CHAPTER 5: BREEDING GAZELLES COMPETENCIES1

Entrepreneurship is commonly seen in terms of the creation of new organizations. However, firm formation may not be sufficient to thoroughly explain the entrepreneurship phenomenon (Shane, 2012). That is, the realization of business opportunities within an existing organization intrapreneurship not embraced by the firm formation perspective is one of the possible organizational arrangements. As a broader conceptualization, Shane and Venkataraman (2000) state that the field of entrepreneurship involves the study of sources of opportunities; the processes of discovery, evaluation, and exploitation of opportunities; and the set of individuals who discover, evaluate, and exploit them, (p.218). In the above conception, two important highlights should be made: 1) entrepreneurship is seen as a process rather than one time event associated to a type of person; and 2) the process implies the presence of one or more individuals who decide to exploit the opportunity by taking the embedded risk and organizing all the necessary elements involved when creating a venture. The first is commonly acknowledged as the entrepreneurial process, which demands the creative capacity, competence, and passion of the enterprising individual. The second stresses that the human action is at the core of entrepreneurship highlighting that without a person, no entrepreneurial process would exist. Because all the aspects related to the entrepreneurial process will be reviewed in various chapters of this book, this section will focus on the human side of entrepreneurship. That is, we will give special attention to the personal attributes, knowledge and skills that you or someone else in your team will have to exhibit when embarking in entrepreneurial activity. Lets start with a brief review of what the entrepreneurship literature has reported about whether entrepreneurs are born or made. 5.1. A born or made perspective of entrepreneurs A question of a common debate is whether entrepreneurs are born or made. However, no definite answer exists as research on entrepreneurship has not provided conclusive results. On the one hand, the born perspective assumes that people become entrepreneurs on the basis of their genetic characteristics. When searching for a specific genetic set-up, researchers look at possible patterns (e.g. among pairs of twins in which both members are or are not entrepreneurs) in order to infer that genetic factors account for their differences (Nicolaou et al, 2008). The made perspective, on the other hand, presuppose that entrepreneurship can be learned (Drucker, 1985), or at least certain aspects of it (Henry et al, 2005) as in any other discipline. In accordance with the made perspective, one can posit that entrepreneurs can learn the necessary competencies for business success through exposure to proper entrepreneurial training. In line with this perspective, we argue that entrepreneurs can indeed be trained and equipped with competencies for successfully pursuing a business venture. This, however, should not exclude the possibility that people could have different thresholds (i.e. different starting or cero point) regarding their competencies, which may be understood as, to
1

Edgar Izquierdo, Professor at ESPAE Graduate School of Management, has the rights for the authorship of this chapter. The use of this document is authorized only for the students of MGP IX, ESPAE.

certain extent, innate capabilities. In the field of entrepreneurship, they may include: being able to see business opportunities more easily than others; being more alert to environmental changes; being better able to use ones creative capacity; being better able to manage ones interpersonal relationships and effective communication in a business context; and being better able to develop a network of contacts, just to mention a few of them. Those of you who are already embarked in business would agree that entrepreneurship demands a variety of competencies. And, they may vary according to the stage and development state of your particular venture, for instance: an early-stage or established business; the sector in which it operates (high technology or fast-moving consumer goods); and the environmental circumstances that drive an entrepreneur to initiate a business (necessity, opportunity and family-business oriented). As an example of the issues that you may face within the entrepreneurial process, let us think of an early-stage business versus an established one. If you are creating your own business, you will certainly be confronted with your own assumptions, high uncertainty, and probably a lack of resources, amongst other challenges. You will wonder whether a real opportunity exists based on the product or service that you are put into the marketplace. Hence, at an early stage, your entrepreneurial endeavor will demand, for example, your creativity capacity, your ability to identify products or services to meet customers needs, your ability to develop and use your network of contacts; and your ability to communicate effectively with your clients and other stakeholders. Otherwise, if you are already in business, your concerns would be a little more downstream: access to a substantial customer base; securing following up financing; keeping and hiring key employees; negotiating and having good relations with providers; and so on. Beyond the competencies we mentioned above, your business already established will demand that you excel in dealing with your clients and maintaining their loyalty, negotiating with potential investors for expanding your venture, motivating and keeping proper relationships with your employees, among others. Because the challenges and demands involved in your entrepreneurial journey can be broad and extensive, we think worthwhile to make an overview of what has been reported in the literature on entrepreneurial competencies. This, however, does not pretend to be an exhaustive review and to capture all the valuable insights of research on the field. Nevertheless, this overview will allow you to get a better understanding of what an individual competency means, to know what characteristics are involved when we talk about competencies, and to realize how important entrepreneurial competencies are to support your efforts in your entrepreneurial endeavor. This, in turn, would facilitate you to self-reflect on your strengths and weaknesses associated to your own competencies for entrepreneurship. By doing so, you can be aware of and get better insights on what you may need to do to strengthen your entrepreneurial competencies. We recommend three articles, cf. (Bird, 2002; DeTienne and Chandler, 2004; Mwasalwiba, 2010) whether you are interested in a deeper and a more detailed discussion on issues related to entrepreneurship education and competency development,. 5.2. Overview of entrepreneurial competencies

