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Summary Essentials of Entrepreneurship (all articles)
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Summary of all 15 articles mandatory for the course Essentials of Entrepreneurship.
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Essentials of Entrepreneurship - SummaryEC2EBE4, June 2019
Week two: Entrepreneurial Opportunities and Method
Article 1: The promise of entrepreneurship as a field of research – Shane & Venkataraman
To date, the phenomenon of entrepreneurship has lacked a conceptual framework. Most researches
have defined the field solely in terms of who the entrepreneur is and what he or she does. The
problem with this approach is that it doesn’t include the two entrepreneurship phenomena: the
presence of lucrative opportunities and the presence of enterprising individuals.
We define the field of entrepreneurship as the examination of how, by whom, and with what effects
opportunities to create future goods and services are discovered, evaluated, and exploited. It
involves the study of sources of opportunities; the processes of discovery, evaluation, and
exploitation of opportunities; and the set of individuals who discover, evaluate and exploit them.
Three fundamental research questions about entrepreneurship:
1. Why, when and how opportunities for the creation of goods come into existence
2. Why, when and how some people and not others discover and exploit these opportunities
3. Why, when and how different modes of action are used to exploit entrepreneurial
opportunities
Assumptions:
- When we argue that some people and not others engage in entrepreneurial behavior, we are
describing the tendency of certain people to respond to the situational cues of opportunities
– not some stable characteristic.
- We argue that entrepreneurship does not require, but can include, the creation of new
organizations.
- The framework complements sociological and economic work in which researchers have
examined the population-level factors that influence firm creation.
- The framework complements research on the process of firm creation.
The existence of entrepreneurial opportunities: the situations in which new goods, services, raw
materials, and organization methods can be introduced and sold at greater cost than needed for
production. Entrepreneurial opportunities differ from the larger set of all opportunities for profit,
particularly opportunities to enhance the efficiency of existing goods, services, raw materials, and
organizing methods, because the former require the discovery of new means-ends relationships,
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,whereas the latter involve optimization within existing means-ends framework. Entrepreneurial
opportunities come in different forms:
- Opportunities in product markets
o The creation of new information, as occurs with the invention of new technologies
o The exploitation of market inefficiencies, that result from information asymmetry
o The reaction to shifts in the relative costs and benefits of alternative uses for
resources, as occurs with political, regulatory, or demographic changes.
- Opportunities in factor markets (discovery of new materials)
Entrepreneurship requires that people hold different beliefs about the value of resources for two
different reasons:
1. Entrepreneurship involves joint production, where several resources are brought together
2. If all people (potential entrepreneurs) possessed the same entrepreneurial conjectures, they
would compete to capture the same entrepreneurial profit, dividing it to the point that the
incentive to pursue the opportunity was eliminated.
Why should people possess different beliefs about the prices at which markets should clear?
1. The process of discovery in a market setting requires the participants to guess each other’s
expectations about a wide variety of things. People make decisions on the basis of heuristics,
intuition, which can mean that the decisions are wrong. You need different beliefs to make
sure this error doesn’t occur.
2. Economies operate in a constant state of disequilibrium. Technological, political, social,
regulatory, and other types of change offer a continuous supply of new information about
different ways to use resources to enhance wealth. By making it possible to transform
resources into a more valuable form, the new information alters the value of resources and
therefore the resources’ proper equilibrium price.
Because entrepreneurial opportunities depend on asymmetries of information and beliefs,
eventually, entrepreneurial opportunities become cost inefficient to pursue. First, the opportunity to
earn entrepreneurial profit will provide an incentive to many economic actors. As opportunities are
exploited, information diffuses to other members of society who can imitate the innovator and
appropriate some of the innovator's entrepreneurial profit. Second, the exploitation of opportunity
provides information to resource providers about the value of the resources that they possess and
leads them to raise resource prices overtime in order to capture some of the entrepreneur’s profit
for themselves. In short, the diffusion of information and learning about the accuracy of decisions
over time, combined with the lure of profit, will reduce the incentive for people to pursue any given
opportunity.
