Posts

Showing posts from 2018

Resilience and entrepreneurship

Image
What is the resilience theory? Resilience is the ability to get up after you fall down, whether it be physically, psychologically, cognitively, financially, socially, or economically. Resilience is expected to be an important capability of entrepreneurs because they typically face numerous failures on their way to eventual success. The idea of resilience as a virtue for entrepreneurs is appealing because it soothes the failed or failing entrepreneur. It involves a belief that continuing on despite setbacks is better than withdrawing from entrepreneurial activities. For example, the popular idea of the pivot implies the need to change directions as reality comes into focus. Ayala and Manzano (2014) find that Spanish small business owners are more resilient than the general population, highlighting the sub-construct of resourcefulness.  Bullough, Renko and Myatt (2014) focus on entrepreneurs during times of war, who show great resilience in the face of conflict. Entrepreneurial

Spinout versus spinoff: What's the difference?

Image
What is the difference between a spinout and spinoff? When I talk to entrepreneurs and managers, there is much confusion about the difference between spinouts and spinoffs. This confusion is due to the ambiguous use of these terms both in practice and academia. Although there exist many opinions about the differences between spinouts and spinoffs, I will focus here on the authority behind a spinout or spinoff. Spinoffs (often called "corporate spinoffs") are the outcome of a corporate decision making process ( Agarwal, Audretsch, and Sarkar, 2007) . A parent company's managers decide to make a division or subsidiary of the corporation into a separate legal entity with different (albeit often overlapping) owners. Spinoffs are often used to increase corporate coherence and to give new ventures the independence they need to flourish. Spinoffs are a form of corporate restructuring decision that involves divestment. Owners of shares in the parent receive shares in the spinof

Hoselitz Theory of Entrepreneurship

Image
What is Hoselitz theory of entrepreneurship? Burt F. Hoselitz was a professor of economics at the University of Chicago. Hoselitz argues that entrepreneurship tends to come from socially marginalized groups in a given society. This is very similar to the withdrawal of status respect theory and the misfit theory of entrepreneurship , which both deal with marginalized populations. Hoselitz (1963) assumes that entrepreneurship can only come out of a developed cultural base. His theory is that marginalized populations must be considered culturally developed in order to be considered eligible for entrepreneurship. He refers to entrepreneurship by marginalized groups as "pariah entrepreneurship". U.S. Coast Guard Photo Hoselitz claimed that his theory helps to explain to the highly entrepreneurial behaviors of Greeks and Jewish people in medieval Europe, Lebanese in West Africa, Chinese in Southeast Asia, and Indians in East Africa. The concept of cultural develo

Experiential Learning and Entrepreneurship

Image
Learning involves the transformation of experience into potential knowledge, cognition, behaviours or actions (Kolb, 1984). Experiential learning can be differentiated from rationalist (e.g., cognitive theories).  Rather than emphasize the role of acquiring, manipulating, and recalling, experiential learning theory embraces subjective experience.  Know-how   The concept of subjective experience is often used to describe personal and individual experiences that cannot be fully captured or understood through objective observation or measurement. While there are many different types of subjective experiences, one useful way to think about them is through the lens of "know-how." Unlike knowledge, which can be learned through language and formal education, know-how is often acquired through hands-on experience and practice. This type of experiential learning is particularly important in areas like entrepreneurship, where success often depends on a deep understanding of the pr

Prospect theory and entrepreneurship

Image
Prospect theory was developed by behavioural economists Daniel Kahneman and Amos Tversky in the 1970s. Their aim was to better understand decision making processes by looking at how individuals assess the potential gains and losses from a decision separately. The most famous hypothesis tied to the theory is that most individuals fear losses more than they value gains. The theory posits that when individuals think they are winning (gain domain frame), they become more risk-averse, whereas when they think they are losing (loss domain frame), they become inclined to take bigger risks to get back to a break-even position. According to Hsu et al. (2017): "So essentially, whether a person frames a situation as associated with gains or losses influences his or her attitude toward engaging in risky behaviors such as reentering entrepreneurship."    Entrepreneurs judge whether they are in a gain or loss position based on a reference point. For instance, Hsu et al. use the entrepre

Social entrepreneurship

Image
The concept of social entrepreneurship is relatively new and may not be thought of as a theory. It is more like a domain or niche phenomenon that may deserve attention. According to Dees (2017), social entrepreneurship has largely emerged out of discontent with the performance of government and charitable organizations in tackling social problems. Governments are often underfunded, ineffective, and too political to do what is right for all. Charities are busy fighting for funds and justifying their existence and many successful such organizations use many of their donors funds for internal development purposes. If governments and charities would be more effective at tackling poverty, health issues, and inequality, then there would not be a need for social entrepreneurs to try to pick up the slack. This is also a core idea in the stakeholder theory of entrepreneurship . Social entrepreneurs bring market logic and business acumen to bear in combating social problems. They are chan