As we will discuss, an individual competency involves not only a skill that a person may have but also knowledge and aspects related to his/her personality characteristics. When these individual competencies are taken as a whole, the concept of competence arises. In this respect, Gibb (1990) and Nelson (1994) maintain that the term competence comprises knowledge, skills, attitudes and motivations, necessary to perform a given task. This concept is used as an attempt to study individual characteristics leading to the achievement of job role or organizational success (Man and Lau, 2000). It has also been used to have common ways to describe the types of knowledge, skills and personal qualities associated with effective management and leadership (Martin and Staines, 1994). In the entrepreneurship domain, the underlying characteristics of competence are seen as personal dimensions that competent entrepreneurs must display in order for them to deal with the tasks and problems related to their entrepreneurial actions (Onstenk, 2003). 5.2.1. Defining individual competencies In our review, we will start with the definition of an individual competency to understand what elements are involved and what the implications are when we think about entrepreneurial competencies. In this regard, we adopt the Boyatzis model in which an individual competency is considered as an underlying characteristic exhibited by a person that can result in effective and/or superior performance in a job. A body of knowledge, skills, motives, traits, and aspect of ones self-image or social role are characteristics that a person commonly exhibits in a given job situation (Boyatzis, 1982). Although entrepreneurs do not have jobs in the traditional sense, they indeed have jobs or tasks when pursuing the creation of or operating a new business (Bird, 2002). In line with the Boyatzis model, Spencer and Spencer (1993) provide a description of the various competency characteristics as follows: Knowledge comprises information a person has in specific domains that can be formal or informal. The former, on the one hand, is important in the sense that it enables an individual to foster creative or informal knowledge (Hood and Young, 1993). Conventional wisdom would suggest that peoples knowledge in different domains may facilitate them to strengthen their creative capacity. Also, people with personal interest and with good performance in music may be easy going in other disciplines like science and mathematics. In a business context, formal knowledge refers to content areas associated to business and commercial knowledge. Informal knowledge represents a persons imaginative construction of meaning from everyday experience (Hood and Young, 1993). The relevance of the knowledge competency relies on what people are able to do with it. Knowledge of specific facts is not as important as knowing which of these facts is relevant to a particular situation and where to find them when required. For example, some entrepreneurs may be able to visualize business ideas based on their knowledge in different domains (e.g. software development and telecommunications). Nevertheless, they may not know how to proceed to the next steps for the development of those business ideas and the creation of the organization to exploit the potential opportunity.

Skills are the abilities to perform certain physical or mental tasks. An entrepreneur, for example, may be good at communicating effectively in a business context. Another example could be of an entrepreneur in a high-tech industry who may be able to write and organize thousands of code lines in order to develop useful software packages. Also, an entrepreneur may have abilities for making beautiful hand-crafted silver goblets. Motives refer to what people consistently think or want that cause action. In the case of entrepreneurs, this personality characteristic can be present when they set up goals for themselves, assuming responsibilities for achieving them, while trying to do better in another occasion. Traits are both physical characteristics and consistent responses to situation or information. They can also include emotional self-control and initiative. These characteristics can become observable, for instance, when entrepreneurs face difficulties in their businesses, and they try to resolve them without waiting for someone else to do it. Also, it could be that entrepreneurs may fail in their attempt to initiate a business; nevertheless, they may try again since failure seems not to be a stigma that could prevent them from trying one more time. Self-concept is a set of personality characteristics that include attitudes, values, or selfimage. Similar to motives and traits these characteristics are less visible as they reside in the inner part of an individual. For example, it could be that people may value being independent in a business context; however, they may fail because of their aversion to tolerate uncertainties and risks. Consequently, they would not be able to adapt to the demands and challenges involved when starting a new business. The discussion above gives us an idea of what personal attributes, abilities and knowledge may be involved when we refer to competencies. As the existence or possession of a given individual competency may or may not be known to the individual, it may be an unconscious aspect that he or she would have to articulate (Boyatzis, 1982). The underlying characteristics of competencies can be understood as fairly deep and permanent parts of an individuals personality, skills and knowledge that can serve as a predictor of behavior in different situations and tasks (Boyatzis, 1982). They can be viewed as an iceberg split into two parts: one is somehow visible and includes knowledge and skills that people possess; and the other is, to certain extent, hidden and comprises their selfconcept, traits or motives (Spencer and Spencer, 1993). As explained next, these underlying characteristics can be articulated in a model of individual competencies. 5.2.2. A model of individual competencies As a way of integrating the personal attributes, knowledge and skills, observed in peoples behavior when performing a job or task, they can be approached in terms of a model of interrelated competencies. This way they are seen as an articulation of: the self, the know and the know-how (Ibarra, 2000). According to this perspective, competencies related to the self include all the characteristics associated to the inner part of people, including attitudes, values, and self-concept. The competencies linked to the know are those embracing the

specific or technical knowledge required to perform a task in a given domain whereas the know-how competencies consist of abilities that can be developed through practice and experience. Fig. 5.1 presents a model that portrays how the three competency characteristics can be articulated.

Self
CommitmentKnowledge CommitmentAptitude

CommitmentKnowledgeAptitude

Know

KnowledgeAptitude

Know-How

Fig. 5.1 Model articulating the three competency characteristics According to this model, the three sole areas represent the competency characteristics already reviewed. The intersection of the Know-How and the Self areas represent the zone in which people feel apt and committed to do a task. In the entrepreneurship domain, this zone would embrace all of you who may know how to develop a product or service that meets peoples needs; for example, a software application for managing all the medical records of patients at a dental clinic. Although you may seem to have identified the need for this application and inclined to start your own company based on this product, you may lack knowledge in other domains; for instance, how to proceed with the creation and management of the company. This means that you may be lacking the necessary knowledge related to businesses. The area between the Know and the Self encompasses people who may be knowledgeable in one or various domains and committed to perform a task. If you fall into this area, you may have valuable knowledge in different disciplines as well as positive attitudes and selfconcept, favorable toward new venture creation. However, your experience may not be sufficient to go further in developing the product or service that could satisfy the needs of customers you may have in mind. The zone that comprises the Know and the Know-How in Fig. 5.1 comprises people who have knowledge and feel apt to do a task. Whether you are within this zone, you may have theoretical and practical knowledge in different domains as a result of your studies and/or job experience. By having so, you could have accumulated expertise in a certain field and you may even be able to visualize unmet peoples needs or problems. Nevertheless, you may not feel as determined to start your own company because you may not want to go out of your zone of comfort to avoid dealing with uncertainties, risk and the possibility of failure that creating a new business would demand. That is, your attitudes and selfconcept may not favor the creation of a new business.

