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To start a business could be defined as a combination of different resources to develop opportunities and create value. Entrepreneurs to run a business require some resources, including equipment, intellectual assets and human resources. However, for entrepreneurial ventures, the most critical resource is a founding capital.
The lack of initial resources does not prevent people to go into business, and does not restrict people's entrepreneurial activities. On the contrary, it will inspire those people who are interested in creating careers to innovate constantly. Use their limited resources to integrate resources which they are lack of, thus achieving entrepreneurial success.
Entrepreneurial businesses use bootstrapping method is not new. The technology and practice of bootstrapping exist in enterprises of all shapes and sizes, from small start-ups to high-tech and high-potential enterprises.
For the most successful entrepreneurs, their lives are writing a history of bootstrapping, not only because there are no entrepreneurial resources in their business at the beginning, but also because starting from scratch contains a philosophy which must be respected by the entrepreneurial process - the nature of entrepreneurship is a process and this process will exercise the founders to become the real entrepreneurs. Due to the limitations of the available resources, the most start-ups were looking for creative ways to develop the opportunity to set up enterprise and make its business growth.
In the writer's opinion, the so-called bootstrapping contains the following meanings: the first, keep making progress and improved every day; second, every step is the basis of next step. Doing well today can generate future; the third is that, steadily develop and does not seek to leap, gain recognition from the market gradually. To some extent, enterprises take the bootstrapping method is not generated by their needs. The constraint of entrepreneurial resource is a real limitation for many start-ups. Whether the entrepreneurs are out of value judgment or in order to improve business performance, the bootstrapping method sometimes is a rational mode of management and operation. To combine with simulation scenarios of the time and be more clearly, the reasons choosing the bootstrapping are based on the following four aspects.
First of all, there are no available funds. People often mistakenly believe that the vast majority of entrepreneurs that they are rich, or be able to use the financial resources of their families to support them to create a new enterprise. However, the facts are not, the old adage that "money begets money" do not gain the research support. Many entrepreneurs adopt bootstrapping method out of necessity. Young entrepreneurs do not have enough work experience to accumulate the funds needed to run a business. They do not have enough credit history and precious personal assets like family fortune to raise personal debt financing. The bootstrapping method really helps those people who are at a disadvantage in economic to create up enterprises which can be controlled by them.
In addition, postpone the idea of â€‹â€‹using external funding. Although the writer's new venture is in line with the standards of the equity investment, his entrepreneurial team still chose a minimal use of external funds, or as much as possible to delay the use of external funding. Entrepreneurs can create greater value in the enterprise before the introduction of external funding. This can also reduce the share of ownership, because entrepreneurs had to sell equity shares to investors in order to obtain the external capital investment. Start-ups had little intrinsic value in their early business; companies need sales revenue, but need more profit to get the value of the enterprise itself. The use of bootstrapping method to delay the demand for capital could make entrepreneurs create up enterprises better. To get the value of the business by the growth in sales revenue and until it became profitable. Many entrepreneurs like to have greater control over the enterprises in early business to ensure the development of enterprises is in accordance with the vision set by the entrepreneurs. Pressure from investors sometimes make enterprises develop toward the direction which is inconsistent with entrepreneurs had originally intended to, he may not believe in this direction is the best. Many investors are eager companies to achieve high growth, as they can quickly liquidate their investment and exit. Sometimes this fast-growing pressure will make entrepreneurs develop blind expansion, or increase production capacity too quickly and unrealistically.
Lastly, it is related to control and management. In the eyes of many entrepreneurs, managing the available resources of the enterprise is sometimes a moral and ethical issue. In the unseen world, entrepreneurs were saddled with a lot of trust. Bank lending to make investment, employees work hard and develop abilities, suppliers establish trade relations with start-ups and customers buy products or services from start-ups, all of these are precisely from the trust or belief of entrepreneurs. These groups which are defined as stakeholders all have stakes with output of enterprise. For some entrepreneurs, the trust from these stakeholders had a moral imperative, which is to manage these resources used by the enterprise. They have moral responsibilities: try the best to ensure that employees can gain the wages and benefits which they deserve to; repay the principal and interest of the bank on schedule; customers can get a high quality product or service and suppliers get a reasonable return on time. The technology of bootstrapping is to be able to help entrepreneurs to carefully manage the resources provided by the stakeholders, and thus training them to be smart and efficient managers ultimately.
