Entrepreneurs without money (VI). What does it take to be an entrepreneur in different contexts? Why the differences? Part B.
Let´s continue with the saga of Entrepreneurs without money. Today´s objective is to finish what we started in our last post. It will be a long publication. Let´start!
We are going to finish today with the different contexts in which entrepreneurs may thrive or may be demolished in their attempt to be successful. In our last post, we defined 5 contexts: (1) Temporal; (2) Industry; (3) Technology; (4) Social and (5) Organizational. Let´s continue today with the remaining ones:
6. Institutional Policy Context:
Incentive structures include both formal and informal institutions which largely dictate not only the allocation of entrepreneurial effort in society across activities but also the aggregate supply of it. Source: Kauffmann Foundation.
The view of the institutional policy context may be framed by the definition of “policy”. A policy is a way of doing things that have been “officially agreed and chosen by an institution (either a political party, a government or an organization with a legal establishment or an informal entity)“. Now it is useful to distinguish between formal and informal institutions. According to North (1990), institutions can be formal, such as political and economic rules and contracts, or informal, such as codes of conduct, conventions, attitudes, values and norms of behaviour. Formal institutions are subordinate to informal institutions in the sense that they are the deliberate means used to structure the interactions of a society in line with the norms and values that make up its informal institutions. Whereas formal institutions mostly influence economic outcomes and opportunity costs, informal institutions tend to operate through established social norms and perceptions of legitimacy and social desirability. Prominent formal institutional policy influences include but are not limited to the public sector domain such as the government. In addition, other formal institutions can be public-private, or only private such as investment entities, support entrepreneurship organizations, regulatory agencies, research institutes, private-public organizations, think-tanks, universities, venture capitalists, lawyers, banks, accountants and other professional firms specialized in assisting entrepreneurial firms formation and growth. This latter group of entities are called “entrepreneurial support networks”.
Other institutional entrepreneurial support networks are Entrepreneurial Zones, Incubation Centers, Cluster Development entities, non-government entities, Research Centers, entrepreneur-friendly associations, chambers of commerce, entrepreneur labs, etc. Main policies originated by the government are:
- Property protection
- Regulation of entry
- The rule of law
- Rules regarding competition with former employers
- Venture Friendly Regulation
- Regulatory framework incentives (tax incentives)
Informal institutions usually related to culture, social norms and peer influences.
7. Spatial context:
For the purpose of this post, we will define a spatial context as the dimension related to the space of the entrepreneurial milieu or settings. It relates to the size, or the shape or the area that is available to be used for entrepreneurs or it conveys to the area or space used for the particular purpose of the entrepreneurs. Similarly, the spatial dimension also includes the spatial concentration of institutions, policies, and even social norms supporting or even encouraging entrepreneurial behavior. The spatial context goes beyond the physical space; it also has to include the degree of mobility. Spatial awareness is used to adapt activities of the entrepreneur value chain with respect to their proximity and strategies tracking. It may involve a forward tracking (relation to the current coordination to a future goal), or a backward tracking (relation to the current space to past routes or past goals).
8. Geographic Context:
The geographic context to entrepreneurship concerns to the location of the entrepreneurship efforts. It is like to be positioned by the GPS over a map. It is the geographical focus of entrepreneurial firms in terms of their global, national, regional and local place. Nowadays with the globalization, the geographic context is multidimensional. An entrepreneur may decide to produce in several sites, ensemble in another location, sell globally via online, and register his or her company in another one. This context can include the mobility of innovative entrepreneurs in different geographical areas with different regulations, laws, networks, etc. that affect their ability to innovate. Additionally, it is not the same to start a business in Silicon Valley than in Zurich, or Guangzhou, London or Buenos Aires. Geography can kill or raise an entrepreneur!
9. Cultural Context:
this is one of the most difficult contexts to manage. Why? Because of its definition which is so blurry. “One of the difficulties in examining the cultural effects in relation to entrepreneurial activity is the lack of a precise and commonly understood definition of culture (McGrath et al., 1992). Anthropologists suggest that culture is related to the ways in which societies’ organize social behavior and knowledge (Hall, 1973; Kroeber and Parsons, 1958)”. Nevertheless, let´s stick to this general definition for the time being: Culture is defined as the beliefs, behavior, ideas, thoughts of a particular society or a group of people. But in the same society, there are so different sub-cultures with a number of variables depending on the family and ancestor roots. For example, there are societies, where women are neglected to become entrepreneurs. This example relates to a cultural context.