Finally, the intersection of the three circles representing the Self, the Know and the KnowHow involves all the possible competency characteristics previously reviewed. In this regard, we argue that people falling into this zone would have the necessary combination of individual characteristics for superior performance in a job or task. According to this view, entrepreneurs who can recognize business opportunities, for instance, would be able to do so because they can articulate the required knowledge, abilities and personal attributes for entrepreneurship. We will review the recognition of opportunities in greater detail later in this chapter. For now, take this just as an example of what entrepreneurial competencies may involve and how they can be interrelated when performing a rather complex task. In this respect, based on the Boyatziss model, Bird (1995) proposes that entrepreneurial competencies should be seen as those underlying characteristics possessed by a person that can result in new venture creation, survival and/or growth. 5.2.3. Entrepreneurial competencies The entrepreneurship literature presents abundant information about research studies conducted to predict entrepreneurial behavior based on similar characteristics to a typical entrepreneur (see e.g. Brockhaus, 1980; Brockhaus and Horwitz, 1986; Ho and Koh, 1992; Hornaday and Aboud, 1971; McClelland, 1961, 1965; Mitton, 1989; Rotter, 1966; Welsch and Young, 1982). The rationale behind these studies relied on the assumption that individuals possessing desirable stable personality characteristics, similar to a typical entrepreneur, would behave entrepreneurially. However, results on this line of thought have not yielded conclusive results because of the small explanatory power of personality characteristics and demographics (Robinson et al, 1991). The absence of consensus, however, should not negate the rich inputs that several of these characteristics may bring to entrepreneurial competencies underlying entrepreneurs actions. They can become desirable attributes when articulated with the other dimensions (i.e. knowledge and skills) to the emergence of entrepreneurial competencies. Thus, it is worth to make an overview of some of the psychological characteristics, especially those that attracted considerable attention, including: need for achievement; locus of control; propensity to take risk; and tolerance of ambiguity. Need for achievement: According to Professor McClelland, need for achievement is a strong psychological force underlying human action which, in the case of entrepreneurs, is a factor influencing entrepreneurial behavior (McClelland, 1961). That is, individuals with a high need for achievement are more likely to seek out an entrepreneurial action based on their strong desire for success. As you will realize, your need for achievement can be influenced by your internal drive for action (intrinsic motivation) and by your expectations (extrinsic motivation) associated to your entrepreneurial endeavor. And, your passion for what you are doing (Briclin, 2001), for what interests you and makes you feel great enthusiasm lets say, your business venture can represent your intrinsic motivation: be it a way of testing your own ideas; having an exciting and challenging work; or/and fulfilling your creative needs. Your passion, driven by the outcomes you expect from your enterprise, can characterize your

extrinsic motivation: be it having the possibility of making your own decisions; being able to choose your own work tasks; and/or being part of the whole process of developing and growing your business. These are just some examples of the endogenous and exogenous motivations that may drive your entrepreneurial initiatives. Thus, it is important for you to self-reflect on what the underlying drivers of your need for achievement are. Locus of control: This concept refers to a generalized belief that a person can control his or her own destiny (Rotter 1966). Individuals who ascribe control of events to themselves are said to have an internal locus of control while those who attribute control to outside forces, such as chance, luck or fate, are said to have an external locus of control (Spector 1992). Entrepreneurs having an internal locus of control would more likely try harder for achievement compared to those with an external locus of control (Rotter, 1966). In this sense, your internal locus of control becomes the intrinsic force that would make you persevere when things do not go the way you expected. After all, this is part of the game when you are thinking on creating a new venture or you are already embarked in a business. And, you may have to adjust a number of variables of your business many times before you can encounter a way of making things operate in the lane for growth. Thus, your internal locus of control may serve you as the intrinsic inspiration in your growth DNA: that is, a thorough dedication to your venture. By doing so, you will not leave things to happen due to external factors. Propensity to take risk: This personality trait is commonly seen in terms of peoples orientation towards taking chances under a context characterized by uncertainty (Koh, 1996). Specifically, Brockhaus (1980, p. 513) defines risk taking propensity as the perceived probability of receiving the rewards associated with success of a proposed situation, which is required by an individual before he will subject himself to the consequences associated with failure, the alternative situation providing less reward as well as less severe consequences than the proposed situation. The entrepreneurship literature has long ago included risk bearing as a key factor in distinguishing between entrepreneurs and managers, which dates back to the writings of Mill (1984). However, mixed results have been reported making the debate on the risk propensity continue to exist among scholars (see e.g. Brockhaus, 1980; Koh, 1996; Miner and Raju, 2004; Steward and Roth, 2001). On the one hand, some researchers claim that this personality trait is greater among entrepreneurs than managers and that entrepreneurs having venture growth as their primary goal are more risk-taking oriented than those with low growth objective. On the other hand, a conservative view is suggested in the sense that the role of risk propensity in entrepreneurship needs deeper examination; hence, it remains unresolved. This conclusion is based on the findings giving evidence that entrepreneurs (including those with a growth orientation) are more risk avoidant (Miner and Raju, 2004). Despite of the lack of consensus, the fact is that entrepreneurship demands that you, as any other entrepreneur, must take risk when pursuing, operating and growing a business venture. This, however, does not mean that you have to be a gambler. And, taking moderate risk will always be advisable should you have some degree of control or skill to achieve profits in a business-related situation. That is, you can wisely initiate and orchestrate

actions that involve risks by defining your objectives, strategy and mix of resources to avoid risk. As Mitton (1989) stresses, it is possible to initiate risk without actually taking risk, (p. 15). This means that you should always look for ways of shifting risk to others, whenever possible, without hurting them. By doing so, you will better manage uncertainty surrounding loss exposures. Tolerance of ambiguity: The presence of an ambiguous situation is said to exist when the lack of sufficient information takes place in a decision-making scenario (Koh, 1996). In such case, a tolerance of ambiguity is reflected from the way in which a person perceives the given situation and organizes the available information to approach it. Certainly, embracing an entrepreneurial venture demands your tolerance of ambiguity. This may be more accentuated whether your goals are oriented to growth. By seeking to increase your market shares, you will be confronted with more uncertain settings and with the implementation of the required strategy by an adroit use of resources to manage those conditions of uncertainty. Following our model of entrepreneurial competencies, you will notice that the reviewed personality attributes of entrepreneurs fall into the motives, traits and self-concept characteristics. According to this model, taking these personality characteristics alone seems not to be sufficient to explain entrepreneurial behavior as knowledge and skills are also fundamental to business success. Whether you are at early or growth stage of your business, for example, you may encounter yourself with the need for backing your venture. In this situation, you would have to find any investor (friends and colleagues, family, professionals, etc.) to financially support your entrepreneurial endeavor. One of the main criteria for many investors to decide which ventures would be funded is the strength of the people involved in the enterprise (Abrams, 2003). They will take a closer look at your experience, knowledge, skills, and personalities of your entrepreneurial team than even the product or service provided. As they see what your qualifications and those of your team are, being clear about your strengths and weaknesses as well as those of your key employees will help you get and make the best use of your resources (Abrams, 2003). Surely, entrepreneurs are permanently challenged to deploy a set of competencies to succeed in their entrepreneurial ventures. To mention some of them, they may include: negotiation; marketing and sales; general, operation and financial management; and so on. Each stage of the entrepreneurial process will require your proficiency in one or more of these competencies. This does not mean that you have to excel in all of these and other competencies for the realization of your business. Some of them can be attainable by having the support from someone else in your entrepreneurial team or by other service providers. Amongst all of the possible competencies, we argue that opportunity recognition, networking and communication are crucial for developing the growth engine of your venture. Although we will discuss in more details about each of these competencies, for now it is worthwhile to acknowledge some of their features.