Entrepreneurs are facing an uncertain world and they even can not accurately predict or determine their targets. How to succeed in entrepreneurial business in the highly messy and uncertain environment has become an important challenge for entrepreneurs. (Davidsson, 2003). In the stable and predictable environment, entrepreneurs could follow the causal logic to make rational decision-making, competitor analysis, strategic planning and market research so that entrepreneurs can easily estimate the possible results of entrepreneurial decisions. (Sarasvathy, 2001). But, while the business environment is under the condition of high uncertainty, the entrepreneurial decisions are not quite convincing. In this context, the status of future conditions is unknown for entrepreneurs. (Alvarez and Barney, 2005). Venture makes entrepreneurs must be adjusted according to the number of unexpected problems and opportunities in the context of initial limited funding and highly uncertain, they do not have too much time and resources to conduct market research. Moreover, the complexity of competitive environment and the rapid changes of consumer demands also limit the value of market research; entrepreneurs must face the dynamic environment and can not predict the entrepreneurial result, let alone evaluate it. (Bhide, 2000).
Under the entrepreneurial circumstance of resource constraints, the causal relationship between the entrepreneurial results and entrepreneurial process can not closely contact, therefore the goal-oriented causal reasoning mode will fail and the entrepreneurs' personal experience, imagination or creation will play an important role in the entrepreneurial process. Then, it will lead to goal ambiguity and information processing isotropy; this seems that only effectuation could be suited for making proper entrepreneurial decisions. (Sarasvathy, 2008).
Specifically, effectuation applies in the following situations:
Entrepreneurs have clear entrepreneurial wills, or in order to achieve some of their ideas; product or market planned by entrepreneurs is ambiguity or non-existent subjectively. It should be noted that the product or market may exist objectively or exist in a market may not be created yet, but this is all related with the information and cognitive in entrepreneur's possession. Therefore, the entrepreneur can not develop a clear strategic objective or financial goal and it is difficult to develop a series of sub-goals. In the bleak prospects from the general view, successful entrepreneurs were able to identify opportunities to develop new career which differed from the causal logic: scan and make various of limited entrepreneurial resources which included knowledge resources (technical skills and functional skills), tangible resources (financial capital and physical capital), network resources (social networks and human skills); and then, access to more resources to reduce uncertainty based on these means of results creation; meanwhile take full advantage of the unexpected events that may occur at any time in the messy and uncertain environment to achieve the vision of the previous. Ultimately, entrepreneurs create unexpected results; and on the basis of series of results, the market or the product began to mature and the environment had gradually been certain. Thus, the effectual logic has gradually transformed to causal logic. In short, the effectuation is better for constructing entrepreneurship at the beginning of start-ups.
Individual Opportunity Nexus
Entrepreneurship is a process to identify, develop and take advantage of entrepreneurial opportunities. Entrepreneurial opportunities are the core elements of entrepreneurship, through the identification and development of entrepreneurial opportunities entrepreneurs change the potential opportunities into valuable products or services. Different scholars based on different assumptions summed up the different opportunities cognitive perspective to analyze and explain the reality of entrepreneurial activity.
Shane believes that the opportunity exists objectively, asymmetric information is the key to identify opportunities and there are significant differences between entrepreneurs. This viewpoint thinks that, whether entrepreneurs can grasp entrepreneurial opportunities depends on four personal characteristics of entrepreneurs, including: alertness, risk perception, prior knowledge and social networks. Everyone is liable to find the opportunity, however, there are huge differences between entrepreneurs in alertness, attention and the ability to grasp opportunities, as a result, only a few people are able to capture the entrepreneurial opportunity.
