Part One: Entrepreneurial Thinking
Section A: Innovation
There is a considerable overlap between innovation and the entrepreneurial knack, as both embark on creative faculty and human capital of some sort or the other. The latter factor refers to the ability to generate novel solutions amidst resource scarcity or to create opportunities whenever the market environment has grown intensely competitive. In fact, the aforementioned overlap need not be very large, as the two notions are complex and multi-faceted in their own right.
To begin with, innovation may refer to either an ability to arrive at genuinely revolutionary technical solutions above and beyond uniformly trained expertise or to a propensity to maintain ongoing change while grappling with the prevalent inertia. For one thing, people may naturally tend to shun abrupt change, discontinuity, or complexity, as confronting it might pose an excessive deliberation cost. In addition to being risk averse, such players might be led to oppose any major change as well as those fostering it, for better or worse. Incidentally, the innovative types indulge in problem solving rather than treating it as a cost to be avoided or minimized.
In contrast, entrepreneurship could be a more down-to-earth attitude either to spot new frontiers and markets or to bridge the existing gaps and pick whatever efficiency slacks left up for grabs as a matter of low-cost or risk-free arbitrage opportunities. Now, of course, risk taking could be a necessary domain of choice in its own right, and some might believe that it is strongly characteristic of entrepreneurial talent. In a sense, this could be deemed as a necessary prerequisite, whereas an ability to spot risk-adjusted efficiency slacks would suffice as a weak-form entrepreneurial ability.
Again, the more proactive and lead companies will likely call for an even higher level of effort as well as talent, when it comes to locating entirely new solutions or markets and audiences to sell these to. Kim & Mauborgne (2005) have referred to this pillar of capability as a success in, and well-structured procedure for, arriving at what amounts to “blue ocean strategy”—a vision alongside the underlying solutions that are not aimed to compete for the extant opportunities amidst the already over-saturated market or the stagnant phase of the product lifecycle (PLC). Key to this quest is the unleashing of a “non-audience” of the would-be customers that have not yet recognized or realized their preferences until after faced with the brand new solution in question. However, differentiation cannot be minor in this case, or else it would again stumble into either knife-edge instability as per the market shares or into thin margins suggesting that a minor increment in the market or bargaining power will be attached with a prohibitively high incremental cost without an efficiency scale being ensured.
Alternatively, Porter & Kramer (2011) have attempted the program of reducing the quest to creating “shared value” on a continual basis, as part of corporate revival. What this implicitly suggests is that growth can no longer be recouped on either minor slack picking (marginal optimization) or arbitrarily reported and non-organic M&A “synergy” that hardly ever builds on any vertical complementarity or horizontal network and agglomeration effects. Aimed inherently at relevance driven operations and marketing, shared value could be defined as profitable agency whereby each and every party involved caters for the rest as an agent while tapping into the gains accruing to the society at large. In other words, entrepreneurship is no longer solely competitive, or at any rate cooperative solutions can scarcely ever be mimicked or informed with rational greed alone.
Some of the emerging markets, notably in the “tech” sector could be seen as inherently “fast-cycle,” in that the edge the companies may enjoy tend to dissipate very soon—if only because the solutions are either easy to mimic at a low cost (the inappropriability dimension as one instance of externalities) or tend to be substituted for with more relevant or emotively coveted ones. In this light, innovation is essential to bare-bones survival, let alone growth in the earnings or market share.
On second thought, many industries have increasingly been revealing fast cycle, not least in just how fast their PLCs converge to the saturation stage. It goes without saying that an ability to single out promising solutions, or put the vision on wheels technically as well as motivationally, is what earmarks the human capital of utmost relevance. In fact, this could be referred to as the ultimate earning asset.
Section B: Strategies
No strategy can be exercised as long as it is at odds with the implied company culture, which might in turn run counter to the formal MVV (mission, vision, and values) statement. For that matter, no culture or vision could become effective unless appropriately manned. In other words, HRM is derived from the culture and strategy while also informing and affecting these in a more full-blown or inter-temporal setup.
Formal delegating and task separation might not suffice for securing a culture of initiative and risk taking as circumstances warrant. For one thing, the case for labor division or independence and non-overlapping jobs might compromise the entire process and deliverables whenever team play is key to securing the complementary and “lean” outcomes. One other illustration pertains to risk management which is inherently cross-disciplinary and cannot possibly rest with any particular department as its alleged sole prerogative.
Coming to embark on change management might be a starting point to cope with learning inertia down the road of picking the culture of striking a balance of change versus continuity. For the same token, the learning curve would suggest that time acts as a scale whereby the learning-by-doing approach secures an ongoing mastery buildup.
Not least, brain-storming techniques are best arranged in network team or group setups, as this could be one way of matching (and not just short-listing) diversity and versatility to core competencies of relevance and approached in a complementary fashion at the outset.