First, opportunity recognition is at the heart of entrepreneurship (Shane and Venkataraman, 2000) and it may occur at early and further stages of a business and in the life of the entrepreneur (Hills and Shrader, 1998). Recognizing opportunities demand that people exploit their creative skills and sensitivity to environmental changes and, to a certain extent, their prior knowledge and personal contacts. Second, networking is highly important in several ways: one could be as a mean for you to get valuable information about where and how to obtain different resources, including property, capital and credit, and any kind of professional services; another may be the possibility of having friends and associates in bringing ideas to your attention (Hills and Lumpkin, 1997); and even more, it may be a source of referrals to develop your customer base. Third, being competent in communicating effectively is crucial in a business context as this activity demands that you have frequent interaction with a variety of stakeholders, including partners, customers, suppliers, competitors and service providers, amongst others. 5.3. Opportunity recognition Opportunity recognition refers to a permanent and dynamic process involving the perception of promising ideas and their development over time that may end up with the creation of a new venture or the improvement of an existing business (Hills and Shrader, 1998). In other words, opportunity recognition entails the ability to identify good ideas followed by transforming them into business concepts that add value and generate revenues (Lumpkin and Lichtenstein, 2005). Opportunities are those situations in which new goods, services, raw materials, and organizing methods can be introduced and sold at greater than their cost of production (Shane and Venkataraman, 2000, p.220). Caution should be given, however, to avoid biasing oneself towards thinking that good ideas are, per se, good opportunities to be exploited. An idea to become a business opportunity, it has to go through a diligent evaluation process. That is why, opportunities, to be considered as such, should have the qualities of being attractive, durable, and timely and are anchored in products and services that create or add value for their buyers or end users (Timmons, 1990). In our previous discussion, we presented a model of individual competencies (see Fig. 5.1) involving the self (personal attributes related to attitudes, values, and self-concept), the know (a persons knowledge) and the know-how (a variety of a persons skills). By articulating these competency characteristics, entrepreneurs become competent in intricate tasks like the recognition of business opportunities. Certainly, recognizing opportunities is one of the complex tasks demanding the articulation of all the three individual competencies. In its own complexity, opportunity recognition can involve other related competencies, including: having knowledge and experience in one or various domains; favoring unique ideas and having the intention to be creative; working hard and having high expectations; enjoying at creating original things; and scanning the environment for the possibility of fitting products or services to market needs, allowing them to do their jobs better, easier, and a fewer cost. This may explain why some people are better able to identify opportunities than others.

Despite its complexity, evidence indicates that the identification of business opportunities2 is a competency that can be developed as any other unique competencies (Baron, 2006; DeTienne and Chandler, 2004; Nixon, 2006). In this respect, engaging in an active search for opportunities, being alert to opportunities, and prior knowledge are three factors that have received especial attention because of their important role in recognizing business opportunities (Baron, 2004; Shane, 2000). These three factors have been studied under the perspectives in which opportunities are identified. They include active and passive search, fortuitous discovery, and creation of opportunities (DeTienne and Chandler, 2004). By briefly reviewing them, we will use our model of competencies to highlight how the underlying aspects associated to each perspective of opportunity identification are categorized within any of the three characteristics of competencies; that is, the self, the know and the know-how (cf. Table x).

Active search Know (knowledge)

Access to key information: Personal contacts, specialized publications Knowledge in domains of especial interest and in specific domains: technology, industry, markets, etc. Superior search skills Cognitive capacity for pattern recognition: connections between seemingly unrelated events and trends; technology, demographic or political changes Ability to process information

Passive search / fortuitous discovery

Prior knowledge of and how to serve the market: experience Prior knowledge from work experience, education, etc. Prior knowledge in domains of especial interest and in specific domains: technology, industry, markets, etc. Heightened state of sensitivity (entrepreneurial alertness) to the environment Sensitivity to identify un-or underemployed resources Cognitive capacity: creativity Ability to identify new solutions to market and customer needs and problems Ability to connect objective reality and future possibilities through creativity

Creation of opportunities Knowledge in different

domains Knowledge from previous work experience

Know-how (abilities)

Ability to imagine original and unusual things from usual and ordinary things Ability to make a unique combination of resources Ability to imagine new products and services that do not currently exist

Self (personality Optimism attributes) Self-efficacy Perception of risk

Passion and dedication

Table 5.1: Characteristics of competencies and the way opportunities are identified
2

In this book, we use identification and recognition of opportunities interchangeably.

Active search is assumed to take place when markets, operating in equilibrium, shift temporarily away from this state. This can happen when differences in information drive people to perceive different value in goods or services which, in turn, makes them offer different prices to obtain them (Shane, 2000). Entrepreneurs are those agents able to see this temporal disequilibrium and step in to profit from it (DeTienne and Chandler, 2004). As entrepreneurs get access to appropriate information either through personal contacts, acquaintances, specialized publications, or any other source, they come to the position to better recognize business opportunities (Baron, 2006). This means that relevant information related to market and potential customers as well as knowledge in specific domains are an important resource for recognizing opportunities. This implies that superior search skills are crucial to detect patterns between unrelated events; that is, links between apparently unrelated trends, changes and environmental events (Baron, 2006). For the passive and fortuitous discovery, people are presupposed to be in a high sensitivity state to the environment (Ardichvili et al., 2003) and able to recognize business opportunities based on their cognitive capacity: creativity (DeTienne and Chandler, 2004; Baron, 2006). As these authors explain, the main difference between the passive search and the fortuitous discovery is that the former, on the one hand, demands that people operate at a rather conscious state of sensitivity to environmental events. On the other hand, the latter requires the individuals inherent alertness to discover opportunities when no searching takes place, resulting in surprise when something is found. An individuals alertness may be heightened when various factors coincide, including: certain personality traits, relevant
prior knowledge and experience, and social networks (Ardichvili et al., 2003). While the first factors are reviewed in this section, the importance of networks will be discussed later in this chapter (see section 5.4).