10. Political Context:
Cartoon Source: Gary McCoy. NBC Political Cartoons 2012.
A specific political environment may support more or less the entrepreneurship community. The political context is explained beyond the government in place. Politics are defined as the structures, ideas, and activities concerned with gaining and using power in a country. Given this simple definition, it is key to understand that depending on the degree of connection or links between the entrepreneurs and the politicians, it is undoubtedly possible to gain or lose personal advantages for their own entrepreneurship projects. In addition, a political group can gain supporters if they invest in any pillar of the entrepreneurship infrastructure. Moreover, entrepreneurs may benefit from it. The entrepreneurship infrastructure is always based on at least three pillars: Public Resource Endowments, Proprietary functions, and Institutional Arrangements. We tend to believe that entrepreneurship infrastructure is only related to incubation centers, technical experts or advisors paid by the government at the service of entrepreneurs or national entrepreneurship labs. We also need to aggregate all the elements which can trigger or not entrepreneurship competitive advantages such as telecommunications, transportation and logistics, energy, etc.
11. Environmental Context:
Each entrepreneur has to be an environmentalist. We can´t separate social entrepreneurs from commercial entrepreneurs anymore.
This context is related to the environment from the point of view of protection of the land, water, and air on Earth in which people, animals, and plants live. This context gives us the idea of how “greener” is a society and how green an entrepreneur is. For an environmental green society, many entrepreneurs without the “antipollution” or pro-environment value proposition won´t fly. But for societies without it, the environmental responsibility of the entrepreneurs is not encouraged.
12. Ethical Context:
She got the deal… because of the Golden Rule of Ethics. Image Source: The Independent.
Even though ethical values are universal despite the religion. Entrepreneurs may or may not be supported depending on the ethical context of their business models, and sometimes it depends on the ethical values of the decision makers. The ethical context is difficult to explain, because ethics is indeed linked to individuals, to entities, to organizational cultures, to social norms, and to “rules by the law”. Let me show you with an example, the impact of ethics in its most simple mode: the Golden Rule. A woman entrepreneur is looking for equity injection for her company. She knocks the door of a VC firm. And little she knows the husband of the VC main general partner is an ex-boyfriend of hers. Her project is one of ten, which are equally valued for the VC. The decision will be tough. She has little hope to be chosen, but she is selected in between the rest of the firms. When she is invited to celebrate the deal, she finds out her ex-boyfriend is the husband of the VC General partner. She asked the couple, “why did you help me?”. And the VC General Partner replies: “my husband told me you helped him the most when you were dating him 20 years ago. Your endeavor is outstanding. But I live by the Golden Rule; my ethical decision-making standards are governed by this Rule. I am grateful that I can do something to help you. What you did for my husband, made him a better man for me. We are grateful to you and he has never forgotten it”.
Golden Rule (from the Christianity point of view): It is an ethical rule of altruistic reciprocity. “Do to others what you would want them to do to you”. Jesus’ teaching goes beyond the negative formulation of not doing what one would not like done to themselves, to the positive formulation of actively doing good to another that, “if the situations were reversed, one would desire that the other would do for them”.
13. Financial Context:
How to Finance entrepreneurs has to change?.
Let´s not confuse the financial instruments available for entrepreneurs, with the financial context. We tend to rush to name a list of the instruments such as microloans, financial aid from family and friends, venture capital (zero stage capital financing or formal venture capital funds), angel finance, traditional debt, financial bootstrapping and crowdfunding. But the financial context is more than the financial instruments. It is the “access to finance” and the financial structural system that has to be explored in detail.
This is all for today. On our next post, we will answer the question: “Money for nothing?. Is the entrepreneurial activity seen as a cost or as an investment?”. We will start our next publication by showing you how entrepreneurs are financed in different stages, and why do we need to conceive a new financing model for entrepreneurs for the next generations.
Thank you. Stay tuned!
Source References:
https://www.federalreserve.gov/newsevents/conferences/woolley-conference-presentation-20111109.pdf
https://web.stanford.edu/group/song/papers/HwangPowell.pdf
http://journals.sagepub.com/doi/abs/10.1177/0266242610391930?journalCode=isbb
Disclaimer: All the presentation slides shown on this blog are prepared by Eleonora Escalante MBA-MEng. Nevertheless, all the pictures or videos shown on this blog are not mine. I do not own any of the lovely photos or images posted unless otherwise stated.
Eleonora Escalante Strategy 
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