Entrepreneurs confound economists, government bureaucrats, business school strategy mavens, consultants, and talking heads of various sorts. Entrepreneurs create the future. How do they do it? It all seems so unpredictable, and experts hate unpredictability, because it tends to prove them wrong.
Spoiler hint: that’s because creating the future is not about strategy, data analysis, process management or any of the other recipes the experts offer for sale.
It’s about T-BAR.
T-BAR is separate from data gathering and data analysis and projecting trends and identifying gaps in the marketplace. These tools are all about the past (which is the currency that consultants, analysts, business school gurus and innovation process mavens deal in). T-BAR is about the future, which, can’t be analyzed. It has to be imagined.
The T in T-BAR represents the imagination part. Entrepreneurs are theorists of the future. They develop theories of the future that are different than anything that has gone before. Theories are counterfactual. They are not based on data or research. They can’t be, because you can’t research what doesn’t exist. Theories open up previously unseen paths. Theories are not based on what can be perceived and observed. (Read the paper on this Theory-Based View by Felin and Zenger here.)
Airbnb theorized that homeowners would rent their homes, or a room in their homes, to complete strangers, and that travelers would stay in the homes of strangers rather than hotels. Initially, no venture capitalist would fund this theory; it had never been imagined before and generated only skepticism.
Uber theorized that people would ride in other people’s cars in place of taxis. Disney theorized that people would so love their wholesome fantasy worlds and wholesome fantasy characters that they would consume them in animated movies, theme parks, broadway shows and toys.
While entrepreneurial theorizing is creative – an act of imagination – it is also scientific. The attribute of a scientific theory, by definition, is that is falsifiable. You can test its implications and predictions. If it turns out to be true you can keep acting on it. If it turns out to be false, you can change direction and adjust it. That’s exactly what entrepreneurs do – they test their ideas in the marketplace and, when there is a false signal (negative feedback) they readjust and test it again.
The testing and re-testing process leads us to the BAR part of the T-BAR method. BAR stands for BELIEF-ACTION-RESULTS. It is a description of the downstream part of the entrepreneurial method, after the imagination part, developed by Peter G. Klein and Nicolai J. Foss.
The entrepreneur must develop a belief that his or her theory can be effectively and profitably brought to market. To do that, the entrepreneur has to assemble resources: financial capital (perhaps their own, perhaps from investors), people, hardware and software, and a supply chain. To convince investors and vendors and supply chain partners, there must be a credible investment proposition and go-to-market plan. Credible means that the entrepreneur’s pitch is believable. To create believability in others, the entrepreneur must have unassailable belief in the theory. This bedrock belief is achieved by testing and re-testing until the proposition is sufficiently solidified to be convincing.
Once the entrepreneur’s own belief is unshakable, he or she can move on to the A in BAR: assembling the right resources for implementation. Resources already exist. The brilliance of the imagination of the entrepreneur is to identify new and better ways to utilize them, more efficiently and effectively than they have been utilized before. Otherwise, it would not be efficient to shift them from their current use.
With the right resources assembled, the entrepreneur goes to market, makes the offer, runs the advertising, operates the supply chain and generates revenue from customers. Revenue equals results – that’s the R in BAR. If there is no revenue, there is no business. Imagination has encountered the brick wall of the customer’s opportunity cost – the offer hasn’t created sufficient value (compared to what they’re doing now) for them to buy. The entrepreneur readjusts. If revenue flows, but does not cover costs, the imagination has encountered the brick wall of profitability. Without profit, there is no sustainability – the value created is insufficient. The entrepreneur adjusts again to generate a profit. Or quits. It’s all further falsifiability of the theory.
The entrepreneur as theorist is a breakthrough in our thinking about the phenomena of innovation, betterment, and economic growth. How has America – because this is where most innovation originates – been able to create new things, new products, new services and new experiences? How does “new” come into being? We can’t see, hear, measure or analyze “new” in the present, because it does not yet exist. Anything with a price on it is from the past. We can only imagine new – an act of creativity that is unconstrained by observation, tradition, data, analytics and research.
Entrepreneurial theorists are our imagineers. They can think in mad, unhinged, wild and woolly ways, and thereby create the future for which the rest of thank them.
Also published on Medium.