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On Gruenderszene.de, which is Lukasz Gadowskisgerman blog about entrepreneurship, I wrote a longer analysis on the probability of start-up success and on the different factors of risk which can lead to start-up failure. Most important risk factors are in my eyes:

1. Risk of market entry barriers

2. Risk of (lack in ) resources

3. Risk of the idea (including technology and market risc)

4. Competition risk

5. Team risk

Depending on the business idea, risks in law and economics could also play an important role.

Anyway  it is incredibly important to screen the risks of potential business ideas very thoughtful.  All different kinds of risk should be evaluated separately. A failure of unsuccessful web2.0 start-ups is often that they underestimate the amount of entry barriers (especially network effects). If your (potential) business includes network effects you should estimate the necessary critical mass and calculate if your resources are enough to jump over this barrier. 1 day of detailed risk analysis could save you a lot of struggle later with adapting the business or even prevent you from spending some years of your life on the wrong idea…

Certainly there is not the one “right” formula that will guarantee success as entrepreneur. But there are some important factors which will define a large part of the long term outcome as entrepreneur. For sure every entrepreneur has already his implicit understanding of these factors. But sometimes this intuitive feeling will be to unclear to help to make the right decisions. So I believe it is useful to have a simple, explicit model of the key drivers that will effect the outcome as entrepreneur.

First I`m going to describe the key drivers to give you a better understanding which aspects this factors include in my model. After that I give examples how all this drivers are connected among each other. Last I will put them into a little formula.

- Knowledge:

Entrepreneurial knowledge includes all kinds of information about technologies, markets, economies, leadership and everything else that is needed to found successful Start-ups. Depending on your role in a venture, the targeted market, etc. your knowledge will develop in different directions. To make the right decisions for your entrepreneurial career it is important to differentiate between specific knowledge and general knowledge. The worth of specific knowledge will decrease much in worth after starting a new venture in a different market. The worth of general knowledge (How to start a company…, How to negotiate…) will not decrease that much. One the other side general knowledge is less scarce and will therefore not be able to differentiate you.

- Talent

The factor “talent” includes in my model all (given or acquired) abilities to deal with the entrepreneurial challenges. That could e.g. be skills in communicating, opportunity recognition, negotiation or just raw intelligence.
- Motivation

Motivation describes the level of effort that you are willing to invest to reach your entrepreneurial goals.

- Network

The entrepreneurs network consists of all (strong or weak) ties to potential partners.

- Reputation

Reputation is the amount of track record, talent, trustworthiness and reliability that other (especially potential partners) attribute to you. This reputation may be anchored in your network, but can also be accessed by screening you within the Internet (Google) or other sources.

- (other) Resources e.g. money

Beyond your talent, network and knowledge there are also other resources like money or (potential) media power which ownership (or access without ownership) will have influence on your entrepreneurial success.

Certainly, not a single of this drivers will appear ”new”. To be useful the relationship between the factors has to be analyzed. If you think about the connections between the factors it comes clear that all factors are related very strong among each others. I will point this out by giving you some examples:

- Talent influences the amount and depth of knowledge that you will be able to acquire.

- A good reputation as smart, trust- and helpful entrepreneur will help to build and maintain your personal network.

- Reputation relies on your past success and integer behaviour as well as your ability to communicate that. Therefore it is correlated with your general motivation and talent (through your past success) as well as your talent to communicate this success and integer behaviour.

- The amount of knowledge that you acquire grows with the worth of your network.

- The more resources you have, the better you can leverage the other factors. If you are CEO of a company with small resources, your work (and outcome) will have less influence than if you are CEO of a company with large resources.
- People will refuse to give you access to sensitive knowledge if you don`t have a good reputation as trustworthy person. So knowledge and reputation are also connected.

To be continued…

It is obvious that the input factors are strongly connected among each others. A model could reflect that by multiplying the factors. For sure not all factors will have an equal impact on the outcome. The importance of the factors could be modeled by giving them different exponents which raise or lower the factors influence on the final outcome. Depending on the role that you take as entrepreneur the exponents (and so the relative importance of the factors) will vary.

 After all a basic formula for personal entrepreneurial success could look like the following:

A = constant term

talent,knowledge, motivation, network, reputation, other resources = factors (key drivers of the outcome)

X1,…X6 = exponents of the factors

entrepreneurial outcome = A * talent^X1 * knowledge^X2 * motivation^X3 * network^X4 * reputation^X5 * other resources^X6

So for what insights could this very simplified and theoretical stuff could be useful? The most important thing you can draw from this model is that you have to increase your level of input factors simultaneously to get the best possible outcome as entrepreneur. Don`t focus only on a few factors to work on. For example the best knowledge about markets is not much worth if you don`t have the network to get access to this markets. To realize your full personal potential as entrepreneur in the long term you have to estimate which importance the single factors have within your role as entrepreneur. After that you can put the optimal amount of effort in improving every factor. As a consequence this means you are working with a personal long-term strategy as entrepreneur instead of working only on the daily routine of your current venture.

 At the moment this model is really very basic and a lot of aspects could be added. So share your minds and add your viewpoints!

