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Essentials of entrepreneurship - summary articles & notes
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Essentials of entrepreneurship articlesArticle 1
Shane & Venkataraman (2000): the promise of entrepreneurship as a field of research
Till now, entrepreneurship remains a broad label wherein a lot of different research is
housed. By providing a framework that both sheds light on unexplained phenomena and
enhances the quality of research, we seek to enhance the field’s legitimacy and prevent
its marginalization as only ‘a research setting’ or ‘teaching application’.
In contrast to previous research, we define the field of entrepreneurship as the scholarly
examination of how, by whom, and with what effects opportunities to create future
goods and services are discovered, evaluated, and exploited. Consequently, the field
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 - 3 sets of research questions:
Why, when, and how opportunities for the creation of goods and services come into
existence
Why, when, and how some people and not others discover and exploit these
opportunities
Why, when, and how different modes of action are used to exploit entrepreneurial
opportunities
Our framework differs from others in that 1) we focus on the existence, discovery, and
exploitation of opportunities; 2) we examine the influence of individuals and
opportunities, rather than environmental antecedents and consequences; and 3) we
consider a framework broader than firm creation. Fourth, our framework also
complements research on the process of firm creation. Firm creation process
researchers examine resource mobilization, firm organizing, and market making,
starting with the assumption that opportunities exist, have been discovered, and will be
exploited through the creation of new firms.
Why study entrepreneurship?
1. Much technical information is ultimately embodied in products and services, and
entrepreneurship is a mechanism by which society converts technical information
into these products and services.
2. Entrepreneurship is a mechanism through which temporal and spatial inefficiencies
in an economy are discovered and mitigated.
3. Of the different sources of change in a capitalist society, Schumpeter (1934) isolated
entrepreneurially driven innovation in products and processes as the crucial engine
driving the change process. Therefore, the absence of entrepreneurship from our
collective theories of markets, firms, organizations, and change makes our
understanding of the business landscape incomplete.
The existence of entrepreneurial opportunities
Entrepreneurial opportunities are those situations in which new goods, services, raw
materials, and organizing methods can be introduced and sold at greater than their cost
of production. Within product market entrepreneurship, Drucker (1985) has described
3 different categories of opportunities: 1) the creation of new information, as occurs
with the invention of new technologies; 2) the exploitation of market inefficiencies that
result from information asymmetry, as occurs across time and geography; and 3) the
reaction to shifts in the relative costs and benefits of alternative uses for resources, as
occurs with political, regulatory, or demographic changes.
,An entrepreneurial discovery occurs when someone makes the conjecture that a set of
resources is not put to its ‘best use’. If the conjecture is acted upon and is correct, the
individual will earn an entrepreneurial profit. If not, it will be an entrepreneurial loss.
First, entrepreneurship involves joint production, where several different resources
have to be brought together to create the new product or service. Second, if all people
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.
Discovery
Given that an asymmetry of beliefs is a precondition for the existence of entrepreneurial
opportunities, all opportunities must not be obvious to everyone all of the time. Two
broad categories of factors that influence the probability that particular people will
discover particular opportunities: 1) the possession of the prior information necessary
to identify an opportunity and 2) the cognitive properties necessary to value it.
Information corridors. Human beings all possess different stocks of information, and
these stocks of information influence their ability to recognize particular opportunities.
Stocks of information create mental schemas, which provide a framework for
recognizing new information.
Cognitive properties. Since the discovery of entrepreneurial opportunities is not an
optimization process by which people make mechanical calculations in response to a
given a set of alternatives imposed upon them, people must be able to identify new
means-ends relationships that are generated by a given change in order to discovery
entrepreneurial opportunities. 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.
Decision
Nature of the opportunity. The characteristics of opportunities themselves influence
the willingness of people to exploit them. To date, research has shown that, on average,
entrepreneurs exploit opportunities having higher expected value. In particular,
exploitation is more common when expected demand is large.
Individual differences. The decision to exploit an opportunity involves weighing the
value of the opportunity against the costs to generate that value and the costs to
generate value in other ways. Thus, people consider the opportunity cost of pursuing
alternative activities in making the decision whether or not to exploit opportunities and
pursue opportunities when their opportunity cost is lower. In addition, people consider
their costs for obtaining the resources necessary to exploit the opportunity. The
decision to exploit an entrepreneurial opportunity is also influenced by individual
differences in perceptions/optimisms. Those who are high in need for achievement
may be more likely than other members of society to exploit opportunities.