Section C: Barriers
Incidentally, team work might at times compromise individual attainment and creative self-actualization, insofar as others’ expectations and the lower of efforts and talents act as a kind of barrier or bottleneck curbing the throughput and setting lower hurdles while at it.
Among other things, there appears to be an ethical constraint or dilemma involved in choosing between individual self-expression and optimal utilization of talents versus the organizational behavior, team morale, and commonly shared objectives to be met. Ironically, the CEO is the first level that confronts this kind of “glitch” early on, as the CFO might frown upon some pilot projects that tap into funding beyond the rationed amounts, let alone those revealing a mediocre NPV or IRR based performance despite their invaluable complementary contribution to longer-term strategic outcomes.
For that matter, any visionary CEO seeking to come up with superior solutions might fail to garner the buy-in from the top down or otherwise ensure a feasible operational motivation plan to back the strategy with from the bottom up. In any event, one has to be a transformational type leader and not just an entrepreneur if he or she is to succeed in motivating each and every layer of human resources to work as a team toward a superior and challenging agenda. People will be reluctant to flag a tectonic shift as long as it implies their fortes fare idle. The silver lining, however, might be that should they rather opt to move on and seek employment elsewhere, this would be a matter of self-selection while signaling to the rest as well as prospective employees that they will best unleash their potential inasmuch as they measure up to the culture of innovation that welcomes change as an opportunity rather than shunning any.
Again, the extent or intensity of change as permitted by the organizational or business model will inevitably be minimal or worst-effort as long as the human capital on hand is too heterogeneous in terms of the quality and proactive attitude rather than scope. Likewise, ill-defined or largely outdated core competencies, as the channels of putting a particular business model on wheels, would hardly amount to anything better than the other extreme—perennial change as an end in itself amid an amorphous culture and an MVV statement replete with and plagued by “hot” buzz words. Ironically, even the largest and well-renowned companies tend to jump this bandwagon occasionally—perhaps in line with the audience’s or investors expectations.
Finally, insofar as financing constraints could pose a barrier in their own right, fund availability as in Hellmann & Thiele (2015) might either drive or distort the incentives while dominating the core rationale. In a sense, this could be treated akin to the CEO vision remaining unfeasible for lack of horizontal (co-executive) and vertical (rank and file or blue-collar) support to back up the otherwise optimal program with.
Part Two: Franchising versus Own Business
Franchising is largely about tapping into someone else’s goodwill over a finite time horizon, for lack of one’s own reputation or history, in the first place. In a sense, this amounts to borrowing a brand without actually dissipating one—much the way knowledge solutions could be copied and replicated without either incurring a huge extra cost or wasting the benefit in question. As argued above, by tapping into hard and proven solutions as a matter of filling in gaps such as missing or incomplete markets, one embarks on the mid-level entrepreneurial or arbitrageur capacity without actually creating or contributing anything new. The would-be franchiser might not mind extra market penetration, as long as it is financed and arranged or manned at little to no extra cost (which layer of the value chain is for the most part spun off to the host market’s discretion and pending resource availability).
At the same time, the franchiser takes the implicit reputation risks, as the candidate franchisees might be either hard to screen ex ante and monitor ex post or a poor stake to draw upon when considering expansion. In other words, information or transaction cost ushers in or is traded off for some adverse selection accruing on top of the related moral hazards, notably rent seeking and shirking. The latter might pertain to the franchisee’s reluctance to go through full-fledged training—even though this might not be at odds with the free-riding franchiser willing to foist the extra cost on the spin-off. In other words, this domain makes every use of the issues related to coalition formation or non-cooperative bargaining.
To rehash on the entry barriers, apart from the initial capital outlay and learning cost, the franchise will be attached with royalty and a percentage of the sales, both accruing as aggregated fees to the franchiser. As far as indirect or opportunity costs are concerned, the brand owner may well impose some penalty for failure to cherish the brand or trademark in overseas jurisdictions. However, there is a manipulative load to this area of concern. For starters, the cost is largely about the continuation value, as the licensing agreement may be terminated anytime in case of sheer abuse or lack of due diligence along the lines mentioned. At this rate, the franchise amounts to an American option, as far as the franchiser’s relative property rights are concerned.
On second thought, the unscrupulous franchiser might have contemplated the less saturated foreign markets as these destinations pose lesser reputation threats on margin—and could actually be exploited or abused with an eye on input quality or dietary habits. For that matter, some well-known brands with mixed reputations or inherently inferior product concepts at loggerheads with healthy lifestyles might be prone to being franchised or seeing their controversial reputation subjected to similarly questionable setups or uses.
