How Can We Expand the Boundaries of Entrepreneurial Thinking?

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How Can We Expand the Boundaries of Entrepreneurial Thinking?

In the broadest sense, expanding the boundaries of our thinking is intrinsically tied to the pursuit of knowledge. It's evident that the world around us is a tangible manifestation of human understanding. Everything from the buildings we inhabit to the bicycles we ride and the televisions we watch represents a crystallization of accumulated knowledge. These aren't just objects; they are the concrete results of intellectual endeavor. We are, quite literally, enveloped by the fruits of collective human wisdom.

In this context, deepening one's knowledge in a specific area effectively widens the scope of one's thinking within that domain. However, expanding one's intellectual boundaries is not an instantaneous event; it's a gradual process, akin to an evolutionary journey that demands time and effort. Unlike physiological changes that can be swiftly induced by medication—such as dilating blood vessels—human cognition operates on a fundamentally different plane and thus requires a distinct set of strategies. It's worth noting that given the harsh statistic that 7 out of 10 entrepreneurs do not survive past their fifth year, it's reasonable to infer a gap in understanding within their respective fields. This underlines the crucial role of knowledge and adaptability in navigating complex landscapes, like entrepreneurship.

It may be difficult for us to fathom now, but there was a time when people believed the world consisted only of Asia, Europe, and Africa, all surrounded by a singular, expansive sea. Until the mid-15th century, Europe largely sourced its understanding of the world from biblical texts, with Ptolemy's second-century map serving as the most authoritative depiction. In this map, Jerusalem stood at the center of the universe, guarded by mythical creatures.

Fast forward just 50 years to the 1500s, and a drastically different worldview emerged in Europe, thanks to the age of exploration. Pioneering sea voyages shattered antiquated beliefs. For instance, in 1488, Portuguese explorer Bartolomeu Dias discovered the southern tip of Africa. A decade later, his countryman Vasco da Gama navigated around it to reach the eastern shores and sailed across the Indian Ocean to Calicut, the city famed for spices. These expeditions debunked Ptolemy's assertion that the Indian Ocean was a landlocked body of water, ushering in a new era of geographical understanding.

The rapid developments in trade navigation during the Age of Exploration had immediate consequences for the Great Silk Road, an overland trade route that had flourished for over a millennium between Asia and Europe. By the 16th century, the road had become obsolete. Remarkably, this monumental trade route owed its longevity to a false belief that it was the only viable pathway for goods between Asia and Europe. This misconception granted the route a competitive advantage for 15 centuries. Even today, in the field of entrepreneurship, numerous false assumptions persist—a topic deserving further exploration from multiple angles.

Take another example from the history of medicine: Claudius Galen, a prolific writer on anatomy and physiology from 131-200 A.D., is often credited as the founding father of experimental medicine. He dissected animals to understand their organs, mistakenly applying these insights directly to human anatomy. Astonishingly, it took humanity 1,500 years to realize that humans and animals should be studied independently, an error that misled medical professionals for generations.

Moreover, when we shift paradigms, language often lags behind, lacking adequate terms to describe new concepts. For instance, we continue to say "sunrise" and "sunset," despite Copernicus proving half a millennium ago that Earth orbits the Sun. This highlights how our language and perspectives can remain rooted in outdated understandings, underscoring the need for ongoing intellectual evolution.

What Entrepreneurs Don't Know, But Should

Entrepreneurs often overlook the intricate dynamics of how consumers perceive the value of their products and services. This gap in understanding can lead to bewildering experiences for business owners.

Consider a revealing study by the renowned consulting firm Bain & Company. When surveying 362 large companies, they found that 80% of employees were confident that they were offering their customers a "superior experience." Yet, when the same question was posed to the actual customers, the numbers told a different story—only 8% felt they were receiving a superior experience.

This striking discrepancy underlines the importance for entrepreneurs to delve deeper into consumer perceptions. Misunderstanding this critical aspect can not only lead to misplaced confidence but also missed opportunities for meaningful improvement.
The glaring tenfold discrepancy between companies' self-assessment and consumer perception is alarming and eye-opening. It's evident that companies often function on misguided assumptions about the value they offer from the consumers' viewpoint.

This issue is not isolated. It also manifests in the high failure rate of new product launches. Harvard Business School professor Clayton Christensen reported that out of more than 30,000 new products launched annually, a staggering 95% end up failing. This serves as a further testament to the disconnect between entrepreneurial understanding and consumer needs.

Linking this back to the concepts of "the frontier of entrepreneurial thinking" and "the frontier of perceived value of products," it becomes clear that they are intrinsically related. When consumers see a product as having "zero value," it undermines the whole premise of entrepreneurial innovation and expansion.

But let's not forget: a product doesn’t exist in isolation. It holds significance for the consumer, captures their attention, and fits within a specific context that is important and meaningful to them. If we could map out this non-physical space of "consumer perceptions of product value," it would provide valuable insights into consumer behavior.

To get there, it may be useful to identify the "category of significance" or "knowledge category" to which this activity falls under. Every piece of knowledge belongs to a category, and pinpointing this could offer a more structured understanding of where the breakdown in value perception occurs. This could pave the way for more effective strategies to bridge this gap, align value perceptions, and subsequently, increase the odds of entrepreneurial success.