Entrepreneurs discover opportunities by recognizing the value of the information which they happen to receive (Shane, 2000). Moreover, entrepreneurs discover only those opportunities related to their prior knowledge, including prior knowledge of markets and ways to serve markets, and prior knowledge of customer problems. Thus, opportunities are recognized based on peoples high sensitivity to the environment together with their prior knowledge and ability to creatively identify solutions to respond to the markets needs and problems. Finally, the creation perspective relies on the belief that opportunities are only on the entrepreneurs mind and emerge through action (DeTienne and Chandler, 2004). This involves the exploitation of your creativity which implies being curious, different, and persistent. As Amabile (1991) states, creativity is the production of novel and useful ideas in any domain, p. 1. All your knowledge in different domains, experience, fun, fascination and willingness to be creative count for developing unique ideas. Yet, developing your creativity is a matter of continuous exercise demanding your intrinsic motivations, commitment and desires to be creative. Whether you want to think more productively in terms of generating creative ideas, we recommend two interesting books (cf. Michalko, 2001; Epstein, 2000) that will give you the fundamentals of creativity and practical advice to heighten your creative capacity.

In his writings, Schumpeter (1934) introduces the idea that successful entrepreneurs discover opportunities due to their creative capacity. Also, studies conducted with regard to this concept present evidences that creativity is highly important for the opportunity identification process among entrepreneurs (Hills et al., 1997). Thus, the concept of creativity plays a key role as it enables entrepreneurs to create unique and innovative products and services. As Drucker (2013, p. 156) states, In innovation, as in any other endeavor, there is talent, there is ingenuity, and there is knowledge If diligence, persistence, and commitment are lacking, talent, ingenuity, and knowledge are of no avail. This means that not only is the creative capacity needed but also other competencies related to the personality traits and knowledge for innovation to take place. Although each of the factors discussed above has its own specificities as to how opportunities are recognized, all of them may be interrelated (Baron, 2006). This may be possible, for example, when high sensitivity to potential opportunities makes it unnecessary for you to purposefully engage in active search processes. In other words, when having a heightened alertness to the environment, you may be able to use your cognitive frameworks to perceive meaningful patterns in a variety of events or trends (Baron, 2006). Likewise, you may not have to be engaged in an active search when your prior knowledge is high. As observed in Table 5.1, optimism, self-efficacy and perception of risk are personality traits that have been found to exert an influence in recognizing business opportunities. Optimism has to do with the beliefs that a persons actions will render positive results and it has been linked to self-efficacy beliefs (Krueger and Brazeal, 1994; Krueger and Dickson, 1994). Self-efficacy refers to the belief that a person has the ability to perform a target behavior (Krueger and Brazeal, 1994). That is, self-efficacy is motivational in nature influencing an individuals choice of activities, goals, perseverance, and performance in a variety of contexts (Zhao et al., 2005). Along these personality traits, we maintain that the three fundamental building blocks of your growth DNA your passion, dedication and customer and sector knowledge are critical for business success. On the one hand, your passion and dedication underlie your imagination, inspiration and efforts to go through all the tasks involved in recognizing opportunities, including: perceiving market needs or problems; perceiving new ways of utilizing resources to create new processes, products or services. On the other hand, intimate knowledge of customers and business sector gives you the insights into how to satisfy your customers and all the value chain of your business activity. By having such knowledge, you can better manage the uncertainty and risk involved when pursuing a new venture or when growing your existing business. 5.3.1. Opportunity recognition: a crucial competency for business success As discussed, the recognition of opportunities can be viewed as a major step in the entrepreneurial process, which may occur at any stage of your business venture and in your entire life as entrepreneur. In this sense, recognizing opportunities is a crucial competency that you can learn as you become progressively aware of the specificities and complexities of your business activity. Based on the literature on opportunity recognition and own experience in the business arena, this section aims at giving you some practical advice for identifying business opportunities.

We have argued that your passion, dedication and intimate customer and business-sector knowledge are the three fundamental building blocks of your positive obsession. The latter component is crucial to insightfully understand what your customers needs and problems are. As it is not uncommon, however, you have to deal with limited resources making it difficult for you to get an expert to conduct a comprehensive market research. Nevertheless, having a firm commitment to your business venture, you can make the necessary analysis to get a good knowledge of your customers and other key constituents. That is why we have urged you to follow the practical approach presented in chapter 2 which, as a first step, will allow you identify and analyze the underlying trends for your business activity. By performing these tasks and having a good knowledge of your customers and the sector of your business, you can base your venture on real market needs driving your enterprise to survival and possibly growth. Getting insights into trends is important as they may impact the daily life of your potential customers. Also, analyzing trends is a valuable exercise to assess whether your current products or services are within the timeframe of the leading trends. In addition, it allows you to determine if your offer to the market addresses the real customer interests, needs and problems. As trends may impact your business model, we have suggested conducting a SWOT analysis of trends. Although trends may not have an effect to everyone, they are relevant to some customers in some circumstances. In this respect, we have discussed about the relevance of asking ourselves regarding the effects of a trend on our customers, on our products and services, on our processes, and even on our employees, our partners, and our competitors. 5.4. Networking

5.4.1. Entrepreneurship as a networking activity In very simple terms, networking has to do with developing links and relations with other people. In a business context, the ability to establish linkages with other business people and various stakeholders is valuable as it gives the possibility of mutual learning and collaborative working, facilitating the achievement of common objectives (Onstenk, 2003). This could be especially true because you are in frequent interaction with a variety of stakeholders, such as bankers, potential customers, prospective employees, providers of professional services, and so on. Accordingly, entrepreneurship can be considered inherently as a network activity (Dubini and Aldrich, 1991). As such, it is crucial for you to expand your network of contacts while, at the same time, you need to be able to properly use them for your personal benefit and for your organization. When starting and running a business, your social relations, for example, can be a source of valuable information regarding a potential entrepreneurial opportunity. This could be in terms of giving you new ideas or simply a different perspective for a product, or service to be offered. This means that the inputs from people with different background, experiences and expectations may alert you to potential setbacks or mistaken assumptions associated to a given idea. In chapter 2, we emphasized the importance of taking into account other

