Summary of the extra readings from the course Foundations of entrepreneurship, given by prof. Melillo. This course is given in the major/ minor Entrepreneurship in KU Leuven. Master Business Economics.
,Table of Contents
The promise of entrepreneurship as a field of research..................................................................4
Why study Entrepreneurship?...................................................................................................................4
The existence, Discovery, and exploitation of entrepreneurial opportunities...........................................4
Existence........................................................................................................................................................................4
Discovery........................................................................................................................................................................4
The Big Five Personality Dimensions and Entrepreneurial Status: A meta- analytical Review.........5
5 personality traits.........................................................................................................................................................5
Why? Attraction-selection-attrition model....................................................................................................................5
Findings..........................................................................................................................................................................5
Moderation....................................................................................................................................................................5
Entrepreneurship...........................................................................................................................6
Evidence of the theory...................................................................................................................................................6
Market value..................................................................................................................................................................6
Lazear on innovation and entrepreneurship.................................................................................................................6
Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-employment..................7
Do not survive the empirical test...............................................................................................................7
Investment and agency models.....................................................................................................................................7
Matching and learning models......................................................................................................................................7
Do survive the empirical test.....................................................................................................................7
Compensating................................................................................................................................................................7
Superstar models...........................................................................................................................................................7
Drug Dealing and Legitimate Self-Employment..............................................................................9
Causation and effectuation: Toward a theoretical shift from economic inevitability to
entrepreneurial contingency........................................................................................................10
4 principles of effectuation..........................................................................................................................................10
In which way does effectuation deviates from the entrepreneurial process? (existence, discovery, exploitation). .10
Creativity and/or alertness: a reconsideration of the Schumpeterian entrepreneur.....................11
Kirzner reconciling with shumpeter.............................................................................................................................11
Opportunity Recognition as Pattern Recognition: How Entrepreneurs “Connect the Dots” To
Identify New Business opportunities”..........................................................................................12
Why does pattern recognition play an important role in recognizing opportunities?................................................12
Research gap: factors for discovering opportunities................................................................................12
Active search for opportunities....................................................................................................................................12
Alertness to opportunities...........................................................................................................................................12
Prior knowledge...........................................................................................................................................................12
Why this paper is important....................................................................................................................13
What are the practical implications of the paper?...................................................................................13
Pattern recognition and the identification of opportunities by specific persons........................................................13
Can individuals be trained to be more proficient at identifying opportunities (implications for entrepreneurship
and business education)..............................................................................................................................................13
Entrepreneurial spawning: Public corporations and the genesis of new ventures.........................14
Fairchild view (entrepreneurial firms).........................................................................................................................14
Xerox view (established bureaucratic firms)...............................................................................................................14
Findings........................................................................................................................................................................14
Alternative finding........................................................................................................................................................14
The small firm effect and the entrepreneurial spawning of scientists and engineers....................15
Preference sorting (plays a role)..................................................................................................................................15
Ability sorting (plays a role).........................................................................................................................................15
2
, Opportunity cost (modest role)...................................................................................................................................15
Developing entrepreneurial human capital (plays a role)...........................................................................................15
Survival of the fittest? Entrepreneurial human capital and the persistence of underperforming
firms............................................................................................................................................16
Influences on the threshold of performance:..............................................................................................................16
A threshold model of entrepreneurial exit: human capital considerations................................................................16
Hypotheses..............................................................................................................................................17
Hypothesis 1: General human capital..........................................................................................................................17
Hypothesis 2: Specific human capital..........................................................................................................................17
Hypothesis 3: Psychic income......................................................................................................................................17
Hypothesis 4: Switching costs*....................................................................................................................................17
Shooting stars? Uncertainty in hiring entrepreneurs....................................................................18
Findings...................................................................................................................................................18
Entrepreneurs’ optimism and new venture performance.............................................................19
Explanation of the positive relation between entrepreneurial experience and the relation.....................................19
Explanation positive relation between environmental dynamism and the relation...................................................19
Over-optimism: explained.......................................................................................................................19
Psychological approach................................................................................................................................................19
Cognitive approach: social cognitive theory................................................................................................................19
Dealing with failure: serial entrepreneurs and the cost of changing industries between ventures 20
Spawned with a silver spoon? Entrepreneurial performance and innovation in the medical device
industry.......................................................................................................................................21
Findings........................................................................................................................................................................21
Alternative explanation................................................................................................................................................21
Home sweet home: entrepreneurs’ location choices and the performance of their ventures........22
Findings........................................................................................................................................................................22
Previous research.........................................................................................................................................................22
Close to home..............................................................................................................................................................22
In a cluster....................................................................................................................................................................22
3
,The promise of entrepreneurship as a field of research
Theoretical framework for Entrepreneurship
The field involves the study of sources of opportunities; the processes of discovery, evaluation, and
exploitation of opportunities; and the individuals who discover, evaluate, and exploit them.
Why study Entrepreneurship?
Technical information is embodied in products and services. With entrepreneurship society converts
technical information into these products and services.
Through Entrepreneurship we discover inefficiencies.
