Trending
2016 is still fresh, but can already applaud the release of a very interesting study on entrepreneurial decision-making.
The professors Kathleen Randerson, Jean-Michel Degeorge, and Alain Fayolle identified what factors influence the decision to run with an opportunity or not.
Assessing an opportunity is a process with different starting points, phases, and directions. Some opportunities are made and others are found. Parts of the process are rational and others are intuitive. And sometimes the process is goal oriented and normative (what you ought to do to achieve your goal) while at other times it is non-predictive (what you can create from what you have). All those differences play a role in how you identify and act on an opportunity.
Intuition
To identify an opportunity, you notice and assess information using a frame of reference you’ve obtained in the past. You are continuously shaping and confirming ideas about opportunities when you recognize and interpret changes in the company environment. The frame of reference is also shaped by your knowledge and experience. When you’re using your intuition, you are activating that framework in your mind.
It’s important to recognize your preference for either analytical or intuitive reasoning because that influences what information you actually see. When you’re an intuitive entrepreneur, you tend to give more consideration to the intuitive parts of the assessment process and be distracted during the analytical parts. And when you’re more inclined to use rational analysis, then you’re focused on that. Neither approach is better than the other, but decision-making quality increases when you’re aware of and act on your blind spots.
When you’re in intuitive mode, you tend to have little patience with details, you dislike routine, and you reach conclusions quickly. But when you’re in analytical mode, you want to evaluate alternatives deliberately and logically. When you acknowledge the modus you’re in, you know you have to give some extra thought to the rest of the process.
Two approaches to act on opportunities (source: Randerson et al 2016)
The Power to Create Growth
In the majority of the Business Schools and in the minds of traditional managers, strategy is seen as a causal process. You use analysis and estimations to set a goal and to determine the take steps to reach it. When your company does X, the result will be Z.
However, when you innovate or want to create new markets, data is lacking and analysis and estimations won’t get you far. In those situations, growth depends on you instead of an opportunity. You use your imagination to envision and develop new combinations of the means you have available. You control the means X and Y, and you think you can connect them differently to create a new product-market combination.
It’s All About the Situation
Both approaches are not mutually exclusive. You switch between them continuously, depending on your situation. The size of your company, the industry you’re in, and the position the company has in the industry determine the process.
For instance, very small companies hardly have any means and those entrepreneurs tend to work more intuitively and less causal. (Unless they’re in, for example, high-tech because then they favor causal logic). Larger companies are more bureaucratic and have the means and competencies to use analysis.
Another reason to favor causal logic is the extent to which your firm depends on others. Subcontractors, for instance, feel the need to dissect information and weigh alternatives deliberately while suppliers at the start of the chain often assess opportunities more intuitively.
Good News
Remarkably, the assessment process is not very dependent on personality. That means that entrepreneurs and managers can learn to use both approaches well. Now that you know, you have the good fortune to add a tool for seeing and deciding on opportunities.