Article 2
Alvarez & Barney (2007): discovery and creation: alternative theories of entrepreneurial
action
Assuming that opportunities – like mountains – exist as objective phenomena just
waiting to be discovered and exploited has important implications for entrepreneurial
actions. For example, if opportunities exist as objective phenomena, then the task of
ambitious entrepreneurs is to discover these opportunities – using whatever data
collection techniques exist – and the exploit them – using whatever strategies are
,required – all as quickly as possible, before another entrepreneur discovers and
exploits the opportunity. But what if it is different? For example, rather then searching
for a clear opportunity to be exploited, entrepreneurs creating opportunities might
engage in an iterative learning process that ultimately could lead to the formation of an
opportunity.
As a matter of logic, all teleological theories of human action must make 3 critical
assumptions:
1. Assumptions about the nature of human objectives
2. Assumptions about the nature of individuals
3. Assumptions about the nature of the decision making context within which
individuals operate
While discovery and creation theory have much in common, they often generate
different predictions about when specific entrepreneurial actions will be more or less
effective in enabling entrepreneurs to form opportunities.
In discovery theory, competitive imperfections are assumed to arise exogenously,
from changes in technology, consumer preferences, or some other attributes of the
context within which an industry or market exists. Since opportunities are created by
exogenous shocks to an industry or market and since these opportunities are objective
and thus, in principle, observable, then everyone associated with that industry or
market should be aware of the opportunities a shock has created. Thus, in order to
explain why entrepreneurs associated with an industry or market are willing and able to
exploit opportunities while nonentrepreneurs are not, discovery theory must
necessarily assume that entrepreneurs who discover opportunities are significantly
different from others in their ability to either see opportunities or, once they are seen,
to exploit them.
A decision making context is risky if, at the time a decision is being made, decision
makers can collect enough information about a decision to anticipate possible outcomes
associated with that decision, and the probability of each of those possible outcomes. A
decision making context is uncertain if, at the time a decision is being made, decision
makers cannot collect the information needed to anticipate either the possible outcomes
associated with a decision nor the probability of those outcomes.
Creation theory is a logical theoretical alternative to discovery theory for explaining
the actions that entrepreneurs take to form and exploit opportunities. In this theory,
opportunities are created, endogenously, by the actions, reactions, and enactment of
entrepreneurs exploring ways to produce new products or services. Creation theory
assumes that entrepreneur’s actions are the essential source of these opportunities –
they build the mountains.
, Lecture notes
Classic views on entrepreneurship
Entrepreneurs: born or made?
Genetically, they are not born like it. Everybody has the potential to be an entrepreneur.
But they have certain characteristics taking risks, creativity (thinking), education,
background, governmental spending etc. affect the decision to be an entrepreneur
1 Richard Cantillon (1680-1736)
First economist to pay attention to entrepreneurship, also noticed entrepreneurial
function within economy
3 types of agents
Landowners (capitalists, financially independent)
Hirelings (wage workers)
Entrepreneurs (arbitrages) uncertainty, taking risks
Taking advantage of selling product within two or more markets. Central economic
citer by engaging in arbitrage & bearing risk, has an equilibrating function within the
economic system (supply & demand)
2 Jean-Baptiste Say (1767-1832)
Production process requires 3 options
a) the critical knowledge construction
b) the application of knowledge entrepreneurs (then create product to be used
by humans (human consumption))
c) execution
Operation (develop product for human consumption) + distribution (giving makers
usage + rent. Will you make money by selling product? Employees, lones, revenues)
function
Entrepreneur = coordination, modern leader & manager. Needs a rare combination of
qualities & experiences to succeed
3 Alfred Marshall (1842-1924)
Principles of economic
Main task: supply product, innovation process (something new)
Provision of innovations & progress
Generally ability depends on family background, education & innate ability (such
as trustworthy, reacts to risks so proactive)
Specialized abilities (forecasting, see opportunities, taking risks (investing,
creativity)
A natural leader of men (managing people)
Entrepreneurs as innovators & managers
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