Anchoring

Anchoring refers to a common human tendency to rely too heavily, or "anchor," one trait or piece of information when making decisions such that overly rely on one specific attribute of a thing and judge everything else in relation to that one thing.

When I was a realtor I had clients look at a house. It wasn't perfect but the price was low. I showed the house then checked with the Realtor for the seller. He said it had an accepted offer on it.

We looked at some other houses which were better but more expensive. He could have afforded any of them but now no house was right or him because he had anchored on the price of the first house.

That's anchoring for you. Entrepreneurs need to keep in mind that when a competitor's product is established in the market, most people anchor on it and have trouble accepting something new unless yours is significantly better on things that most people are anchoring on.

Value Proposition

A value proposition is a statement of how a given product or services benefits the customer. Wikipedia says:

In the field of marketing, a customer value proposition consists of the sum total of benefits which a vendor promises that a customer will receive in return for the customer's associated payment (or other value-transfer). In simple words: value proposition = what the customer gets for what the customer pays.

Wal-Mart's used to be "the lowest prices all the time," which I liked because it was clear, efficient, effective, and the store's operations, whether you think Wal-Mart is the best business that's ever existed in the history of the human race or the most evil and sinister enterprise ever created, you have to agree that their business worked for them.

The entrepreneur must understand what the customer sees as the value of the product, or the entrepreneur is not seeing his business clearly from the outside. He's trapped in a black box into which all can see in, but he can't see out.

Read the Wikipedia article and go to some of the links. If you're interested in reading about Wal-mart, I'd recommend Charles Fishman's The Wal-Mart Effect. If you google it, you can probably find it through an aggregator for cheap.

If you're interested in what I say, post a comment. And check out my other blogs: www.yourstopforrealestate.com/blog and www.kearneymusicschoolmurders.blogspot.com

Variables

The term "variable" has different meanings in different disicipline. We say they are "discipline-dependent." In math it often denotes a unknown quantity. In computer science it is something else. In statistics, Wikipedia says,

variables refer to measurable attributes, as these typically vary over time or between individuals. Variables can be discrete (taking values from a finite or countable set), continuous (having a continuous distribution function), or neither. Temperature is a continuous variable, while the number of legs of an animal is a discrete variable. This concept of a variable is widely used in the natural, medical and social sciences.

In causal models, a distinction is made between "independent variables" and "dependent variables," the latter being expected to vary in value in response to changes in the former. In other words, an independent variable is presumed to potentially affect a dependent one. In experiments, independent variables include factors that can be altered or chosen by the researcher independent of other factors. For example, in an experiment to test whether or not the boiling point of water changes with altitude, the altitude is under direct control and is the independent variable, and the boiling point is presumed to depend upon it and is therefore the dependent variable. The collection of results from an experiment, or information to be used to draw conclusions, is known as data. It is often important to consider which variables to allow for, or to directly control or eliminate, in the design of experiments.

There are also quasi-independent variables, which are those variables that are used by researcher as a grouping mechanism, without manipulating the variable. An example of this would be separating people into groups by their gender. Gender cannot be manipulated, but it is used as a way to group. Another example would be separating people on the amount of coffee they drank before beginning an experiment. The researcher cannot change the past, but can use it to differentiate the groups.

While independent variables can refer to quantities and qualities that are under experimental control, they can also include extraneous factors that influence results in a confusing or undesired manner.

In general, if strongly confounding variables exist that can substantially affect the result, then this makes it more difficult to interpret the results. For example, a study into the incidence of cancer with age will also have to take into account variables such as income (poorer people may have less healthy lives), location (some cancers vary depending on diet and sunlight), stress and lifestyle issues (cancer may be related to these more than age), and so on. Failure to at least consider these factors can lead to grossly inaccurate deductions. For this reason, controlling unwanted variables is important in research.

See also: extraneous variables, intervening variable, and level of measurement

Entrepreneurs need to know about variables to analyze data they need for marketing, sales, finance, etc.

There has been a ton of stuff written on variables. At the very least, read the Wikipedia article and follow the links.

If you like what you read here, post a comment. And check out my real estate blog, www.yourstopforrealestate.com/blog and my writing blog, www.kearneymusicschoolmurders.blogspot.com.

Massively multiplayer online role-playing game

Wikipedia, with minor editorial changes, says:

A massively multiplayer online role-playing game (MMORPG) is a genre of computer role-playing games (CRPGs) in which a large number of players interact with one another in a virtual world. The term MMORPG was coined by Richard Garriott, the creator of Ultima Online, the game credited with popularizing the genre in 1997. As with all RPGs, players assume the role of a fictional character, often in a fantasy world, and take control over many of that character's actions. MMORPGs are distinguished from single-player or small multi-player CRPGs by the number of players, and by the game's persistent world, usually hosted by the game's publisher, which continues to exist and evolve while the player is away from the game. MMORPGs are very popular throughout the world. Worldwide revenues for MMORPGs exceeded half a billion dollars in 2005 and Western revenues exceeded US$1 billion in 2006.