Cantillon Theory of Entrepreneurship

Image
What is Cantillon's theory of entrepreneurship? The word "entrepreneur" has been traced back to Richard Cantillon, an Irish banker with French roots writing in the early 1700s, before Adam Smith. Cantillon distinguished between entrepreneurs with nonfixed incomes and employees with fixed incomes. Cantillon considered the entrepreneurs as those who undertake to bear and overcome uncertainty by investing, paying expenses and hoping for a return. Cantillon viewed a wide slice of society as entrepreneurial because they bear uncertainty, including: "All the other entrepreneurs, like those who take charge of mines, theaters, buildings, the traders by sea and land, restaurateurs, pastry cooks, innkeepers, etc., as well as the entrepreneurs of their own labor who need no capital to establish themselves, like journeymen artisans, coppersmiths, seamstresses, chimney sweeps, water transporters, live with uncertainty and proportion themselves to their customers. Master

Real options theory and entrepreneurship

Image
Real options theory is concerned with investments in real assets that are similar in structure to financial options like put and call options that allow investors to bet on the upside or downside of stocks without tying up too much capital (Bowman and Hurry, 1993) According to McGrath (1999), real options theory is supposed to be superior to net present value analysis and other time value calculations, especially under conditions of uncertainty. The fundamental idea behind real options theory is that an opportunity that has a way out is worth more that one that does not have a way out. For example, startups can be merged, one startup can be stripped of resources to help another, a team can be moved from one opportunity to another etc... Thus, entrepreneurs and investors in entrepreneurial ventures are apt to view failure as a learning opportunity that contributes to the assessment of future projects. Real options thinking reduces the social cost of failure and thus increases the r

Cognitive Evaluation Theory of Entrepreneurship

Image
Cognitive evaluation theory is a theory in psychology (part of self-determination theory) where it has been used to explain how external factors affect an individuals intrinsic or internal motivation. Events that increase (decrease) perceived confidence increase (decrease) intrinsic motivation. Keh et al. (2002) borrow the theory to conduct a study of entrepreneurs and find that: "illusion of control and belief in the law of small numbers are related to how entrepreneurs evaluate opportunities." These authors propose that individuals that perceive a lower level of risk associated with an opportunity are more likely to judge it positively. Entrepreneurs exhibiting an illusion of control, will have higher overconfidence and will perceive less risk. This is related to the hubris theory of entrepreneurship . Another finding is that entrepreneurs with stronger beliefs in "the law of small numbers" perceive lower risks. The law of small numbers refers to the fallacy t

Utility theory of entrepreneurship

Image
Utility theory was developed by moral philosophers in the early 1900s, including John Stuart Mill. The core concept is that individuals make (or should make) decisions that maximize utility. Utility includes value for one's self and for others (society). Mill's book Utilitarianism sets forth several principles and argues that happiness has utility, as does justice. All sentient beings can experience utility, thus maximizing utility can take into account the interests of animals. But it brings forth a debate about how much utility to give to a deer versus a driver in the decision to construct an expensive nature fence and land bridge. Moreover, there might be "more sentient" beings, such as gifted humans, which some might want to give a higher utility in their calculations. Another problem is that we might give little weight to things that affect many people but only a little bit. For example, if one may litter and affect many people (who will see the trash), but

Weak ties theory of entrepreneurship

Image
What is the weak ties theory of entrepreneurship? The weak ties theory was put forth by Mark Granovetter in 1969 as a theory that explains why some people seem to access to more and better opportunities than others. He conducted a study of around 200 people who had just gotten new jobs and asked them how they got their jobs and most of them, around 75% had got them from acquaintances. The rate was even higher for the higher income earners in his sample. The core idea is that weak ties are more important than strong ties in terms of providing you with novel and actionable information. Close ties refer to individuals that we interact with on a nearly constant basis, such as roommates, nuclear family members and a few good friends. Close ties provide very little new information because most of the individuals within the clique of a close tie network share many of the same relations. The concept of weak ties is a well-established one in sociology and network theory. It refers to soci

Niche theory of entrepreneurship

Image
What is the niche theory of entrepreneurship? In ecology, the concept of a niche is crucial to understanding the interactions between species and their environment. Essentially, a niche is a space or role that a particular species occupies within an ecosystem, defined by the specific environmental conditions it needs to survive and thrive. These conditions can include factors like temperature, humidity, available food sources, and predators. One interesting aspect of the niche concept is the phenomenon of convergent evolution. This occurs when two or more species independently evolve similar adaptations or traits because they occupy similar ecological niches. The marsupial wolf and the placental wolf mentioned in the prompt are a great example of this. Despite being separated by millions of years of evolution and located on opposite sides of the world, the marsupial wolf of Australia and the placental wolf of North America share remarkable similarities in their physical appearance an

