Practical Implications of the I/O Nexus Framework
General comments: Viewing entrepreneurship through the I/O Nexus framework provides us with some insights into why and what types of opportunities individuals are likely to recognize. Moreover, it provides with some insights into how one can evaluate, or assess the economic potential of a perceived opportunity. It is important to point out that these idea can easily be applied to traditional entrepreneurs (i.e., those launching independent ventures), as well as individuals that are responsible for identifying new sources of value in existing organizations (i.e., those in general management positions).
· Insight #1: At any given point in time, individuals can have venture ideas for which there are no pre-existing markets.
o Practical implication: by seeking information to evaluating markets and margins, a potential entrepreneur can improve the odds of a successful outcome.
· Insight #2: At any given point in time, opportunities can, and frequently do, exist in the marketplace for which there is no individual with the matching skill set or venture ideas.
o Practical implication: conditions are ripe for potential entrepreneurs to gain skills to exploit previously overlooked opportunities.
· Insight #3: At any given point in time, the decision to transition from “potential” to “actual” entrepreneur becomes a function of his or her evaluation the “nexus” between his or her personal desires, capabilities and the needs of the marketplace.
o Practical implication: From the perspective of a potential investor, the notion of margin can help us interpret the likelihood of success for a given venture idea. To do so, we can consider the following:
§ First, is there enough financial margin (e.g., gross margin > 50%) in the proposed venture idea from an objective standpoint to suggest the probability that the venture will be able to reasonably sustain itself? This can be evaluated by considering whether or not the business model will provide the venture with a revenue stream consistently above its financial break-even point in the context of market size, need, want, etc. is valuable here.
· Tools and techniques from strategic management are very helpful to generating information for assessing this component.
§ Second, beyond the financial break-even point of the venture itself, is there enough margin to sustain the income needs of the entrepreneur (“Me”). The concept of margin implies that a venture must provide a financial return large enough to cover not only the venture operations, but also the income needs of the entrepreneur.
· Income can be thought of here as the need to meet one’s basic expenses (e.g., food, rent, etc.).
§ Third, beyond the financial break-even point of the venture itself, is there enough potential to sustain the wealth goals of the entrepreneur (“Me”). The concept of margin implies that a venture must provide a financial return large enough to cover not only the venture operations, but also the wealth (both financial and non-financial) goals of the entrepreneur.
· Wealth can be thought of as achieving some preferred or desired standard of living (i.e., desired level of disposable income beyond meeting basic expenses).
· Wealth can also be thought of as the ability to achieve goals derived from personal values of the entrepreneur (i.e., doing something one is passionate about doing day-in and day-out).
The framework also provides us with some insights on risk.
· Insight #1: The concept of absolute risk (i.e., “sinking the boat”) applies to all ventures. In short, all ventures must achieve the ability to self-sustain via operations. This is a good first step in evaluating proposed venture ideas.
o Practical Implication: General accounting and finance tools are very appropriate to assessing this type of risk.
· Insight #2: The concept of relative risk or opportunity cost (i.e., “missing the boat”) also applies to all ventures. However, because it involves issues associated with wealth preferences and personal goals (i.e., “ME”) personal perceptions and judgments are discretionary in nature.
o Practical Implication: Wealth goals are important to assess because few will be willing to open a venture that is barely breaking even.
o Practical Implication: Given that alternative employment opportunities also impact personal wealth, people will evaluate the wealth tradeoffs of engaging in entrepreneurism.
o Practical Implication: Although more challenging to assess from the perspective of an investor, these tradeoffs must be considered in the decision-making calculus as we seek to assess the likelihood of a successful venture outcome.
o Practical Implication: Tools assessing one’s skills and abilities, preferences for risk and other venture-related outcomes are very appropriate to assessing this type of risk.