Most people over the age of 40-45see, with greater hostility as you get older, these games as diversions threatening to undermine the foundations of character and society. But with a market this big, could we be missing something. I think we are. They offer tremendous potential for entrepreneurs and entrepreneurship to conduct tests of a product idea. An entrepreneur can develop whole businesses, and if they fail, start another one and see what happens. He then can transfer his ideas to the real world which, I'm sorry to reveal to other boomers, is getting to look more and more like the gamer world.

Read the whole Wikipedia article and follow the links. And if you liked anything I say, post a comment.

All of my professional activities are entrepreneurial. Check out my real estate blog at www.yourstopforrealestate.com/blog and my writer's blog at www.kearneymusicschoolmurders.blogspot.com.

Prediction

Most people think prediction as "a statement or claim that a particular event will occur in the future in more certain terms than a forecast." (See Wikipedia) This is true as far as it goes. However in statistics, prediction refers to the extent wo which, if you know A, you can, within a stated margin of error, correctly guess B. If you can do that, A is said to be an excellent predictor of B. For example, in many studies, age has been shown to be an excellent predictor of wealth. The Wikipedia article has a fuller discussion of prediction as guessing the future, but this is one of those articles I'm going to edit.

Prediction is big for entrepreneurs. They must act to effect the future. Yet what will that future bring. They must also understand their business. They must identify indicators that predict robust, positive cash flow.

If this or anything else grabbed you, post a comment.

All my professional activities are entrepreneurial. For real estate 2.0 go to www.yourstopforrealestate.com/blog; and for writing go to www.kearneymusicschoolmurders.blogspot.com.

Prediction Markets

Wikipedia, the on-line encyclopedia, describes predictions markets this way.

Prediction markets are speculative markets created for the purpose of making predictions. Assets are created whose final cash value is tied to a particular event (e.g., will the next US president be a Republican) or parameter (e.g., total sales next quarter). The current market prices can then be interpreted as predictions of the probability of the event or the expected value of the parameter. Prediction markets are thus structured as betting exchanges, without any risk for the bookmaker. Other names for prediction markets include predictive markets, information markets, decision markets, idea futures, event derivatives and virtual markets.

Cass Stunstein, in Infotopia: How Many Minds Produce Knowledge (New York: Oxford University Press, 2006) says,

All over the world, private organizations are relying on prediction markets to foresee the likely fates of their own products and services. Verizon, for example, takes full advantage of its internal prediction markets, which forecast sales, launch dates for new produts, office openings, and much more. (p. 4)

On their face, prediction markets have a lot of potential for entrepreneurs. A prection market might shape their product offerings. A realtor might use a prediction market to give him or her ideas about the future of their practice or their industry. If you're interested in prediction markets, read the whole Wikipedia article, follow its links, and check out the Sunstein book.

And if something you read grabs you, post a comment.

All my professional activities are entrepreneurial. For real estate 2.0, go to www.yourstopforrealestate.com/blog and for my writer's blog, go to www.kearneymusicschoolmurders.blogspot.com

Competitor Analysis

The entrepreneur must pay attention to competitors, both competitors who offer similar products and competitors who make things that meet the same customer needs but which aren't similar. Wikipedia says:

Competitor analysis in marketing and strategic management is an assessment of the strengths and weaknesses of current and potential competitors. This analysis provides both an offensive and defensive strategic context through which to identify opportunities and threats. Competitor profiling coalesces all of the relevant sources of competitor analysis into one framework in the support of efficient and effective strategy formulation, implementation, monitoring and adjustment.

If your interested, read the entire Wikipedia article. But, it's hard to do these days. Society has disintermediated. Competitors come in and out of the market fast, and they are so disparate, it's hard to get information on them. We also find now that the major competitors of many enterprises are their own customers, i.e. the accounting customers doing his own taxes; the air traveler booking her own flights; businesses conducting their own market research rather than hiring a firm. It always been a fact of life. I don't have numbers, but it feels to me as though it's more prevalent than previously because of the advantages of current technology. To steal from William Safire, product development is like taking an elephant for a walk, you have to go where your customer wants you to go. I'd advise entrepreneurs to keep a close eye on how their products are being used. Communicate with their customers regularly and find out what they think you should be doing. Reinvent your own products to make them relevant and maybe spawn new, more profitable applications.

If you find this grabs you, post a comment.