The more entrepreneurial and capable-of-learning types will likely consider self-employment lending them more discretion and creative leeway while possibly posing extra threats as the flip-side cost (even though both polars, of slack picking and discretion, appear in line with Hurst & Pugsley (2011), when it comes to observing the actual SME profiles and incentives). Needless to say, this would likewise call for far heavier deliberation and red tape drudgery, while also securing more stimulating experiences.
Among other things, any start-up business could be considered as a pilot project, one that need not be sustained well into the future. As it happens, few will be rolled over and replicated, if only because they are by and large family businesses which may not attract the successors with enough talent and resolve to follow suit and carry on—let alone the money to pay inheritance taxes. On sufficient and diverse learning, the business owner should be equipped to head for a more serious project while committing increasingly more time and effort.
At this stage, the two alternatives could be bridged for straightforward comparison, with an eye on the scale and scope effects. Whereas a large company must have learned over a long time and already secured enough scale to break even, the small business would by definition work best in areas that hardly posit any increasing returns to scale. However, this arcane category would at times refer to just that—a large proportion of fixed cost (known as operating leverage) as an entry barrier. In a sense, this could be seen as an exit barrier, too, in that a vertically integrated or less liquid system might be hard to decompose and sell off without loss of complementarity or synergy. In any event, franchising might embark on expansion as a matter of further boosting the scale or diversifying local exposures away so as to secure a more stable or less elastic demand mix.
One important afterthought would be called for so as to qualify the pilot-project approach to learning as a vital constituent of innovation and entrepreneurship alike. It is important to appreciate that the truly proactive, forward-looking, and socially responsible entrepreneur will not divest on a project just like that, by simultaneously getting rid of the team. In fact, all of the processes and mechanisms are manned, and networking could be central to entrepreneurship as an ongoing and self-spawning effort embarking on complementary inter-linkage within as well as across working groups. In particular, it should at this stage have become apparent that the proverbial visionary CEO cannot possibly amount to a transformational leader if he or she has failed to create, and make the best use of, a network. For the same token, an individualistic type who hates its milieu and fails to be part of a team is unlikely to add much to the implied value web, either. On second thought, one way of striking a balance in between (or bridging) the two could be about semi-autonomous networks combining inner coordination and discretion, with the end product or value-added component counting most heavily.
Part Three: Innovation at Halen Mon
It would appear that people at Halen Mon were able to hit an optimum trade-off between seeing the big picture (referring to a culture spawning MVV, a strategy, and a product concept) versus cutting through the detail such as processes and mechanism behind an entrepreneurial quest as well as its particular narrowing-down to the products on hand. They moreover sought to transcend the boundary of conventional vision and wisdom in how they went about adding emotive or perceived value to the otherwise generic and low on value-added product such as sea salt. It remains to be seen how much of their success they have owed to their brainstorming shortlist, yet clearly they succeeded in articulating generalized approaches or an elegant paradigm reaching beyond and applying outside the narrow sample, solution search, or the resultant particular product.
Their stance for one appears to be seconding the maxim as aired above whereby, to the genuine entrepreneur, innovation is a rewarding process rather than a cost item (Carr & Fuller-Love 2011, p. 308). In particular, Mr. Lea-Wilson would go to great lengths putting his precious time and effort into learning the ins-and-outs of the underlying chemical processes so as to become privy to how the entire concern could be controlled and integrated into other producers’ value chains. In fact, this is to suggest how choosing between franchising versus own business could be an introspective (know-thyself) acid test. Should one feel reluctant to undergo even the basic and standardized training it takes to run a franchise, he or she might not be qualified for a more innovative and all-encompassing educational commitment of lifelong learning. On second thought, some of the less industrious disciples, notably Einstein, may well have shown to be great teachers or gurus of a new vision. However, their failure to comply with the rules would first and foremost refer to the mis-allocation issue.
It apparently did not take him long to realize that a small business cannot compete on cost efficiency (p. 308)—and need not stay small for that matter, as far as a new and ample would-be market is concerned waiting for the first-mover to come in and set another trend or standard. However, as one complementary pillar, he would start networking early on, whether it be with an eye toward the internal customers (a chemistry peer hired to do the “cooking”) or external (starting with local restaurants first). In fact, the product has since outlasted many a customer—and so did the legacy. What is more, networking was so systematic and ubiquitous as to carry over to two-way feedback as an early form of social media marketing (p. 309).
Right up the same alley, Ms. Alison Lea-Wilson’s notion of belonging to informal networks (p. 310) could be a rethinking of informal and endogenous leadership. That said, they avoid being banded within “strategic groups” (p. 310), so networking with direct strategic substitutes is not an option and might be prone to mimicking or emotive value detracting, not least as a matter of negative implied co-branding or indirect spillovers. Even more importantly, it appears that their notion of informal networking could be captured as ongoing and endogenized search for solutions instead of maintaining targets as set in stone and resources aligned as a distinct stage.