opinions when identifying and analyzing current trends. Hence, making group discussions with key contacts in your network, especially those with different, profiles, backgrounds and competencies, will allow you to better identify customer needs and problems and to refine your business model. It is also possible that your personal contacts can be a source of expert advice, access to various services, and information about where and how to obtain resources, including property, capital and credit. In getting information and access to resources, you may find it easier to approach those contacts close to you. Your closest contacts, however, may not be the best source of information that you would require. This means that people who have close relationship and are in frequent touch among each other may see ideas from a similar perspective as opposed to others who may perceive them quite differently (Granovetter 1973). On the contrary, it could be that indirect contacts friends of ones relatives and friends can provide what is necessary for a given venture (Greve, 1995). Thus, expanding your network of contacts is a desirable practice because of the potential benefits that you may encounter by having a good and lasting relationship with others. 5.4.2. Capitalizing on networking As stressed, the ability to interact with others is one important determinant of success in many circumstances of a persons life (Baron, 2000). From a global standpoint, this implies that networking has connotations not only in businesses but also in different settings and in a variety of instances that people may experience. From personal to professional and business situations, you may find yourself with the need for contacting others for advice, support, or any other reason. An own experience of one of the authors of this book is an example of the usefulness of personal network of contacts. In fact, there was a need for having an expert to develop and manufacture a proper packaging for an electronic device before taking it into the market. By using one of his friends contacts, he was able to accomplish his objective and to start selling this device. Another example could be of a person that may need to be referred by a colleague among his/her network when making his/her professional services known to others. Certainly, initiating as self-employed will require, for example, that you extend your customer base. It is understandable that only your closer contacts and acquaintances may be the ones that know what you are offering to the market. Under this circumstance, one way of making your services known is by using your network of contacts, especially helpful at the start of a business due to resource constraints. In a business context, developing a network on the basis of referrals is seen as an acceptable marketing strategy (Misner, 2012b). For instance, it could be that a sales representative seeks to increase his/her number of customer. In looking for prospects, he/she may opt for practicing referral networking on the basis of current clients. The situations just described exemplify that we live in a networking world and that being referred to somebody else may be helpful for accomplishing a given goal. According to the hypothesis of six degrees of separation, any person in the world can be connected by a chain of acquaintances, six steps or fewer away. Trying to test this hypothesis, the social

psychologist Stanley Milgram studied the small world problem (Milgram, 1967). Other researchers are also studying this phenomenon trying to demonstrate that everyone on earth is linked by just a few intermediaries. Although no final results have been reached, evidences indicate that this hypothesis everyone can be connected by six or less intermediaries seems to be certain (Watts, 2003). From our interpretation, the phenomenon of six degrees of separation has important implications in a business context. That is, a potential customer can be reached by one of the contacts in your network in no more than six steps long, regardless of how close to you it is this person. Whether this potential customer buys your product or service, he will be an excellent source for the word-of-mouth marketing; assuming that the product or service offers him/her real value and, in turn, he/she will be completely satisfied. In other words, happy customers would recommend your product or service to somebody else in their network. This chain would continue until a great number of customers can be achieved, resulting in a business success. In sum, keeping in touch with other members in your network and increasing the number of contacts is certainly highly relevant for your entrepreneurial venture. Moreover, it is also important making these contacts become lasting relationships. Although one of the motivations for networking may be to be referred to others, gaining access to professional services would be another key reason for expanding ones personal network. By presenting a story about how an owner of a small creative-services company benefited from having access to expert advice, Misner (2012c) stresses the importance and benefits of networking in businesses. The story is that the owner of the firm was in need for relocating across the country to a state with a more favorable business conditions. To her frustration, she was having difficulties in communicating with government entities two time zones away. Because of that, her plans were brought to a halt. Trying to solve this problem, she decided to approach a certified public accountant (CPA), who had recently joined her networking group, and seek advice. After giving a brief overview of her situation, the CPA provided the required advice for moving forward to the new state. The fact is that this professional turned out to be very knowledgeable of what was needed for the owner to succeed in her plans. As the services were beneficial for the firm, the owner decided to hire the CPA to help resolve her business problems. Then, she considered to transfer all of her financial and recordkeeping functions to the CPAs firm. In return, the CPA connected her with a major new customer. Networking can also become a key component of a business model. This is the case of Avon Products Inc., a company in the cosmetic industry having a worldwide presence in the market with approximately 6.4 million representatives in more than 100 countries in the world (see, Avons website). From the companys inception, in 1886, David McConnell, the founder of Avon Inc. realized that many of his female customers were isolated at home while their husbands went off to work. Under this circumstance, he purposely considered the recruitment of female sales representatives as he believed that they had a natural ability to network with and market to other women. At that time when limited employment options were in place, the possibility of earnings in an independent fashion was an innovative concept. Under this concept, Avons representatives continues selling beauty products to

their neighbors, friends, and other contacts they can make during visits; an approach that seems like social calls rather than commercial transactions. Following this model, Avon has exceled at practicing direct-selling on the basis of networking while empowering women around the globe as well. By giving this example, we are not saying that every venture can follow Avons approach to expand its customer base. Certainly, each business will need to adjust its strategy to reach and keep its customers loyalty. We wanted to emphasize, however, that networking deserves careful attention as it can be a catalyst of the word-of-mouth. The word-of-mouth dynamic means that people are usually influenced by trusted sources, including friends and family when they are at the point of making a decision regarding a purchase of a product or service (Entrepreneur.com, 2013; Li and Bernoff, 2011). 5.4.3. Networking: a way of increasing a customer base From the previous discussion, we can arrive to the conclusion that networking has become, more than ever, a crucial element for entrepreneurs when searching for customers. It is not uncommon to see entrepreneurs having to deal with limited resources, especially at early stages of a business start-up. This is certainly a considerable hurdle to be overcome because insufficient cash flow can drive the venture into the near failure syndrome (Ronstadt, 2007). As one of the main causes of insufficient cash flow is the lack of sales, your efforts need to be oriented to get access to a substantial customer base. In this commitment, you are always in need for making your products or services more visible and accessible to potential customers. When trying to increase your customer base, you can use different tools to make your product or services known, including: personal selling, sales promotion, and, advertising amongst others. However, these tools or any other traditional marketing techniques may not be suitable approaches for many entrepreneurs, particularly for those initiating in businesses, because they are usually very costly. Personal selling, for example, requires that your employees look for prospective buyers with the purpose of making a sale. Of course, this demands that your representatives have good interpersonal relationship and effective oral communication skills. Whether you use sales promotions, you will have to offer shortterm incentives (e.g. limited time offers or date coupons) to encourage purchase of your products or services. When using advertising, you may need a considerable amount of money as this approach commonly involves any paid form of non-personal presentation and promotion of goods, or services; usually through mass media to convey information to your potential customers. Certainly, ads appearing on television and daily journals are, in general, very costly. That is why marketers looking to buy time on broadcast television usually have to dig a little deeper because the average cost of prime-time spot can easily be above 78,0003 (Crupi, 2011). Beyond the time of a spot, its cost will depend on the TV program where it is to be broadcasted. For example, during the 2010-11 seasons, a 30-second spot was as high as 371,000 when appearing at the Foxs American Idol and 330,000 at the NBCs Sunday
3