Stages theory of entrepreneurship

Image
    The entrepreneurial process is often conceptualized as stage-based or as a life cycle. These theories are borrowed from biology where life cycles of flora and fauna are studied extensively. Thus, perhaps it is alright to think of this borrowing as a kind of analogy - imperfect, but potentially interesting. In ecology and biology, there are stages of development or decay present in many phenomena. These theories start with the assumptions of birth, growth, maturity and decline. The description, explanation and prediction of cycles is one of the mainstays of the hard sciences. By definition a life has a beginning and an end, which provides initial boundary conditions for the theory. What happens in between, or those inner-transitions, are where we are going to find most of the action in terms of debate. Kazanjian and Drazin (1990) suggest four stages to explain how an entrepreneurial opportunity becomes a business. They propose that the drivers and resistors of entrepreneurship are d

Marshall McLuhan's theory of entrepreneurship

Image
    “The crossing or hybridizations of the media release great new  force and energy a s by fission or fusion…” (1964:48).  Marshall McLuhan was a Canadian academic and celebrity who famously coined the phrase “the medium is the message” back in the 1960s to express his thesis about the effect of new technologies (extensions of ourselves) on culture and society. He and his son are known together for the McLuhan Tetrad, which suggest that careful analysis of the extensions, amputations, retrievals and reversals inherent in innovations help to reveal their effects. At a time when critics railed against sex, violence, and blasphemy on vacuum tube televisions, McLuhan claimed that the content of television was irrelevant, as it is the medium of television that really changes us by creating new audio/visual tribes, and seating us passively in front of the tube. New environments! He also suggested that the radio is the preferred of violent agitators--wonder what he would say today

Social exchange theory of entrepreneurship

Image
What is the social exchange theory of entrepreneurship? Social exchange theory regards trading relations as built on norms of reciprocity and mutual attraction (Emerson, 1981; De Clercq et al., 2010). Reciprocity is the exchange of privileges between parties on the basis of mutual trust. For instance, a lunch or round of drinks may be purchased by one individual, with the understanding that other will pay back the debt at some unspecified time. In extended reciprocity, the assumption is that the environment will pay it forward to ensure repayment, even if indirectly over time. Mutual attraction implies that one party is not predating on the other, that both parties that have something to gain. There is therefore an assumption of trust between the parties. For example, it has been observed that in traditional subsistence cultures, tribes will often donate their surpluses to neighboring tribes with no time bound expectations of repayment. Social exchange and entrepreneurship

Procedural justice theory and entrepreneurship

Image
The theory of procedural justice was introduced by Thibaut and Walker (1975). Thibaut and Walker propose that procedural justice focuses on the processes of justice rather than the outcomes of such processes (i.e., distributive justice), because the processes are more important in the evaluations of participants.    Procedural justice theory was later been applied to the organizational strategy context by Kim and Mauborgne (1991), who argue that when implementing global strategies, as long as the decision-making process is deemed fair to stakeholders, then even if an outcome is not distributively advantageous, it may accepted as just.   Procedural justice has been used to help explain entrepreneurial success from a financing-availability perspective. Procedural justice may help explain how entrepreneurs successfully manage their investor relationships. According to Sapienza and Korsgaard (1996), w hile entrepreneurs benefit from sharing information with investors, they also may b

Social identity theory and entrepreneurship

Image
Social identity theory came out of Henry Tajfel and John Turner (1979) experiments showing that the slightest priming of group membership creates prejudice. “Blue eyes, a preference for the paintings of Wasily Kandinsky over those of Paul Klee, and calling some people over-estimators and others under-estimators were sufficient to produce a preference for fellow group members and to elicit discrimination against outsiders” (Huddy, 2001:132). Social identity theory has been used to explain why human personalities and behaviors seem to be context-specific. A given individual may act differently depending on which groups they perceive themselves to belong. The theory suggests that personal identity plus environmental conditions shape social identity, which in turn leads to categorization of others into in-groups and out-groups. Obschonka et al. (2012) argue that individual beliefs and attitudes are unlikely to be the main drivers of entrepreneurship. Rather, they use social id

