The uncertainty of an entrepreneurial strategy

By sending each chapter of this book out to readers in the virtual cafe as soon as it is written, I get feedback as to how different people are reacting to the content. At this stage of the book, these opinions and reactions are varying immensely.

Because the stated aim of the book is to create an e-business during the writing, a few are getting impatient because they are expecting me to come up with some great idea where everyone in the cafe will be involved. Some are even waiting to be given detailed instructions as to what to do next. But, it doesn't work that way. Ideas and plans emerge. They are not the starting point in the birth of an e-business.

In a conventional, Industrial Age business environment, businesses can start with ideas and plans because it is possible to make predictions and work with known quantities. Generally speaking, needed assets and services can be bought, hired or loaned because they have a known value. This allows profit sharing by means of employment or work contracts, where the principals take the risks and the hired services or labour can be allocated a fixed amount for their contribution regardless of the success or otherwise of the business outcome.

Businesses associated with risk or uncertain outcomes are usually set up in ways that offset some of the risks to the principals or the investors. Stock options, sales incentives, profit sharing or bonus schemes are introduced. Direct employment is replaced by agencies or affiliate arrangements that pay for results on a commission basis. As a general rule, the higher the risks, the more appropriate it becomes to replace fixed costs by variable costs that are dependent upon actual profits earned.

This is what makes e-businesses so different from Industrial Age businesses. There are so many uncertainties and unknowns, so much unpredictability that there has to be an extremely high proportion of variable costs and a minimum of fixed costs. It is the skill of the auteur or entrepreneur to set up a business in this way.

Planning only works if somebody is willing to finance the plan because it involves instructing people what to do. This is why e-business is not about organisation and control because it doesn't make sense to finance labour in situations where outcomes are unpredictable. With e-business environments so volatile, the game is about the spreading and sharing of risk, rather than the spreading and sharing of profit.

Even when a strategy is concerned with sharing risks, this sharing does not mean gratuitously giving people shares just for taking part. Shares would be offered and taken up only by the people whose contributions would be deemed essential to the success of the business.

At the start of a business, there is nothing tangible to share, all there might be is some vague expectation of a profitable outcome. If everybody had the same expectation and everyone could put in the same effort and each be equally valuable to the business, then a sharing agreement might be possible.

In a high risk, unpredictable situation, the reality is far from this. Everyone would have a different personal assessment as to the risks and possible outcomes. As a consequence, each would contribute with different commitments and enthusiasm. As the direction and the progress of the enterprise is likely to be unpredictable, there is no way of knowing what the value of any single person's future contribution might be. This makes it extremely difficult for auteurs or entrepreneurs to make deals and arrangements because there is no tangible foundation upon which to base share type agreements.

The alternative to agreed sharing is to form alliances, or collaborative associations that are based upon dependencies. These are arrangements where people cannot proceed in a venture without certain vital assets or capabilities that they do not possess themselves. The strategy of the entrepreneur is then a matter of searching for these dependencies and melding them together into some kind of interactive dynamic system, where the dependencies are the glue that hold it all together.

The way this is done cannot be formularised, there can be no rules or guidelines; the exact nature of the system that emerges would be dependent upon what components are available and the combinations that turn out to be compatible. However, as the object of this book is to explain all the stages of creating an e-business from scratch, I have to make an attempt to describe this enigmatic process.

There are three different ways I could approach the writing of this birthing stage of a business:

1) As the description of a strategy I intend to use

2) As the description of a strategy I have used and found successful

3) As a strategy I'm currently using as I write this chapter

I am using the third of these approaches and rationalising the thinking processes as I go along.