All the values presented in this book have been translated from US$ to euros with an exchange rate of 1 euro= 1.28 US$

Night Football (Crupi, 2011). Similarly, newspaper advertising costs can vary considerably depending on its size and journal where it will appear. Just to have an idea, a half-page black-and-white ad in Wall Street Journal could be around 76,000 as for the year 2012 whereas a comparable color ad may be over 105,000. In other newspapers as Los Angeles Times, a full-page black-and-white ad could cost about 55,000 and 12,000 in Milwaukee Journal Sentinel (Crupi, 2011). The underlying purpose of advertising is to attract customers attention and, hopefully, preference for a companys product or service so that they would end up with a purchase. Traditionally, the path from awareness to actual purchase and loyalty resembles the funnel metaphor, in which the continuum goes from one end to the other from awareness to consideration-preference- purchase and loyalty (Li and Bernoff, 2011). This means that consumers go through a linear march, starting with awareness followed by consideration and preference until the final purchasing action occurs. Depending on the post-purchase experience with the product or service selected, consumers loyalty will take place. However, with a high number of products and brands in the market, Li and Bernoff, (2011) stresses that reaching customers attention is certainly not an easy task. This is even more complex because people in charge of marketing usually have little control over the dialogue occurring among potential buyers. In this respect, main efforts from marketing people go toward capturing consumers consideration and preference actions that happens in the middle of the funnel knowing that the largest talk of people develops down there (Li and Bernoff, 2011). Once people are aware of a product or service, the dynamic of learning from each other appears as a result of the wordof-mouth. Certainly, the worth-of-mouth is a plausible marketing approach to heighten the visibility of your products or services. It is a powerful alternative for every company, especially for those initiating in business, as it is an unpaid form of promotion in which satisfied customers give positive comments to other people regarding a companys offer (Entrepreneur.com, 2013). With the existence of social technologies, the word-of-mouth can be effectively used to influence regular people by customers who have had positive experience with a companys products or services. In this respect, a survey administered to online consumers conducted by Li and Bernoff (2011) resulted in 73 percent of respondents indicating that they trusted recommendations from people in their networks (e.g. friends and acquaintances), and more than half trusted online reviews from strangers. Todays worlds is moving under rapid technological changes in which the Internet, smartphones, tablets, and all kinds of electronic devices are shaping the way people interact and get connected to each other. Under this environment, social technologies are commonly being used among young and middle-age people so that conversation is concurrently being held through blogs, discussion forums and social networks. Social networks are facilitating peoples interaction as well as access to professionals and colleagues that may be of help. Two of the highly used social media sites include Facebook and Twitter. The former had about 1 billion monthly active users and the latter with over 500 million accounts in 2012 worldwide (Geoffrey, 2012; Lunden. 2012).

In June 2012, McKinsey Global Institute conducted an online survey among 3.542 executives of companies from different industries, regions, sizes, tenures, and functional specialties regarding the use of social technologies (McKinsey Global Institute, 2013). Results of this survey indicated that 83 percent of respondents said their companies are using at least one social technology, and 65 percent mentioned that employees at their companies access at least one tool on a mobile device. Moreover, ninety percent of executives of companies using social technologies reported measurable benefits from these tools. The use of social networks through existing technology platforms brings you the benefits of driving your sales, building relationships with your customers and the possibility of reaching new people. Through Facebook, for example, a kind of group dynamics takes place among clients as they have conversations with each other. And, your business can be part of these conversations while having access to word-of-mouth marketing. In addition, they can also post comments and expect you to respond. If you are in the high-tech business, you may encounter yourself with having greater interaction of your current and potential customers due to the rapid changes that a technology industry may experience. By creating an account in Twitter, you can also bring opportunities and sales to your business. Although you cannot manage Twitter for your business in a similar way you do it for your personal use, there are some tools available for this purpose. Some marketing tools such as Hootsuite.com and Tweetdeck.com can be of help. Among other features, you can: schedule updates; post your social media messages across several social media sites like Facebook, Twitter, LinkedIn; and organize your Twitter accounts and activity. Even though you may prefer to use the basic free features of these tools, you can also have paid memberships at reasonable prices. Another example of these social networks is LinkedIn, which may be useful when it comes to contact experts in a given field or, otherwise, to make you be known by others without violating the sites policies. This could be so because of its high concentration of professionals and decision makers with more than 187 million members over the world (see LinkedIn Press About Page). That is, LinkedIn offers you the possibility of being connected to a large audience of professionals while, at the same time, it allows you to marketing yourself and your business to other members of this social network. Whether your work is from home or you are initiating in business, you can create a LinKedIn profile as a way of building your personal contacts. This, of course, requires that you keep your account frequently updated so that you can get the attention of other members and potential customers. Those who already know who you are and what you offer can be a source of referrals for you and your business as they can give recommendations to other people regarding doing business with you. Also, you may want to actively participate in group discussions related to your professional profile and your business. This way you can increase your exposure and become known as an expert in your field. As a way of making your business more visible and recognizable, you can also create a discussion group under your companys name. This way you are giving your customers and colleagues a space for discussing about your business sector.