All my professional activities are entrepreneurial. For my real estate 2.0 site, go to www.yourstopforrealestate.com/blog; and for my writing 2.0 blog, go to www.kearneymusicschoolmurders.blogspot.com

Market Research

Entrepreneurs need to know about market research. Wikipedia describes market research way:

Market research is the process of systematically gathering, recording and analyzing data and information about customers, competitors and the market. Its uses include to help create a business plan, launch a new product or service, fine tune existing products and services, and expand into new markets. Market research can be used to determine which portion of the population will purchase a product/service, based on variables like age, gender, location and income level...Market research [helps you discover] what people want, need, or believe. It can also involve discovering how they act. Once that research is complete it can be used to determine how to market your specific product.

There is much more to be told. This excerpt is barely a fingernail of all there is. Anyone interested should start with the Wikipedia article, than dig deeper. But don't go and dump a bunch of money into it before you find out more about it and which kinds are best suited for your needs. Would you use a tea spoon to take down a wire fence?

If this grabs you, post a comment here.

All my professional activities are entrepreneurial. For real estate, go to www.yourstopforrealestate.com/blog and for writing 2.0 go to www.kearneymusicschoolmurders.blogspot.com.

Business Risk Analysis

An entrepreneur is someone who operates in an atmosphere of uncertainty and risk. Wikipedia says this about risk analysis:

Risk analysis is a technique to identify and assess factors that may jeopardize the success of a project or achieving a goal. This technique also helps to define preventive measures to reduce the probability of these factors from occurring and identify countermeasures to successfully deal with these constraints when they develop to avert possible negative effects on the competitiveness of the company.

For more on risk analysis techniques, read the entire Wikipedia article and follow the links.

If you liked what you read here, post a comment.

All of my professional activities are entrepreneurial. For my real estate 2.0 blog go to www.yourstopforrealestate.com/blog and for my writing 2.0 blog, go to www.kearneymusicschoolmurders.blogspot.com.

Heterophily

If homophily is similarities between people, heterophily is the other side of the coin: "source-receiver dissimarity. Mark I Alpert and W. Thomas Anderson, jr., conducted a very interesting study reported in the Journal of Communication , Vol. 23, Issue 3, PP. 328-343, abstracted on InterScience:

A fundamental principle of human communication is that source-receiver similarity promotes communication effectiveness. But do perceived source-receiver dissimilarities have instrumental value in enhancing the effectiveness of communication? This study demonstrates the application of a method for gauging the relationship between heterophily or source-receiver dissimilarity and communication effectiveness and for identifying relevant dimensions of homophily/heterophily in achieving effective communication.One hundred ninety-two Ss viewed three slides of widely-differing college males, to whom three pre-scaled neutral statements were randomly attributed. Measures were obtained of Ss ratings of themselves and these "sources" along twenty-one personal attributes, as well as their agreement (or disagreement) with the attributed statements. Perceived source-receiver distances varied across the three sources, as did the agreement measure of communication effectiveness. The moderately-distant source achieved the highest agreement, lending support to Everett M. Rogers'notion that optimal heterophily produces communication effectiveness. The pattern and directions of the perceived dimensions of interpersonal differences gave further understanding of the relative communication effectiveness of communication sources.

This whole homophily-heterophily thing is important for entrepreneurs because developing the right strategy for promoting products and services and communicating with customers depends on understanding these two concepts.

If you like this or anything else I've posted, post a comment.

All my professional activities are entrepreneurial. For my writing blog, go to www.kearneymusiscschool.blogspot.com and for my real estate 2.0 blog go to www.yourstopforrealestate.com/blog

Homophily

"Birds of a feather flock together" is the saying. From Wikipedia:

Homophily (i.e., love of the same) is the tendency of individuals to associate and bond with similar others. The presence of homophily has been discovered in a vast array of network studies. Within their extensive review paper, McPherson, Smith-Lovin and Cook (2001) cite over one hundred studies that have observed homophily in some form or another. These include age, gender, class, organizational role, and so forth.

In their original formulation of homophily, Lazarsfeld and Merton (1954) distinguished between status homophily and value homophily. Status homophily means that individuals with similar social status characteristics are more likely to associate with each other than by chance. By contrast, value homophily refers to a tendency to associate with others who think in similar ways, regardless of differences in status.

To test the relevance of homophily researchers have distinguished between baseline homophily and inbreeding homophily. The former is simply the amount of homophily that would be expected by chance and the second is the amount of homophily over and above this expected value.

Individuals in homophilic relationships share common characteristics (beliefs, values, education, etc.) that make communication and relationship formation easier. Homophily often leads to homogamy (marriage to people with similar characteristics).

Homophily is important for the entrepreneur to think about because of its theoretical role in promoting innovation.

If this or anything else about this course interests you, post a comment here.

