1/4

Taking Chances:

Why being opportunistic may be the right strategy for initiating new ventures Suwandi Tjia & Iman Subarkah* Introduction

Fostering entrepreneurship in Indonesia remains challenging. Many still regard entrepreneurship as the less preferred choice of career and those that can be categorized as voluntary-and-successful entrepreneurs represent a small fraction of the country’s population1. Common factors cited as the reasons include the lack of entrepreneurial training in the education system, a culture that appreciates salary employment as the more secure career choice, the dominance of established players with strong backing, and the limited access to funding for start-up entrepreneurs. This article is aimed at understanding entrepreneurship and opportunistic behavior in entrepreneurial activities. Lessons learned are expected to enable individuals and organizations to benefit from being opportunistic strategically. Moreover, this article is also expected to convince would-be entrepreneurs to pursue their dreams, even at this current economic condition. Entrepreneurship and Opportunistic Behavior

Entrepreneurship has been a subject that interests many scholars and has been widely researched and evaluated from various contexts. Certain characteristics and traits that are generally

1 A global survey by Global Entrepreneurship Monitor in 2006 shows the Total Entrepreneurial Activity Index for Indonesia at 19.3%, higher than countries in Europe and North America. Data released by GoI in 2008 stated that the number of Small and Medium Enterprises (SMEs) in Indonesia totaled 49.8million units or approximately 21% to population. 2008 employment statistics from BPS showed that 20.92million or 18.7% of population over 15 years old were self-employed. However, it is widely accepted that this segment represented lower-value rural entrepreneurs while high-value entrepreneurship remains low (estimated 0.18%. of population). At an unemployment rate of 8.39% from the available workforce, the youth unemployment and underemployed rates are high both in the rural and urban areas. In addition, a 2003 ILO report on school-to-work transition in Indonesia shows that a majority of youth and job seekers would prefer employment rather than being self-employed, creating a gap with the reality in the employment market. As such, many regarded self-employment as the last resort, however, failures to secure salary employments leaves many with limited option but to become self-employed.

associated with entrepreneurship include risk-taking ability, need for achievement, internal locus of control, desire for autonomy, strong leadership and managerial skills, innovative, creative, opportunistic and intuitive1. As one can expect, quite a number of the attributes are closely related to some level of risk-taking or opportunistic behavior. Having a risk-taking ability suggests that an entrepreneur has a higher inclination towards taking risky ventures, either based on pre-calculated reasoning or mere intuition. Being innovative and creative inevitably require an entrepreneur to act on her ideas in light of uncertainties, either because of the complex business environment or merely because innovation and creativity entail the application of an idea in a new setting. The opportunistic and intuitive traits directly point to opportunism as the entrepreneur needs to quickly act on a prospect and - frequently - has to rely on his judgment or his indirect experience. Tony Fernandes might well have the right timing, network and business model when he acquired the then ailing-and-$11million-indebted AirAsia at 26 cents in 2001. However, given his practically nil experience in the airline business – he was in the music industry with Virgin Record and Warner Music prior to AirAsia, appalling condition of AirAsia when he took it over, the decline in the airline industry post 9/11 and the uncertainties in the Asian market, his decision to take-over AirAsia certainly has a strong opportunistic quality. Studies on entrepreneurship have also indicated that opportunistic behavior may well be the reasons behind successful new ventures and entrepreneurs. Studies2 that attempted to prove the correlation between prior sector experience and successful entrepreneurships had showed no relationship or – at best – mixed

“Opportunistic behavior may well be the reasons behind successful new ventures and entrepreneurs.”

2/4

results. Similar studies on the correlation between academic training and entrepreneurship also produced mixed results. In fact, these studies show that the better predictor of successful entrepreneurship is prior entrepreneurial experience. While many agree that many of the traits of an entrepreneur can be learned, formal training has been cited as lacking the ability or focusing on the wrong trainings to prepare students for entrepreneurship. This is shown in findings such as that “the formal academic training lacks relevance to the requirements of business”, “courses have tended to teach students how to become proficient employees instead of successful business persons”, “program is designed for educating students about entrepreneurship and enterprise rather than educating for entrepreneurship”.1 As the studies indicate, there seems to be factors other than formal capabilities or knowledge to the success of an entrepreneur. There are numerous examples of prominent entrepreneurs who did not enjoy the luxury of formal education. Bill Gates of Microsoft, Richard Branson of Virgin, Steve Jobs of Apple and the many first-generation conglomerates in Indonesia are testaments to this. On the contrary, factors such as the achievement-oriented, positive-thinking, pragmatic, independent, risk-taking, energetic, determined and self-confident – factors that can explain opportunistic behavior – appear to play significant roles in their success.