What should not be downplayed is that Mr. Lea-Wilson was willing to pay for his own early lack of innovative buy-in, by rewarding his aides’ compelling and major innovation suggestions—irrespective of how uncomfortable that might have made him feel at the outset (which is in sharp contrast with the know-it-all higher-ups of the managerial ilk).
The one thing that has yet to be figured in the aftermath is whether the Halen Mon adepts would be comfortable with the customers they focus on not feeling quite at home with the extent of novelty they find acceptable. As a flip side, once fully bought-in, it cannot be ruled out that they might grow reluctant to compromise or give up on a well-paying product concept and move on.
Part Four: Succession Planning & Family Business
Most companies concern themselves with continuity as one way of confronting and mitigating adverse or excessive change. In a sense, it is about heredity or path dependence, insofar as the past advantages or core competencies could carry over or be replicated at a low learning cost. In addition, new technology or know-how is routinely accompanied by heavy lump-sum outlays—to say nothing of the knowledge-intensive companies having to incur incremental (line-specific as well as continual) R&D expenses as one way around the intensity of rival pressure.
On the other hand, all businesses have to fill their HRM gaps occasionally, which could be resolved on an ad-hoc basis by means of staffing and hiring outsiders. Not least, some of the jobs or stages of the core processes could be outsourced, as long as they exhibit less complementary or strictly-sequenced routines and patterns (Baldwin & Venables 2013). Such projects would embark on transient teams that do not have to be manned by people knowing each other or maintaining any ongoing rapport.
Needless to say, far from many proactive companies can afford relying on make-shift solutions and less-than-loyal personnel not treating the company as their own going concern. For lack of emotional attachment, empathy can hardly be secured, which maps into a setup prone to coordination failure and high agency cost.
Succession strategies are aimed at bridging human-capital gaps ahead of time and not just as a matter of passive response. In a well-defined sense, this is part and parcel of the grand vision, and should be spawned from one at the outset rather than merely being aligned to it in retrospect.
Better yet, all of the HR layers, be it top executives or the operations personnel, are supposed to be arranged and maintained as a team, in which light their fitting squarely into the superior team on hand would count more heavily than their individual superiority in absolute terms and irrespective of the core competencies or strategic objectives.
Part Five: Small Firms as an Engine of Growth & Development
It has been argued before that small companies could best succeed in areas naturally lending themselves to decreasing returns to scale, or “scale-invariance.” Such processes are nowhere to be located in the core traditional sectors such as machinery or constructions, steel-making or otherwise low-margin markets that embark on repetitive and standardized operations and planning or budgeting capable of managing projects the conventional way, with “node-arrows” and phases proceeding and succeeding in a naturally linear fashion.
Few emerging sector these days reveal linearity of the sort, though. For one thing, most industries have been turning information intensive and computer-aided lately, even though only a handful of the novel “themes” qualify as knowledge-intensive and knowledge product-specialized. In fact, it is in such areas that Varian (2005) has long observed a special kind of edge or “wide moat” to be claimed by small yet fast-growing companies that do not incur heavy overhead, but may have to stand ready to keep their R&D outlays sustained at a high level in order to stand up to the fast-cycle environment.
At the same time, Varian (2011) pointed out that they also embark on a special sort of technology or product leverage, as the combinations marking their value differentiation would simultaneously have complexity as their flip side, along with an excessive search cost accruing to the prospective customers who are not good at distinguishing between the myriads of new apps and applets early on.
In any event, it is this new sector that has accounted for the bulk of shared value and “blue ocean” type solutions by creating new opportunities while fueling growth and development. Although technologies cannot unleash innovation or entrepreneurial talent in and of themselves, they are undoubtedly poised to emancipate the bulk of human capital otherwise bogged down in routine chores and hence under-employed or mis-allocated.
The aforementioned analysis could be seen to set prior expectations. Much to one’s surprise ex post, SMEs (which is the broader category) account for at least 99% of all businesses, 60% employment, and about 20% in the constructions cluster alone (FSB 2015). It may well be that this trend carries over to job creation as well—at any rate, an upward of 76% (112,000 out of 146,000) of it is absorbed by “non-employing,” or self-employing, SMEs, which is fully in line with the overall breakdown in levels terms (FSB 2015).
On the other hand, this has to be qualified with respect to the productivity and cost efficiency remaining stagnant amidst slow and inconclusive recovery, mean-reverting unemployment, and sideways job creation (Financial Times 2015). In any event, it is unlikely that the core trend can be reversed, which means that SMEs will continue positing the ultimate vehicle of entrepreneurial quest on the strength of flexibility and pioneering alike.