Everything I do is entrepreneurial. For real estate 2.0 go to www.yourstopforrealestate.com/blog and for writing 2.0 go to www.kearneymusicschoolmurders.blogspot.com

Seven Cash Flow Drivers

As we said, profit is nice but cash flow drives the business. Bill McGuinness Washington, D.C.: Kiplinger Books, 2000) lists on page 3 the seven cash flow drivers that determine business success for every enterprise, whether General Motors or the corner drug store.

They are:
1. Sales growth.
2. Gross margin.
3. Selling, general, and adminstrative expense (overhead).
4. Accounts receivable.
5. Accounts payable.
6. Inventory.
7. Capital expenditure.

He spends the rest of the book explaining and illustrating them. Check out this book.

If anything about this grabs you, post a comment.

Everything for me is an entrepreneurial activity. For real estate 2.0 go to www.yourstopforrealestate.com/blog and for writing to www.kearneymusicschoolmurders.blogspot.com

Cashflowability

As we should all know by now, Cash is king. "Cash rules," as Bill McGuinness says in Cash Rules: Learn & Manage the 7 Cash-flow Drivers for your Company's Success (Washington, D.C.: Kiplinger Books, 2000). In that book, he describes what he means by "cashflowability":

The main measure of a businesss's success is not profitability--the excess of revenue over expense. Instead, it is what I call cashfloability--the excess of cash flowing into the business over cash flowing out. It is quite possible, and even common, for profitable businesses to be cash-flow disasters. (p. 6)

I'll list the 7 drivers tomorrow. If you're interested in a really clear and interesting discussion of cash flow, check this book out. The book gives a website I'm going to check out.

If this or anything else I've written grabs you, post a comment.

Everything I done is entrepreneurial. Check out real estate 2.0 at www.yourstopforrealestate.com/blog and writing 2.0 at www.kearneymusicschoolmurders.blogspot.com.

Profit

The the road to wealth is littered with dying businesses, all crying out: "We turned a big profit last quarter." Here's Wikipedia:

Profit generally is the making of gain in business activity for the benefit of the owners of the business. The word comes from Latin meaning "to make progress," is defined in two different ways, one for economics and one for accounting. Pure economic profit is the increase in wealth that an investor has from making an investment, taking into consideration all costs associated with that investment including the opportunity cost of capital. Accounting profit is the difference between price and the costs of bringing to market whatever it is that is accounted as an enterprise (whether by harvest, extraction, manufacture, or purchase) in terms of the component costs of delivered goods and/or services and any operating or other expenses. A key difficulty in measuring either definition of profit is in defining costs. Pure economic monetary profits can be zero or negative even in competitive equilibrium when accounted monetized costs exceed monetized price.

Profit's great, as long as you have cash.

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For my real estate 2.0 blog, go to www.yourstopforrealestate.com/blog and for my writing 2.0 blog go to www.kearneymusicschoolmurders.com where you can read about my first novel, download it, or link to Amazon.com and buy it.

Cash Flow

A popular song says: "Cash in king of everything around me." Another quote I remember says, "Elvis wasn't the king. Cash is the king." Investia.com says cash flow is

A revenue or expense stream that changes a cash account over a given period. Cash inflows usually arise from one of three activities - financing, operations or investing - although this also occurs as a result of donations or gifts in the case of personal finance. Cash outflows result from expenses or investments. This holds true for both business and personal finance...Cash flow is crucial to an entity's survival. Having ample cash on hand will ensure that creditors, employees and others can be paid on time. If a business or person does not have enough cash to support its operations, it is said to be insolvent, and a likely candidate for bankruptcy should the insolvency continue.

Cash is for a business what blood is for a human. That's why the metaphors are there: a business is "liquidated." A business losing money is called "bleeding red ink." It's also been compared to gas in a car. Without cash a business cannot function. Without gas, a car won't go. A '76 Ford Pinto with gas is more valuable than a 2008 Jaguar without gas. Those who want to read about it should check out the Investia.com article. An excellent book I've used is Bill McGuinness, Cash Rules (New York: Kipplinger Books, 2000).

If you find this interesting, post a comment. And check out my real estate 2.0 blog, www.yourstopforrealestate.com/blog, and my writing 2.0 blog, www.kearneymusicschoolmurders.blogspot.com.

Porter's Generic Strategies

Any entrepreneur needs to know Michael Porter's ideas on competitive strategies if only to understand how co-creation and commons-based enterprises have remapped a large section of the entrepreneurial map. The article in QuickMBA.com gives his ideas this way:

If the primary determinant of a firm's profitability is the attractiveness of the industry within which it operates, an important secondary determinant is its position within the industry. Even though an industry may have below-average profitability, a firm that is optimally positioned can generate superior returns.

A firm positions itself by leveraging its strengths...A firm's strengths untimately fall into one of the two headings: cost advantage and differentiation. By applying these strengths in either a broad or narrow scope, three generic strategies result: cost leadership, differentiation, and focus. These strategies are applied at the business unit level. They are called generic strategies because they are not firm or industry dependent.

