innovation

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innovation

  1. 1. Entrepreneurial decision-makers and the use of biasesand heuristics
  2. 2. Objectives• Examine negative biases that canemerge in entrepreneurs and inentrepreneurial teams• Best practices for managing therepresentativeness &overconfidence
  3. 3. Entrepreneurs are more likely to use biasesand heuristics• Why do entrepreneurs more so than companymanagers use:– personal judgment,– cognitive mechanisms, and– subjective opinions?
  4. 4. Benefits of using biases and heuristics?• Working with incomplete data• Need to make faster and cheaper decisions– Less time spent = fewer opportunities missed– Less money spent = need to efficiently manage limitedfinancial resources• Need to take decisive action– Capitalized on near-term opportunities– Lessen likelihood of missing opportunities
  5. 5. Minimize the total time through the loopThe Lean Startup, Eric Ries
  6. 6. Example: Software Development
  7. 7. Dangers of using biases and heuristics?• Hasty decisions• Incomplete analysis• Squander resources• New biases
  8. 8. Negative biases that can emerge inentrepreneurs and in entrepreneurial teams• Representativeness– Decision-making short cut by generalizing abouta person or an event based on only a fewattributes of that person or only a fewobservations of similar events• Overconfidence– Decision-making bias of over optimism in aninitial solution and slowness to incorporateadditional information about a situation into thesolution because of initial confidence
  9. 9. Why are entrepreneurs subject to“representativeness” heuristic?• Not enough resources (time, money, knowledge, etc.)to systematically collect data• Not enough resources to analyze data• Fear is missing opportunities• Sense of urgency to make a decision
  10. 10. • Passion and belief that the favored outcomeis the likely outcome• Overestimation of one’s own knowledgemay be necessary to pursue innovative,uncertain opportunities• If the entrepreneur is not confident, theteam, investors, etc. will not be confidentWhy are entrepreneurs subject to“overconfidence” bias?
  11. 11. Best practices for managing therepresentativeness & overconfidence• Actively search for information• Define assumptions• Consider alternatives• Estimate the consequences• Work as a team• Ask for advice
  12. 12. Customer discovery and validation is centralto the decision to launch the firm.The Lean Startup, Eric Ries
  13. 13. Summary• Negative biases can emerge inentrepreneurs and in entrepreneurialteams• Use best practices for managingrepresentativeness overconfidence– Customer discovery and validation iscentral to the decision to launch the firm

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