Why do many entrepreneurs with strong sector experience and good academic training fail? We would argue that they fail because of not being opportunistic enough. Due to the systematic and structured thinking developed throughout their academic training and professional career, many are fixated on past experience in developing new ventures on the premise that certain rehearsed-and-proven method will work. Further, they tend to fall prey to inertia and information paralysis from having detailed-and-rigid plans, too much information and knowledge that render them unwilling to take risks or miss the momentum in seizing opportunity. Finally, when they fail in their entrepreneurial ventures, being seasoned professionals that have gone through many ups and downs, they usually settle for more realistic goals. All too common, their professional career provides them limited experience in exploiting opportunism strategically.

Why Opportunistic Behavior Is Preferable

As entrepreneurship and new ventures are closely associated with opportunism, there is a wide body of knowledge that can be used as reference if we are to benefit from exploiting opportunistic behavior systematically. These studies suggest that being opportunistic may provide more value for entrepreneurs and new ventures than not being opportunistic. Factors that are identified as the reasons behind opportunism are as follows: • Uncertainty

For start-up entrepreneurs, the resources available to them are limited and there is a high level of uncertainty due to lack to information, lack of precedents and inability to predict the outcomes of actions. However, since they start with no initial gain, being opportunistic and taking risks that could potentially lead to a gain would be preferable than to play safe with minimum or no gain. As game theory or a decision tree analysis will show, a likelihood of something is always better than a definite nothing. Moreover, a gain achieved from an opportunistic attempt can then be leveraged to obtain higher gain in subsequent moves. The Indonesian oil-and-gas company Medco started as a company servicing other oil-and-gas companies in the upstream business and achieved success in the business. Leveraging their knowledge and resources from the business, they started venturing into businesses such as the drilling and rig rental business, oil-and-gas exploration and exploitation and grew to its current stage as a diversified energy corporation.

• Information Asymmetry The lack of knowledge and capability in many start-up entrepreneurs prevent them from making correct decisions. However, when the decisions are made, frequently they are made with strong convictions that will bring about perseverance and commitment to achieve the stated goals. This eventually leads to their success.

“The nature of entrepreneurial activities and new ventures tends to support opportunism and make it the preferable strategy.”

3/4

• Limited opportunity Most of the times, the opportunities facing entrepreneurs are limited either in time or in number. Therefore, it is usually a reasonable choice for such entrepreneurs to be opportunistic and seize any opportunity that it becomes available.

• Higher stakes

The stakes put in a new venture by an entrepreneur are frequently higher compared to a more establish company. For example, his lifetime saving may be at risk in the new venture or his personal assets are being used as the loan collaterals for the business. Higher stakes may also occur from asset specificity where the transaction-specific assets are those assets that have little or no value outside the venture being attempted4. Therefore, once a commitment is made, all avenues will be taken to ensure success. This usually lead to better prioritization, split-second judgment, and a high degree of creativity to ensure survival.

Managing Opportunism Strategically Opportunism is linked to traits such as internal locus of control, strong leadership, good-networking skills, better ability in spotting opportunities, and the ability to gather the necessary resources. However, like other skills, it can be developed and honed over time. • Dare to enter into new ventures

As previously mentioned, a business whose founder has prior entrepreneurial experience shows a higher chance of success. Whether or not the prior venture succeeded, it appears that the experience in opportunistic ventures helps to hone the skills in identifying and filtering promising from doomed opportunities, interpreting information given the uncertain situation and anticipating possible hurdles in the process. Therefore, a founder for a start-up may fare better if she is not deterred from past failures, but is willing to learn from past mistakes and apply it on her new ventures.

• Execute in stages Incrementalism, i.e. move by making many small decisions, tends to be discouraged in large organizations since it may lead to short-term view, inefficiencies and lack-of-focus. However for new ventures, especially a start-

up entrepreneur, moving in stages provides advantages as it allows the start-up to pace its learning curve and evaluate its subsequent moves, therefore reducing the risk and magnitude of failures and most importantly enabling the entrepreneur to leverage her existing achievements to create further growth. The leveraging effects of incrementalism include access to new customers/markets from credentials developed from existing customers/markets, access to alternative sources of funding due to proven financial performance and accumulation of assets to be securitized.