The article goes on to discuss Porter's ideas in some detail, and I recommend you to go to this website: www.quickmba.com/strategy/generic.shtml. Even read the entire book, which is very detailed, and work out his ideas in the context of the industry you're in or want to be in.

And post a comment here on this blog.

Everything I do is entrepreneurial. For real estate 2.0, go to www.yourstopforrealestate.com/blog and for writing 2.0, go to www.kearneymusicschoolmurders.blogspot.com.

Connectedness

I can't leave Tom Chappell (New York: Bantam Books, 1993, pp. 15-16) until I talk again about "being in relation," an idea Chappell learned from Jonathan Edwards, the 18th century American Theologian and preacher, and from the German theologian, Martin Buber writing in I and Thou,an idea he calls "being in relation". This is what Chappell says about it:

Edwards had asked whether our sense of identity comes from being separate, from being individual, distinct from others, or from being connected to others. His [Edwards's] answer: 'Being is nothing but proportion.' In orther words, a sense of being comes not from unconnected individuality but from a sense of relation to others. We are all individuals, to be sure, but we are not only individuals. Our identity is also shaped by other minds and spirits.

This is important for the entrepreneur to remember that his business is about more than just him. It's use and our connections.

If you found this interesting, post a comment. And check my other blogs: www.yourstopforreslestate.com/blog and www.kearneymusicschoolmurders.blogspot.com

Market Dominance

Wikipedia defines "market dominance" as

A measure of the strength of a brand, product, service, or firm, relative to competitive offerings. There is often a geographic element to the competitive landscape. In defining market dominance, you must see to what extent a product, brand, or firm controls a product category in a given geographic area.

There is no necessary geographic component, however. The "market" could be people over 65 years of age; all those with a net worth over $1 million, tertiary care facilities in cities of at least 50,000 population. It all depends on your industry.

Market dominance is important because in any market, if one enterprise has a 75% share, anyone buying in that market is three times as likely to buy from the dominant enterprise than from any one of the others.

Market dominance is harder to achieve and to keep these days with the "niching" of the America, the incredible pace of social change, and the globalization of markets. Nevertheless anyone interested in the subject should go to the Wikipedia article and read the links.

If anything here grabs you, post a comment.

Everything I do is entrepreneurial. To read about real estate 2.0, go to www.yourstopforrealestate.com/blog; for writing 2.0, to www.kearneymusicschoolmurders.blogspot.com.

Feasibility Study

Wikipedia describes a feasibility study as:

A feasibility study is a preliminary study undertaken to determine and document a project's viability. Also known as feasibility analysis, the term feasibility study is also used to refer to the resulting document. The results of this study are used to make a decision whether or not to proceed with the project. If it indeed leads to a project being approved, it will — before the real work of the proposed project starts — be used to ascertain the likelihood of the project's success. It is an analysis of possible alternative solutions to a problem and a recommendation on the best alternative. It, for example, can decide whether an order processing be carried out by a new system more efficiently than the previous one. A feasibility study is an important part of creating a business plan for a new enterprise, since it has been estimated that only one idea in fifty is commercially viable. If a project is seen to be feasible from the results of the study, the next logical step is to proceed with it. The research and information uncovered in the feasibility study will support the detailed planning and reduce the research time.

This shows how fast the who field is moving and you really have to check almost every day. If you're interested in the topic, go to Wikepedia and read the entry and follow the links. This article was just edited yesterday and varies significantly in organization from the entry I originally copied on May 23, 2008.

Feasibiliity studies are still important. But more is required. We have to monitor what's going on every day and be able to adapt on the fly. The situation today can be changed from yesterday. We have to keep our ears open, monitor our hearts, and be nimble and quick, as in "Jack, be nimble. Jack, be quick, Jack, jumps over the candle stick." I think gaming technology is going to make a lot of feasibility studies easier and quicker, because you can build a model that mirrors the outside world, then test your product or service in that world.

If you're interested something I said, post a comment.

Everything I do is entrepreneurial. For real estate 2.0, go to www.yourstopforrealestate.com/blog; for writing 2.0 go to www.kearneymusicschoolmurders.blogspot.com.

Carrying Capacity

Wikipedia explains carrying capacity this way:

The supportable population of an organism, given the food, habitat, water and other necessities available within an environment is known as the environment's carrying capacity for that organism. For the human population more complex variables such as sanitation and medical care are sometimes considered as part of the necessary infrastructure.

If you're intrigued by the carrying capacity article, go to Wikipedia and read the whole article and follow the links.