Machiavellian entrepreneurship

Image
Niccolo Machiavelli  (born 1479) in Italy is an infamous strategist who wrote extensive letters teaching cunning strategies to "princes" that ruled over fiefdoms throughout feudal Europe at the time. 16th century Europe was very divided compared to today, especially in and around Italy, which was composed of a large number of small autonomous and semi-autonomous territories (fiefdoms and kingdoms). Although Machiavelli is often considered as a figure in the history of political science, fiefdoms were ruled by what Baumol (1996) describes as entrepreneurs of their time. Princes would take territory, or castles, rather than fight over money.    Machiavelli's letters can be thought of as elaborating entrepreneurial strategies to get ahead in feudal times, but which are largely inappropriate in the current business context.. Many regard Machiavelli's strategies as unethical, yet his famous book "The Prince" continues to be cited and read within the busines

Hubris and Entrepreneurship

Image
Mathew Hayward and colleagues (2006) introduce a hubris theory to entrepreneurship. Their aim is to explain why so many new ventures are started despite a very high background failure rate. After all, most businesses fail within the first few years of founding. So why do entrepreneurs keep trying to create new ones? Individuals overestimate the personal wealth they may attain by starting new ventures. The theory assumes that individuals have information about their likelihood of success, but think that they can beat the odds. Hayward and colleagues (2006) suggest that overconfident individuals may harm their ventures by depriving them of resources. Thus, while overconfidence may help in starting a venture, it does not help much with operating a business. Cassar (2010) finds empirical evidence that prospective entrepreneurs are indeed overconfident. Hogarth and Karelaia (2012) find that overconfident entrepreneurs have lower success chances. Thus, overall, there is some support for the

Critical Theory and Entrepreneurship

Image
Critical theory may be attributed to Max Horkheimer's 1937 essay Traditional and Critical Theory. The Frankfurt School of sociology has developed critical theory from a combination of Marxian and Kantian ideas about critiquing traditional theories. Alvesson and Willmot (1992: 89) state that: "Emancipation describes the process through which individuals and groups become freed from repressive social and ideological conditions, in particular those that place socially unnecessary restrictions upon the development and articulation of human consciousness". The majority of the entrepreneurship literature takes a functionalist (rational or empirical) perspective, where there is an objective reality that can be measured and hypotheses that can be tested against that reality. However, there are many problems with scientific methods in the social sciences. For one, theories that work in one temporal-spacial context may not work in another. Very few studies have adopted alternative

The Great Man Theory of Entrepreneurship

Image
One of the most popular 19th century theories of entrepreneurship is the "great man theory". The theory's popularity is probably owing to the historian Thomas Carlyle. Yes, I know, it sounds sexist from the start, but let us stretch the meaning and say it's the great people theory, and try to move it along from there. Great people theories are often heard in historical tales of WW2, with Hitler, Stalin, Churchill, Eisenhower, Roosevelt, and a few others leading the way. In reality, tens of millions of people were involved in the war and a myriad of events occurred over time that may have impacted the outcomes of the war. The same is done with entrepreneurs, pitting Bill Gates against Steve Jobs in the battle for the PC, for instance. The great people theory holds that most of the important decisions about how the economic and political world works today were made by just a handful of people. These gifted individuals are the heroes and heroines of every age. Another po

Actualization Theory of Entrepreneurial Opportunities

Image
 The actualization theory of entrepreneurial opportunities introduced by Ramoglou and Tsang (2016) is intended to bridge the gap between discovery and creation theories of entrepreneurial opportunity. The discovery perspective views entrepreneurial opportunities as existing out there in objective reality waiting to be found and exploited by entrepreneurs. This implies that if an opportunity does not exist, then no amount of effort to exploit it will be fruitful. One would be spinning their wheels! Denying the objective existence of opportunities is a bit like arguing that if Edison had died early, we might not have the electric world we current experience as perhaps only he could subjectively construct the notion of electric light. Clearly it is a stretch to have so little faith in multiple independent invention. The creation perspective takes the opposite view, suggesting that opportunities do not exist outside of entrepreneurs themselves and are created by their cognitions and action

Entrepreneurial Passion

Image
We have all seen motivation memes about passion. Some popular ones include: "passion never fails", "I live my passion", "follow your passion", "passion is priceless", "passion is purpose", "make your passion your paycheck", "your passion is your success", "ignite your passion", "find your passion", "your passion will find you" . . . We have also witnessed entrepreneurial passion on display when entrepreneurs pitch their ideas to potential investors. TV shows like Dragon's Den and Shark Tank have helped to place passion at the center of our attributions of potential entrepreneurial success. "I like your passion" is a hallmark comment preceding made-for-TV deal-making. Passion and entrepreneurship Over the last two decades, entrepreneurship researchers have started to unpack the concept of entrepreneurial passion, which has long been a mainstay of motivational rheto

Order now!