Section outline

  • Especially in the case of startups, managers still have a great deal of flexibility with respect to how implement the business idea. They can postpone some important business decisions and, in the meantime, learn about the market and the own comparative advantages. Management flexibility is often referred to as Real Options. In this section, we discuss the idea of real options and introduce three popular approaches to value these options: Decision trees, Binomial trees, and the Black-Scholes-Merton Model. The focus of this section is more on the technical aspects of option valuation. In the next section, we then discuss in some more detail how (and how not) to implement real options in the entrepreneurial setting.