In an entrepreneurial context, carrying capacity traditionally meant the ability of markets to support incumbents. Let's assume a market can support 3 incumbents. For new entrants to thrive, they will have to steal market share away from the incumbents. This happened when Japanese auto manufacturers ented the US auto market after WWII. But if the market is touted as "hot", a bubble will be created and the market will attract many new entrants. The National Association of Realtors@ went from 750,000 members in 1998 to 1.3 million or so in the early 2000s. I think, too, of the personal computer market of the 1980s. In the space of just a few years, we had I don't know how many different personal computers. I remember IBM, of course, and the Apple. Then we had the Osborne, and the Compac, and a bunch of other ones now residing in the Smithsonian, probably. Anyway, all the new entrants will exceed the carrrying capacity of that market. The newly expanded market will not support all the entrants it attracted, and a shakeout will occur. Some entrants will merge with incumbents; others will go belly up; others will simply leave the market; and two or three will remain.

Entrepreneurs need to think about what the carrying capacity of a market is before they try to enter it, or can they change the market so as to create a whole new ballgame.

As I write this, I wonder if this will hold in the new economy? After all, markets have changes significantly, we are told in the literature on Web 2.0. Or is that literature itself creating a bubble?

If you're struck by any of this, post a comment here.

All my activities are entrepreneurial. For my views on real estate 2.0, go to www.yourstopforrealestate.com/blog. For writing 2.0, go to www.kearneymusicschoolmurders.blogspot.com

Uncertainty and Risk

Entrepreneurship refers to the act of taking initiative in an environment of uncertainty and risk. Doug Hubbard, in How to Measure Anything (New York: John Wiley & Sons, 2007) as quoted by Wikipedia, defines "unertainty" as "The lack of certainty, a state of having limited knowledge, where it is impossible to describe exactly an existing state, a future outcome, or evaluate more than one possible outcome." [syntax and punctuation corrected]." He defines "Risk" as state of uncertainty where some possible outcomes have an undesired effect or significant loss."

Learning to deal with uncertainty and feeling comfortable with risk are two skill sets that entrepreneurs must learn if they are to do their work. Read the whole Wikipedia article and follow the links if you're interested. And if you have something to say, post a comment to this blog.

All my activities are entrepreneurial. For real estate 2.0, go to www.yourstopforrealestate.com. For writing 2.0 go to www.kearneymusicschoolmurders.blogspot.com.

Complexity

Complexity is a useful concept for the entrepreneur. It applies both to the entrepreneur's enterprise and to the business context in which the entreprenur and the entrepreneur's enterprise operates. Not only is a business a complex system, suppliers, customers, vendors, regulators, governmental entities, employees, competitors, and others are complex systems in themselves and together form a complex system.

From Wikipedia:

In general usage, complexity often tends to be used to characterize something with many parts in intricate arrangement...tied to the concept of a ‘system’ – a set of parts or elements which have relationships among them differentiated from relationships with other elements outside the relational regime. Many definitions tend to postulate or assume that complexity expresses a condition of numerous elements in a system and numerous forms of relationships among the elements. At the same time, what is complex and what is simple is relative and changes with time.

If you're interested in the concept, read the whole Wikipedia entry follow its links as it talks about complexity in all its complexity.

If anything here strikes you, post a comment.

Everything I do is entrpreneurial. For real estate 2.0 go to www.yourstopforrealestate.com/blog. For writing 2.0 go to www.kearneymusicschoolmurders.blogspot.com

A business's soul

Does a business have a "soul"? Tom Chappel thinks it does. In The Soul of a Business; Managing for Profit and the Common Good (New York: Bantam Books, 1993) Chappell describes what he calles the "Soul of a business." There's no entry in Wikipedia for this, so apparently it hasn't caught on.

The following should be required reading for every entrepreneur:

By spirit or spiritual, I mean the part of you that survives when you eliminate your flesh and bones--the part you can't point to but can feel, the part you might describe to someone else as your essential being, your soul. Soul is what connects you to everyone and everything else. It is the sum of all the choices you have made. It is where your beliefs and values reside. Soul is at the center of our relationships to others, and for me it is at the center of the business enterprise. (pp. ix-x)

We all have a soul. Every business has a soul. It's what makes Starbucks different from The entrepreneur needs to think about his business's soul. It's what's there after you forget gross profit margin, cash on hand, inventory, and all that other physical "stuff".

If you have any comments on this, post them on my blog.

Everything I do is entrepreneurial. For real estate 2.0, go to www.yourstopforrealestate.com/blog. For writing 2.0 go to www.kearneymusicschoolmurders.blogspot.com.

Economies of Scale

Wikipedia defines economies of scale as

"The cost advantages that a firm obtains due to expansion...Economies of scale may be utilized by any size firm expanding its scale of operation. The common ones are purchasing (bulk buying of materials through long-term contracts), managerial (increasing the specialization of managers), financial (obtaining lower-interest charges when borrowing from banks and having access to a greater range of financial instruments), and marketing (spreading the cost of advertising over a greater range of output in media markets). Each of these factors reduces the long run average costs (LRAC) of production by shifting the short-run average total cost (SRATC) curve down and to the right.