• Persevere over a consistent path As business is starting up, founders all too frequently find the level of uncertainty unbearable and this leads them to withdraw, cut-short expectations or sway away from their original intention. This is counterproductive since business needs to be more agile and decisions need to be made more quickly in this kind of situation. Being indecisive will lead to inefficiencies and a loss of momentum that is highly needed for the business to succeed. In order to identify and filter opportunities, a start-up needs to set itself a clear goal and consistently pursue its chosen path, ie having strategy perseverance. While the business may engage in ‘random walk’ and experiment around opportunities, it should conform to a common theme.

• Manage risks Despite the fact that an entrepreneur by nature has a higher tendency to risk-taking than others, the entrepreneur that is better in making calculated risks has a higher chance of success compare to those who rely solely in their intuition. Therefore, proper risk management given available information is still necessary.

• Possess a moral compass In pursuing opportunities, many fall prey to short-term gain and engage in dealings that are either against the public good or in violation of the law. While pragmatic and rules-bending may at times be necessary, an entrepreneur needs to have a moral compass that allows him to identify ‘right’ from ‘wrong’ steps. He must also have strong business ethics, which will enhance its credibility and ensure long-term sustainability.

4/4

“I won’t be using that in my kitchen, you will have to put it for other use”

Adapted from: The Funny Times

Lessons for Large Organizations As the business landscape is changing rapidly due to globalization, technological changes and changing demographics, corporate entrepreneurship is coming to the mainstream and is practiced in many large organizations, especially in the creative industries. These organizations attempt to promote entrepreneurship through corporate venturing (starting a business within a business), intrapreneurship (setting up a small team within an organization that operate like entrepreneurs), organizational transformation and industry-rule breaking5. They experiment and operate “planless by design”6 in generating business breakthroughs and success for the organizations. Corporate entrepreneurship and opportunism are relevant for companies operating in dynamic situation or planning to expand into a distinctly different industry/service line. For example, a telecommunication company that is developing new businesses out of the traditional fixed-line business into the multimedia and internet business in anticipation of the media convergence. As such, insights from knowing and managing opportunism may also be useful for such large corporations. Opportunities from Current Economic Condition The current economic slowdown in 2008-2009 poses many opportunities for entrepreneurial activities. Shrinkage in the labor market may drive existing and would-be salary employees self-employment – either voluntarily or involuntarily. The late Asian crisis in 1998-2000 witnessed the raise of Kafe Tenda Semanggi and a number of successful businessmen, of which some of the owners were retrenched professionals. A crisis also poses many opportunities for astute entrepreneurs to buy out distressed businesses at the low point and benefit in the aftermath. Successful entrepreneurial private-equity firms arising from this period include Saratoga Capital, Principia, Recapital and Northstar.

However, slowing economy also poses some – not light – challenges. Liquidity crunch will mean limited funding for businesses and the customers and buyers lacking the capacity to transact. Lower risk-appetite of most financiers will mean higher financing costs. Economic conditions would make business players to be more risk-averse and more cautious in making new partnerships.

Conclusion

The real entrepreneurs are those people and organizations that have the creativity to come up with a ”big audacious goal”, willing to go the distance in executing the bold idea, and dare to take incoming opportunity in light of the risks and uncertainties. In creating value out of these ventures, applying opportunistic behavior systematically may prove to be the right strategy to ensure success. References: 1. David A Kirby, “Entrepreneurship education: can business

schools meet the challenge?”, Education+Training, Volume 46 No 8/9 p510-519, 2004.

2. Paula J Haynes, “Differences among entrepreneurs: “Are you experienced” may be the wrong question”, International Journal of Entrepreneurial and Behaviour Research, Vol. 9 No. 3 p111-128, 2003.

3. John L Thompson, “The world of the entrepreneur – a new perspective”, Journal of Workplace Learning: Employee Counseling Today, Volume 11. Number 6, 1999.

4. Shue-Chin Ting et al, “An Integrated Study of Entrepreneurs’ Opportunism”, Journal of Business & Industrial Marketing 22/5 p322–335, 2007.

5. Neil E Thornberry, “Corporate entrepreneurship: teaching managers to be entrepreneurs”, Journal of Management Development, Vol. 22 No. 4 p329-344, 2003.

6. Daniel J Isenberg, “The tactics of strategic opportunism”, Harvard Business Review , March-April 1987.

*Suwandi Tjia and Iman Subarkah are a Principal and Consultant, respectively at Arghajata Consulting.

About Arghajata Consulting Arghajata Consulting offers services in the fields of management consulting, corporate finance advisory, and accounting services. With global resources and deep local knowledge, Arghajata works closely with clients and commits to deliver essential value. Contact us: +62-21-5266001 Suwandi Tjia – suwandi.tjia@indoconsult.co.id Iman Subarkah – iman.subarkah@indoconsult.co.id