Howard Stevenson and his colleagues at Harvard Business School define entrepreneurship as “the process of creating or seizing an opportunity and pursuing it regardless of the currently controlled resources.“This approach, Stevenson says, has been a huge contributor to entrepreneurial success. He points out that entrepreneurs try to use the least possible amount of all kinds of resources at every stage of growing their business. Those resources include human resources, financial resources, assets, and a business plan: Instead of owning the resources entrepreneurs need, they seek to control them, Stevenson said.
Studies show that entrepreneurs with such a business approach significantly reduce risk when pursuing opportunities.
1. Capital city: Since the amount of capital required will be less, risk is mitigated by reducing the founder’s financial exposure and dilution of equity.
2. Flexibility: Entrepreneurs are in a better position to commit and uncommit quickly if they don’t have a resource. The flexibility of the business gained in this way can be very useful for a company as it allows it to react faster and make decisions faster. In addition, entrepreneurial use of resources allows for strategic experimentation, meaning that ideas can be tried and tested without committing to owning all of the company’s assets and resources. For example, it is advisable to raise the capital gradually as needed, otherwise you will spend it too early on wrong decisions. Inflexibility also results from being permanently committed to a particular technology, software or management system.
3. Low sunk costs: The cost of shutting down a firm or business will also be lower if resource ownership is lower. If the upfront capital commitment is enormous, it will also be very costly to abandon such a project.
4. Costs: The fixed costs are lower, which has a positive effect on the break-even point. Of course, in this case the variable costs can increase.
5. Reduced Risk: Aside from reducing risk in general, other risk events such as risk of resource obsolescence are also reduced. For example, biotechnology companies have used venture leasing as a way to complement equity financing sources.
One should not mistakenly assume that this approach means that a company cannot afford to purchase resources. The fact is that the lack of ownership has its own advantages and options in the form of business flexibility and reduced risk. At the same time, however, these decisions are very complex and considerations such as the tax implications of leasing vs. buying and other existing laws and regulations must be thoroughly and carefully thought through.