The article goes on to say, "There are two typical ways to achieve economies of scale: (1) high fixed cost and constant marginal cost and (2)low or no fixed cost and declining marginal cost."

If you want read more, go to Wikipedia and follow their links. It talks about diseconomies of scale, economies of scope, ideal firm size, returns to scale, and the long tail. Knowing the extent to which one can achieve economies of scale will help an entrepreur judge how far or how fast to expand his business and how much to partner with others in the market to gain better results.

Do you have a reaction to this or anything else in this blog? If so, post a comment.

Everything I do is entrepreneurial. For Real Estate 2.0, go to www.yourstopforrealestate.com/blog; for publishing 2.0, go to www.kearneymusicschoolmurders.blogspot.com.

"Tipping Point"

Wikipedia defines a tipping point as "a point at which a slow gradual change becomes irreversible and then proceeds with gathering pace. It is derived from the metaphor of a rigid solid object being tilted to a point where it begins to topple."

Malcolm Gladwell made this idea into a very successful book, The Tipping Point (New York: Little Brown and Company, 2002). Everything in the book is derivative, but he presented the results of studies in an interesting way and got the attention of people who probably would not have read them. Those of you who are interested in this concept should read this book. Subsequent to the book achieving cultural icon status, we've moved on to modify some of the things Gladwell presented. My only quarrel with Gladwell is in the smoking chapter, but that's for another time.

The concept of a "tipping point" is of interest for entrepreneurs who want to get their product to where its use becomes self-reinforcing. Rogers and others put this at about 20% to 30% of a "market." Of course there is a question whether in today's society a tipping point can ever be achieved because change is so rapid and we're so rapidly becoming a society of niches.

Have you ever started a business or thought about entrepreneurship? If you have any thoughts or comments, post them here.

Everything I do is entrepreneurial. For Real estate 2.0, go to www.yourstopforrealestate.com/blog. For publishing 2.0, go to www.kearneymusicschoolmurders.blogspot.com.

Tom Friedman's Ten Flatteners and Triple Convergence

Tom Friedman, in The World is Flat (New York: Faust, Straus and Giroux, 2005) summariced the world situation in a way that gave direction to thinking about the way forward. His words don't seem so interesting now, partly because we've moved farther down the road and partly because his ideas have been so widely disseminated they don't seem so unusual any more. Nonetheless, more than anybody, he set the terms of the debate.
Here's the Wikipedia says about them:

Friedman defines ten "flatteners" that he sees as leveling the global playing field:

#1: Collapse of Berlin Wall--11/'89: The event not only symbolized the end of the Cold war, it allowed people from other side of the wall to join the economic mainstream. (11/09/1989)

#2: Netscape: Netscape and the Web broadened the audience for the Internet from its roots as a communications medium used primarily by 'early adopters and geeks' to something that made the Internet accessible to everyone from five-year-olds to ninety-five-year olds. (8/9/1995). The digitization that took place meant that everyday occurrences such as words, files, films, music and pictures could be accessed and manipulated on a computer screen by all people across the world.

#3: Workflow software: The ability of machines to talk to other machines with no humans involved. Friedman believes these first three forces have become a “crude foundation of a whole new global platform for collaboration.”

#4: Open sourcing: Communities uploading and collaborating on online projects. Examples include open source software, blogs, and Wikipedia. Friedman considers the phenomenon "the most disruptive force of all."

#5: Outsourcing: Friedman argues that outsourcing has allowed companies to split service and manufacturing activities into components which can be subcontracted and performed in the most efficient, cost-effective way.

#6: Offshoring: The internal relocation of a company's manufacturing or other processes to a foreign land in order to take advantage of less costly operations there.

#7: Supply chaining: Friedman compares the modern retail supply chain to a river, and points to Wal-Mart as the best example of a company using technology to streamline item sales, distribution, and shipping.

#8: Insourcing: Friedman uses UPS as a prime example for insourcing, in which the company's employees perform services--beyond shipping--for another company. For example, UPS repairs Toshiba computers on behalf of Toshiba. The work is done at the UPS hub, by UPS employees.

#9: In-forming: Google and other search engines are the prime example. "Never before in the history of the planet have so many people-on their own-had the ability to find so much information about so many things and about so many other people", writes Friedman. The growth of search engines is tremendous; for example take Google, in which Friedman states that it is "now processing roughly one billion searches per day, up from 150 million just three years ago".

#10: "The Steroids": Personal digital devices like mobile phones, iPods, personal digital assistants, instant messaging, and voice over Internet Protocol (VoIP).

In addition to the ten flatteners, Friedman offers "the triple convergence," three additional components that acted on the flatteners to create a new, flatter global playing field.