The Venkatraman thinks that the opportunity does not objectively exist, but created by active entrepreneurs. The creation of opportunity is coming from interactive activities between imagining and creating a better future, the result is a new market created by the entrepreneurs. Meanwhile, the information of cognition opportunity is limited and only certain individuals have such information. There really are intrinsic differences, like experience, between individual entrepreneurs, but the real entrepreneurs are training and creating in the entrepreneurial process. Entrepreneurs focus their attentions on every decision during the entrepreneurial process. The starting point of entrepreneurial decision-making is: according to the present resources to make the appropriate assumptions and verify the assumptions or make the adjustments in the actual operation, then make new assumptions and inspection to the new changed environment and updated resource conditions, keep reducing the uncertainty of the messy environment and thus obtaining the corresponding return.
Growth of the firm
Penrose came to be known as the founder of the theory of firm growth. She believes that a firm is a management organization, but also is a collection of human and material resources as well. The internal resources are the driving force of firm growth. Entrepreneurial decision-making and opportunity are both productive resources with different purposes and can be imaged, created and decided over time. Therefore, the entrepreneurial resource, image, capability and versatility is the source that a firm to access to sustainable competitive advantage.
First, Penrose has pointed out that the basis of entrepreneurial ability is determined by the resources owned from the firm. Entrepreneurial resources really can be identified, besides, as the most fundamental resource imagination exists in the mind of the entrepreneur, although sometimes it is not so realistic and needs for judgment and inspection with a broader range. The resources and the ability are to determine the boundaries of business growth and entrepreneurial images. The service and quality provided by internal material resources depends heavily on the knowledge and experience ownership of human resources, especially the internal human resource which is one of the most valuable resources. These resources determine the capacity of entrepreneurial management. Penrose focused on the internal resources. The key point to understand the concept is to distinguish the resources and services. The important difference is that the 'service' itself means an activity. The service only be produced in the use of resources, so every service in entrepreneurial activities is unique and difficult to be imitated. This is not hard to explain why relation between entrepreneurial finance and entrepreneurial ability exist. The lack of funding or financing difficulties is often because of lacking necessary entrepreneurial ability or suitable entrepreneurial service.
Second, Penrose believes that the entrepreneurial activities are subject to the discoverable and available opportunity, therefore the theory of firm growth is essentially examination of changing entrepreneurial opportunity. Opportunity can be divided into subjective and objective. The objective opportunity is limited by what entrepreneur can do, while the subjective opportunity is about what entrepreneur wants to do. The key issue is what factors determine the nature of the opportunity. In this issue, Penrose regarded resources owned by the enterprise as a key variable, which is expectation which has closely relation with entrepreneurial activities include the non-objective business environment, internal operation of firm and entrepreneurs' personal qualities.
Third, since an important part of entrepreneurial growth is to identify potential opportunities, product creation and organizational innovation are the drivers of entrepreneurial growth. Both of them depend on the ability to innovate, thus the innovation capability Penrose emphasized is undoubtedly important to entrepreneurial growth. Here, there are two issues appearing. Firstly, decision making is speculative without deliberate calculation and needs to be inspected during entrepreneurial activities. Then, grasp and identify potential opportunities and even the final decision making rely heavily on the personal judgment of the entrepreneur. This would depend on the personal qualities of the entrepreneurs (for example, imagination, awareness and risk tolerance), information collecting and processing, effect of expectations and assessment of the risk and uncertainty. In addition, the knowledge and experience has closely relations with entrepreneurial innovation and diversified growth. Internal knowledge creation is a source of entrepreneurial growth. The experience will be generated within the internal knowledge. The knowledge gained from operating experience will innovate and create many new services. If the business does not grow, the service will not be innovated and used. These services provide the cause of entrepreneurial growth. Therefore, practice experience can generate new knowledge and increased knowledge will lead to the growth of entrepreneurial capacity, and thus promoting the growth of innovation.