Making a presence in any of the social networks, however, is not giving for granted in the sense that it requires your passion and dedication. For instance, you have to spend time to observe what it is going on in your social sites, keep updated information of your business, and promptly respond to your customers comments. By dedicating time and effort, you are doing your marketing duties toward the expected rewards. In addition, you need to be aware of the potential risks that a new open environment like social networks can involve, including possible leaks of confidential information and intellectual property (McKinsey Global Institute, 2013). It is not the purpose of this chapter to teach you how to use the existing technologies for social networking. However, you can get started and learn how to handle them and their related management tools (e.g. Hootsuite.com and Tweetdeck.com) by visiting their sites and looking for advice on the internet. By using a web search engine like Google, you will find abundant information about the use of these and other tools for your business. 5.5. Communication We have argued that networking is a valuable competency that entrepreneurs should master for business success. In the same line, we maintain that being effective in communicating with other people is as important in the sense that it facilitates the interaction with stakeholders in a business environment. Also, gaining competence in communication can ease the development of social networks; highly relevant in todays world. Hence, there is a need for communicating effectively in business related matters. 5.5.1. The what of effective communication Although different conceptions can be presented, this book refers to communication as the sharing of information, thoughts and ideas among people, as well as convincing and motivating others by means of speaking and writing or by using any other way of expression. As we spend approximately 80 percent of our daily lives communicating with other people, we have to share information in one way or the other (Roebuck, 2012a). This implies that one person sends the aimed content and another receives it. When this content is understood by the receiving person in the way it was intended, we maintain that the communication has been effective. Communicating persuasively requires that you show benefits to the person who receives a message. Doing in writing terms, you will try to convince the reader to accept your idea or proposal expressed in what you have written (Roebuck, 2012b). Similarly, when making an oral presentation, you hope to change your audience's beliefs, attitudes, or actions (Roebuck, 2012c). This means that unless you are convincing, you cannot expect that your audience wants to do something. Beyond informing your audience, you seek to be persuasive by presenting facts and logical evidence. When using a motivating way of communication within your organization, you can expect a favorable reaction from your employees or business partners. You as leader of your entrepreneurial venture have to ensure that you use the right mode of communication. This requires a careful consideration of the message that you want to convey. As Hackley (2005)

exemplifies, communicating in a positive manner can help you achieve your goals. An employee having difficulties accomplishing his/her assigned work cannot get inspired by a negative statement like everybody is complaining that you are not doing your part. On the contrary, you can motivate the employee by stating what you have seen and expressing your concerns for his/her well-being. You can tell him/her that you understand the situation and you are willing to find ways for making things more manageable. On the one side, this does not mean that you have to be happy with his/her performance. And, you are looking for a more suitable way of communication in order to get a positive reaction and encourage better productivity. On the other side, it implies that you are willing to listen. Listening is one of the most important aspects for an effective communication. About 45 percent of our daily communication is spent in listening activities although only about 25 to 30 percent of their potential is really used (Roebuck, 2012a). That is, when you hear that somebody says something, it does not necessarily means that you have listened to him/her. In this respect, Roebuck (2012a) maintains that listening involves a process of six components, including: hearing; attending; understanding; remembering; evaluating; and responding. They are briefly explained as follows: 1) Hearing has to do with your sensory reception of the ear to sound waves. 2) Attending involves the brains screening of stimuli allowing only a select few to come into attention. 3) Understanding refers to the analysis of the meaning of the stimuli perceived as well as the relationship among elements of knowledge taking place in ones mind; 4) Remembering is important because the message is not only received and interpreted but also saved in your mind's storage bank; 5) Evaluating means to make a judgment of the received message by weighing the evidence, sorting facts and determining possible bias or prejudice in the message; 6) Responding involves completing the process through verbal and/or nonverbal feedback Therefore, you have to practice the elements just described to be a careful listener and, in turn, to be an effective communicator. By doing so, you will show the other person that you really direct attention to what he/she says during the conversation. 5.5.2. The importance of effective communication in business Communicating effectively is crucial for entrepreneurs as they are always in need for discussing with various stakeholders, such as customers, clients, suppliers, competitors and service providers, issues related to their ventures. As emphasized, you will have to keep continuous interactions with your current and potential customers, which can be managed through the use of social technologies. Furthermore, when looking for support of your ideas from business partners, you would need to make clear and convincing presentations. Also, whether you have to look for financial resources, it would demand being persuasive when presenting and giving arguments about your business ideas. There-upon, you can gain interest of potential investors regarding your entrepreneurial venture; otherwise, early rejection or disapproval may occur.

Within your organization, there will be situations where open communication practices by sharing information and ideas can be beneficial. This would stimulate participation from employees with different backgrounds and perspectives. Going in this direction, solution to certain problems may be achieved because of the collaborative effort taking place. Lets take the example of Honda Companys plants where even routine manufacturing problems are rapidly solved by creating temporary teams in which employees from throughout the plan participate (Watts, 2003). That is, when technical problems occur, a broad range of institutional knowledge comes into place in the form of ideas and advice to find the expected solution. In managing an organization, communication skills are considered essential (Penley, Alexander, and Jernigan, 1991) because of the managers responsibilities, including the role of liaison, monitor, disseminator, spokesperson, and negotiator, amongst others (Mintzberg, 1973). As a leader of your organization, you will have to communicate with internal and external contacts which will call for your role of liaison. Under this role, you need to be able to network effectively on behalf of your organization. As a monitor, you will have to look for information related to your customers, changes in the environment and in your business sector. Your duties as disseminator will be on communicating useful information to your business partners and employees. Also, this role will demand that you disseminate relevant information to your customers related to your products or services. As spokesperson, you will be the person representing your company to outside parties. This means that you will have the responsibility of transmitting information about your organization and its goals to people outside it. Finally, your negotiation skills will usually have to be exercised when leading your entrepreneurial venture. When negotiating, you will have come with options for mutual gain not positions because the latter would not lead to reach agreements. To do so, you will need to find out what interests lie behind the other persons position (Hackley, 2005). References Abrams, R. (2003). The successful business plan: Secrets & strategies (Fourth edition). Palo Alto, CA: The Planning Shop. Amabile, T.M. (1996). Creativity and innovation in organizations. Harvard Business School, January, 1-15. Ardichvili, A., Cardozo, R., and Ray, S. (2003). A theory of entrepreneurial opportunity identification and development. Journal of Business Venturing, 18, 105-123. Avons website (2012). Join the global beauty leader. Available at: http://www.youravon.com/REPSuite/static/BAR/direct_seller_avon.html. Retrieved on December 2012. Baron, R.A. (2004). Opportunity recognition: A cognitive perspective. Academy of Management best Conference Paper. Baron, R. A. (2006). Opportunity recognition as pattern recognition: How entrepreneurs connect the dots to identify new business opportunities. Academy of Management Perspectives, 104-119. Bird, B. (1995). Toward a theory of entrepreneurial competency. Advances in Entrepreneurship, Firm Emergence, and Growth, JAI Press, 2, 51-72.

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