1. Up until the year 2000, the ten flatteners were semi-independent from one another. However, around the year 2000, all the flatteners converged with one another. This convergence could be compared to complementary goods, in that each flattener enhanced the other flatteners; the more one flattener developed, the more leveled the global playing field became.

2. After the emergence of the ten flatteners, a new business model was required to succeed. Instead of collaborating vertically (the top-down method of collaboration, where innovation comes from the top), businesses needed to begin collaborating horizontally. Horizontalization means companies and people collaborate with other departments or companies to add value creation or innovation. Friedman's Convergence II occurs when horizontalization and the ten flatteners begin to reinforce each other.

3. After the fall of the Berlin Wall, countries that had followed the Soviet economic model—including India, China, Russia, and the nations of Eastern Europe, Latin America, and Central Asia—began to open up their economies to the world. When these new players converged with the rest of the globalized marketplace, they added new brain power to the whole playing field and enhanced horizontal collaboration across the globe. In turn, Convergence III is the most important force shaping politics and economics in the early 21st century.

If you have any comments about this post or any other, post them here and I'll respond.

All of my professional activities are entrepreneurial. For my ideas on real estate 2.0, go to www.yourstopforrealestate.com/blog. For writing and publishing, go to www.kearneymusicschoolmurders.blogspot.com

New Product Development

Wikipedia gives the traditional definition of new product development:

In business and engineering, new product development (NPD) is the term used to describe the complete process of bringing a new product or service to market. There are two parallel paths involved in the NPD process: one involves the idea generation, product design, and detail engineering; the other involves market research and marketing analysis. Companies typically see new product development as the first stage in generating and commercializing new products within the overall strategic process of product life cycle management used to maintain or grow their market share.

As Wikipedia points out, it's a very traditional and limited in its applicability anymore, but if you read traditional texts, you will get this.

In the new marketing environmentm, all this has changed. Now it's the entrepreneur locating his passion and his mission, and collaborating with other entrepreneurs and with users to co-design products. Things change too fast and time to market is so important you can't use this very linear approach to creating products.

Also, I think gaming technology gives a more cost effective way of evaluating the market for the product.

These are my thoughts on new product development. If you have any points or comments or questions, post them here. For my Linkedin profile, go to www.linkedin.com/in/timbosworthsprofile. For my thoughts on real estate 2.0, go to www.yourstopforrealestate.com/blog. For writing and publishing, or to order my book, go to www.kearneymusicschoolmurders.blogspot.com.

Social Proof

Social proof happens in a social situation when a person has or wants to do something yet is not sure the right thing to do. They seek social proof from someone or something outside of themselves to help them make their decision. The source of that proof could be parent, television personality, child, friend, or "expert" opinion in a book they read.

Social Proof is one of six psychological "principles" that direct human behavior identified by Robert B. Cialdini in his book, Influence: the Psychology of Persuasion(New York: William Morrow, 1984, 1993).

The six principles given by Cialdini are: consistency, reciprocation, social proof, authority, liking, and scarcity. (p. xiii)

For example, you are driving on your way home which is down the road about a mile. You come around a bend and see an emergency vehicle's lights flashing and a detour sign and a police officer in uniform telling you to take a side road. You do it because you have ceded authority to the guy in the uniform and to the emergency vehicle whose lights are flashing.

But if you came across the same situation with a car off to the side of the road, no emergency vehicle, and a guy in old clothes waving at you from the side, you'd probably be concerned and drive on past. You might call 9-1-1 to report someone in trouble, but you certainly wouldn't stop and let him in.

That's the power of social proof: the emergency lights and the uniform. What if that was a scam to rob people going by. You assume it's on the up and up because of the situation.

The Gaia Hypothesis

Wikipedia defines the Gaia Hypotheis as:

An ecological hypothesis proposing that the biosphere and the physical components of the Earth (atmosphere, cryosphere, hydrosphere and lithosphere) are coupled to form a complex interacting system. This coordinated system of living organisms maintains the climatic and biogeochemical conditions on Earth in a preferred homeostasis. Named after the Greek Titan of the earth, the hypothesis is frequently described as viewing the Earth as a single organism.

This has had an impact on the intellectual community and several writers have based novels on the idea. What it means for entrepreneurs is that their business and the context in which their businesses are embedded should be seen holistically. The entrepreneur should act as though the entrepreneur, all aspects of the entrepreneur's business, and all the entrepreneur's first level contacts should be be treated as part of the entrepreneur's business. Interested in this? Check out the Wikipedia article and follow the links. I think you'll be very interested in what you find.

Everything I do in entrepreneurial. For my thoughts on Real Estate 2.0, see www.yourstopforrealestate.com/blog; for writing and publishing, go to www.kearneymusicschoolmurders.blotspot.com.