Today I had the luck to attend a interesting presentation of Andrea Zurek. She was the first sales employee and a leading executive at Google until she recently left the company.  She started angel investing in start-ups like BluBet.com and joined Sand Hill Angels, a Palo Alto-based network of individual Investors. Beyond the work with her investments she`s a licensed formula one driver and attended the gumball rally last year…

In her presentation she focused on the cultural and structural mechanisms that provide the DNA which enable Googles huge growth and efficiency. That reminded me to a great article about Google`s marketing. I have huge respect for the long-term vision, which the founders and early stage employees of Google had, when they build the (social and structural) architecture of Google at a time when nobody could really predict that amount of growth.
That`s really visionary entrepreneurship and goes even far beyond that (large) amount of vision what it needs to built, grow and sale “only” a medium-sized player for a more or less specific market.

Despite the attraction of the challenge to find (and pursue) an opportunity that could be the basis for the next Google I will concentrate my energy (at least for the next time ) on medium-sized companies…

I look forward to meet Andrea again and would like to provide you with an interview on Gruenderszene.de.

While one can read it very often that we live in a “Great Times for Entrepreneurs” both the underlying reasons as well as the sustainability of this trend towards entrepreneurship remain often unclear. Therefore I thought about some reasons why entrepreneurship is so attractive in our time and how long this development will last. Without any approach for completeness I believe that the following 5 factors have a strong impact on the growing importance of entrepreneurship for our society:

1. More change!

2. Lower information costs!

3. Lower transaction costs between companies compared to hierarchy costs!

4. More options to generate international efficiency!

5. Lower costs to get started!

To figure out why entrepreneurship is becoming more and more important one should first have a look on the role which entrepreneurship serves for our society. In my opinion Entrepreneurs are mainly change agents with superior market knowledge and better abilities to predict the future of markets, technologies and peoples needs. While they use this knowledge (as well as their abilities to execute) in order to build and expand companies they create value for the society by enabling change and reducing inefficiency.

One of the largest trends of our time is the increasing amount of change in shorter becoming time periods. Thanks to new information and communication technologies markets change much faster than 50 years ago. Therefore we clearly have a larger need for Entrepreneurs to deliver an appropriate amount of change enabling (brain) capacity.

Also as a consequence of the Internet and the increasingly networked world there is much more information about markets available. As the consumers are not able to interpret all the information there is a strong need for entrepreneurs who are able to use the information to increase the market efficiency. Furthermore the better information availability enables entrepreneurs to spot interesting opportunities without having long work experiences in the specific field. This may be one reason for the increasing number of Serial Entrepreneurs that start companies in shorter becoming cycles and differing sectors and regions.

Thanks to new technologies (E-Mail, Internet, Cell Phones…) there is also a shift in transaction costs which lowers the costs of coordination between different companies in relation to those transaction costs that occur within companies. Therefore outsourcing becomes more favorable and provides new chances for entrepreneurs.

Furthermore the increasing connections between markets and people around the world offer various interesting entrepreneurial options to lower inefficiencies through idea- or labor arbitrage.

Another factor to support entrepreneurship is the decrease in costs to start a (Internet)-Business. There was no time in economic history when starting a (potential) global business was possible with a (comparatively) low investment. While this makes the market entry definitely easier one could also argue that this leads to decreasing industry profits through growing competition and therefore is not a positive development at all. This may be right and established companies (and their “entrepreneurs”) may in fact loose profits while new entrants can easier gain market share. But as established companies tend to focus rather on Business Administration then on (technology or market) innovation and “real” Entrepreneurship this is not an argument at all.

Given the named reasons we have a Great Time for Entrepreneurs, one can think about how long-lasting this period will be. As the underlying reasons are sustainable long-term developments, I’m pretty sure that we will see these great opportunities for a very long while.

Enjoy and be sure that you use our great time!

Hi together, I´m enjoying blogging since I joined Lukasz Gadowskis famous german Entrepreneurship-Blog “Gruenderszene.de” in May 2007.

Now the time has come for me to start also a personal blog while I will continue to write also for Grunderszene.de.

What do I expect from this blog and what can you expect from my blog if you are going to read?

First of all I hope this blog will allow me to share some more personal minds which would be in the wrong place on a general entrepreneurship blog like Gruenderszene.

Second I`m going to write this blog from an international viewpoint, with a focus on regions that will play the largest role for my further plans as entrepreneur:

- Silicon Valley (and the U.S), the most entrepreneurial region of the world and also my current residence.

- Germany (and the rest of Europe), where I spend most time of the first 24 years in my live, started my companies and enjoy my family and friends background.

- China (and other emerging countries in Asia) that I look forward to explore in the second half of 2008.

While I will not have the time to publish a lots of “News” or company details I want to provide you from time to time with some deeper analyzes mainly related to entrepreneurship and social life in a world, which people and countries are becoming more and more connected.

Furthermore i want to give you some recommendations for interesting articles and blogs that I found.

Beyond business I will also add some personal notes on stuff that I´m interested in.

I hope you enjoy my blog as well as I do and give me new insights on the covered topics by sharing your thoughts via comments or my profiles.