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,The Discovery of Entrepreneurial Opportunities: an opportunity might exist, but the individual has
to see it. Why do some people discover it? Two broad categories of factors that influence the
probability that particular people will discover particular opportunities:
- Information corridors: people all possess different stocks of information, and these stocks
influence their ability to recognize particular opportunities. Sometimes a person has prior
knowledge that is complementary to the new information, which triggers an entrepreneurial
conjecture.
Cognitive properties: since the discovery of entrepreneurial opportunities is not an optimization
process by which people make mechanical calculations in response to give a set of alternatives
imposed upon them. Even if a person possesses the prior information necessary to discover an
opportunity, he or she may fail to do so because of an inability to see new means-ends relationships.
Unfortunately, visualizing these relationships is difficult.
The decision to exploit entrepreneurial opportunities: Why, when, and how do some people and
not others exploit the opportunities that they dis cover? The answer again appears to be a func tion of
the joint characteristics of the opportunity and the nature of the individual.
- Nature of the opportunity: the characteristics of the opportunities themselves influence the
willingness of people to exploit them.
- Individual differences: not all potential entrepreneurs will exploit opportunities with the
same expected value. The decision to exploit an entrepreneurial opportunity is also
influenced by individual differences in perceptions and individual optimism.
Article 2: Discovery and creation: alternative theories of entrepreneurial action – Alvarez & Barney
Opportunities can just be there, but you can also build opportunities yourself. This paper describes
the theories that underlie these two forms, but also leads to an understanding of the implications for
the actions associated with these theories.
- Teleological theories of human and entrepreneurial action: Teleological theories of human
action explain human behavior in terms of the impact of that behavior on the ability of
individuals to accomplish their purposes. In general, these theories assert that behavior that
facilitates the accomplishment of one’s purposes is more likely to occur than behavior that
does not facilitate the accomplishment of one’s purposes
As a matter of logic, all teleological theories of human action must make three critical assumptions:
(1) assumptions about the nature of human objectives, (2) assumptions about the nature of
individuals, and (3) assumptions about the nature of the decision-making context within which
individuals operate. When different teleological theories generate different predictions about the
same human actions, these different predictions usually turn on one or more differences in these
three critical assumptions. This brings us to two theories: the discovery theory and the creativity
theory. While discovery and creation theory have much in common, they often generate different
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, predictions about when specific entrepreneurial actions will be more or less effective in enabling
entrepreneurs to form opportunities.
- Discovery theory: assumption is that the nature of entrepreneurs follows directly from its
assumption about the nature of opportunities. Opportunities are created by exogenous
shocks to an industry or market and everyone can become aware of and exploit an
opportunity.
- Creation theory: opportunities are created by actions and enactment of entrepreneurs.
A central assumption of discovery theory is that entrepreneurs who form and exploit opportunities
are significantly different than those entrepreneurs who do not form and exploit opportunities. This
assumption is necessary in order to explain why everyone associated with an industry or market is
not aware of and/or unable to exploit opportunities in this industry or market. Differences between
entrepreneurs and nonentrepreneurs play a very different role in creation theory. First, creation
theory suggests that before entrepreneurs create opportunities, they may or may not be significantly
different than those who do not create opportunities. If significant differences – of the type assumed
in discovery theory – exist, these differences can explain why some entrepreneurs form
opportunities and others do not. Alternatively, creation theory acknowledges that even very small
differences between entrepreneurs and nonentrepreneurs, ex ante, could lead some to form
opportunities and others not to form opportunities. For example, two individuals may be
indistinguishable with respect to their attributes, but small variations in their local environment –
e.g., differences in location – might lead one of them to form and exploit an opportunity. Luck
(Barney, 1986) can play a significant role in this highly path dependent process.
Discovery and creation implications for effective entrepreneurial actions
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