Entrepreneurially driven innovation = crucial engine driving the change process (Schumpeter).
The existence, Discovery, and exploitation of entrepreneurial
opportunities
Existence
Recognition is a subjective process, the opportunities themselves are objective phenomena, not
known to all parties at all time.
Opportunities come in a variety of forms: In product markets, factor markets (discovery of new
materials).
3 different categories:
Creation of new information, occurs with invention of new technologies, changes in market needs
and demographics
Exploitation of market inefficiencies
Reaction to shifts in the relative costs and benefits of alternative uses for resources.
Discovery
1. All opportunities must not be obvious to everyone all of the time.
2. Two broad categories of factors influence the probability to discover particular opportunities:
Information Corridors
The possession of prior information. Stocks of information provide a framework for recognizing new
information. People specialize in information because specialized information is more useful than
general information for most activities. As a result, no two people share all of the same information
at the same time.
Cognitive properties
Even if obtained all info needed, you may not understand the entrepreneurial possibilities.
Exploitation
Why, how and when to exploit depends on:
Characteristics of the opportunity
Expected value high enough?
Technology life cycle long
Competition neither too low nor too high
Cost of capital low
Learning from other entrants possible
Nature of individual
Low opportunity costs
How great your financial capital is
How risk tolerant and optimistic you are
4
,The Big Five Personality Dimensions and Entrepreneurial Status: A
meta- analytical Review
! Doesn’t say anything about the entrepreneurial performance
How do personality traits explain the decision to become an entrepreneur?
5 personality traits
Neuroticism (<=> Emotional stability): individual differences in adjustment and emotional stability.
Extraversion (<=> Introversion): the extent to which people are assertive, dominant, energetic,
active, talkative and enthusiastic.
Openness to experience (<=> Being stubborn): someone who is intellectually curious and tends to
seek new experiences and explore novel ideas.
Agreeableness (<=> Putting your own interests ahead): one’s interpersonal orientation.
Conscientiousness (<=> Chaotic): an individual’s degree of organization, persistence, hard work, and
motivation in the pursuit of goal accomplishment.
Relationship between personality and entrepreneurial status (job matching)
Why? Attraction-selection-attrition model
Individuals with certain personality traits may be more attracted to the entrepreneurial form
of employment than others may be
Selection by outside agents critical to founding a new venture may favour individuals
possessing certain personality traits over others
Individuals with certain personality traits may find entrepreneurial activities more satisfying
and fulfilling than others without those traits, and thus these individuals may persist long
enough to actually establish the new venture and become an entrepreneur
Depict the psychological approach to the question: what characterizes an entrepreneur?
Findings
Managers (opposite of entrepreneurs): + neuroticism, agreeableness
Entrepreneurs: + openness to experience, conscientiousness*
Entrepreneurs do not differ from managers on the extraversion dimension
Conscientiousness: achievement motivation + dependability
Achievement motivation is positively related to entrepreneurial performance
Dependability not significantly different from 0, thus facets within a single primary personality
dimension can have differential relationships with ES
! Limitations
Moderation
No evidence for the moderation of achievement motivation
Evidence for moderation of the relationship involving dependability
Small positive relationship between dependability and ES
Projective measures and objective measures of the same construct can yield different outcomes
5
, Entrepreneurship
Explain the Jack-of-all-trades theory & the underlying mechanisms
! self-employed is not necessary an entrepreneur
Evidence of the theory
Those who have more varied careers are more likely to be entrepreneurs (2 interpretations)
o Correlation between number of roles and entrepreneurship reflects endowed differences in
general skills across people, those with more general skills can perform more roles
o *Correlation reflects conscious investment, where individuals who plan to become
entrepreneurs take on many roles so that they can acquire the varied background necessary
to start a business
The pattern of investment that occurs prior to entering the labour market is also consistent with the
generalist view of entrepreneurship
Market value
is called the market value of entrepreneurial talent. Creative people have higher market values for
entrepreneurial talent because a given amount of raw skill translates into more entrepreneurial output . The
higher is, the more likely is the individual to become an entrepreneur.
Depict the economic approach to the question: what characterizes an entrepreneur?
Individuals with balanced skills are more likely than others to become entrepreneurs
The entrepreneur must bring together many different resources, he or she must have knowledge, at
least at a basic level, of a large number of business areas
Entrepreneurs are multifaceted
o Entrepreneurs invest in a broader range of skills or if they invest in 1 skill, they’re investing in
their weak skill
o Variation in subjects studied is positively correlated with individual’s likelihood of becoming
an entrepreneur.
Men are more likely to start companies than women and younger individuals, for a given amount of
experience
Entrepreneurs have substantially more professional positions
Explanation: multiple skilled people can perform many roles OR if you want to become an
entrepreneur, you invest in balanced skills (dominant result).
o Those who have varied work and educational backgrounds are much more likely to start
their own businesses
o True entrepreneurs are more inclined to take risks.
Lazear on innovation and entrepreneurship
They are not identical but go often hand in hand
The most successful entrepreneurial ventures often build on an innovation
Easier to do if you are JAT
6
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