that are hard to predict at best.
3
, Traditional marketing:
• Begins with the market and looks for (latent) needs to addresses, and then uses a
planned and linear process to fill these needs.
Effectual marketing:
• Begins with the entrepreneur’s new technology and product and tries, through
experimentation, to find a customer group whose needs fit the new innovation’s
characteristics best. This process is less predictive and iterative.
Sales is the operational task involving the prioritizing of and meeting potential
customers as well as closing new deals. Consequently, salespeople have shorter time
horizons than marketers.
4
