I love learning about ‘mental models’ ever since I came across Charlie Munger. His incredible ability to synthesize concepts from a variety of disciplines helped me find the answer to “What is Entrepreneurship?”. I realized that these concepts are quite useful to founders of B2B technology startups. They can help entrepreneurs deal with risk and uncertainty on a daily basis. To this end, I gave a talk in 2013 on how such mental models could be used for decision-making in new ventures.

What-Is-Entrepreneurship-Mental-Models-for-Tech

 

The talk covered information economics and the exponential nature of technology businesses. I also pointed out the effect of industry hype cycles and the importance of profit pools. Moreover, we discussed how to use the Inc. 500 companies as role models. Additionally, I explained the difference between risk and uncertainty and the role of luck in venture outcomes.

What Is Entrepreneurship? Mental Models for Tech Startups As seen from the word cloud above, the question ‘What is Entrepreneurship’ requires an understanding of a diverse set of concepts. A founder has to oversee all aspects of a business. Hence, she must be comfortable with technical, commercial, legal, financial, as well as organizational matters.

Effective Entrepreneurs

The most effective entrepreneurs are those who understand the power of influence. This skill is central to all entrepreneurial activities. The founder must persuade others to join them in her mission. She must persuade friends and family to provide moral, if not financial support. Her fund-raising plans will require her to pitch to dozens of investors. Finally, she will have to convince customers to bet on a new startup instead of an established vendor. One of the mental models I discussed at length was that of pricing strategy. How does a founder set the price of his product? Does he look at his costs or his competitors’ pricing? Should he customize or standardize pricing? Is there room to hike prices and thus increase profit margins? We explored these questions in the context of technology startupsĀ  – especially software companies where profit margins can be substantial if pricing models are designed well.