The notion of "category of knowledge" plays a vital role in how an entrepreneur interacts with consumers. Much like how different kinds of knowledge can be applied to treat body pain—cardiology, dietetics, or even voodoo spells—entrepreneurs must choose a specific "category of knowledge" to offer solutions. This category essentially becomes the lens through which the entrepreneur perceives the business and through which the consumer perceives the value.

The entrepreneur's chosen category sets the stage for all future interactions with consumers. For example, a physiotherapist will have different types of interactions with clients than a cardiac surgeon would. This context also reciprocally influences the category of knowledge employed by the entrepreneur. Knowing that someone leads a fitness group immediately categorizes their business activities under the umbrella of "knowledge about fitness."

Consumer value perception defies straightforward logic. It's more akin to the relativistic principles of physics than to Newtonian mechanics. Each consumer may categorize the same product differently, assigning different "meanings" to it. For instance, a bouquet of flowers can mean completely different things to different people: an expression of love, a home decor item, or even a gardening project.

This leads us to what can be termed as the "category of meaning." Different patients might find different treatments sensible or meaningful for their body pain. Likewise, what may appear to be the same product can have different "categories of meaning," impacting different consumers differently and thus creating distinct business development trajectories.

Consider Starbucks. Most would categorize it under the coffee market. However, Starbucks actually competes across various categories—grocery stores, fast food restaurants, and other coffee shops. Each category comes with its own set of competition and profit margins.

Entrepreneurs must continually ask, "Which market am I actually in?" as it's possible to discover that one is competing in a context that wasn't initially obvious. Recognizing and understanding the multiple layers of consumer value perception can provide a nuanced approach to entrepreneurial decision-making, one that is more aligned with the complex realities of the marketplace.

Is Starbucks competitive on price? Not really. However, Starbucks has convinced consumers that paying two or three dollars or more for a flavored beverage is acceptable. While not the most expensive, there are cheaper alternatives.

Is flavor Starbucks' unique selling point? Again, not exactly. Only ardent fans argue that it serves the best coffee. Personal tastes vary, and many can find coffee they prefer elsewhere. For instance, I prefer a heavily roasted Arabica with a bitter flavor, which Starbucks doesn't offer. Yet, I still frequent their shops during my stays in the US.

Does Starbucks excel in convenience? To some extent. Their locations are commonly found, making it easier for people in a hurry to grab coffee to go. However, the ubiquity of Starbucks is matched by the lengthy lines, often requiring 10-15 minutes before getting a drink.

In markets where price, flavor, and convenience are crucial, Starbucks doesn't seem like a formidable competitor. Yet, with over 16,000 shops in more than 50 countries and over $10 billion in annual revenue, its success cannot be denied. According to former CEO Howard Schultz, Starbucks aims to be your "third place," a location other than home or work where you want to spend time. In this regard, Starbucks faces a different set of competitors, including bookstores, parks, theaters, and libraries.

In summary, a lack of business acumen is often evident in entrepreneurs who apply logic without understanding the consumer context. Starbucks' strategy transcends conventional metrics, emphasizing the emotional and experiential aspects of consumer interaction.

Traditional methods of problem-solving in entrepreneurship are increasingly proving inadequate. Statistics from the U.S. Bureau of Labor and similar trends in Europe highlight a high failure rate among new businesses. This could be linked to the gap in perceived value between entrepreneurs and their consumer base.

Understanding what "makes sense" to a consumer is not as straightforward as looking at demographic factors like age, gender, or location. The approach requires setting boundaries that determine what's relevant to our domain of activity. In an age awash with data, it’s essential to separate useful information from noise, to focus on what's truly critical.

This concept of boundary-setting is not just strategic but existential for entrepreneurs. Without a deep understanding of how consumers perceive the value of their products or services, businesses are unlikely to survive. Therefore, entrepreneurs must first organize this space of consumer perception, structuring it in a way that allows for efficient operational management.

Much like selecting a plot of land is crucial before building a house, choosing the right "space" of consumer perception is paramount. The location, metaphorically speaking, often dictates the value more than the quality of what’s built upon it. As Wayne Gretzky wisely noted, one must skate to where the puck will be, not where it has been.

In business terms, this means identifying or creating new areas of customer value. Traditional marketing focuses on capturing existing demand, but entrepreneurial innovation aims to create new demand. These are fundamentally different activities. What one creates, one can best manage. For instance, an artist who creates high-demand paintings can easily produce more if one is stolen, unlike someone who bought the art.

The hallmark of quality entrepreneurial thinking is the ability to create new value and meaning for consumers. The ultimate battleground for any entrepreneur is capturing the attention of the consumer and understanding what they find meaningful. This understanding not only dictates business strategy but also serves as a litmus test for entrepreneurial aptitude.
Jaroslavs Kaplans

Author of the book "Business Incognita. How to push the boundaries of entrepreneurial thinking". Expert in the field of sustainable development of organizations and discovering new sources of growth. Developer of contextual market research methodology. Member of the international association of strategic and competitive intelligence specialists SCIP (USA).