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Individual Ambidexterity and Entrepreneurship

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Most new ventures are founded by former employees of organizations. Employees make discoveries while working for organizations and decide to exploit them on their own, especially when parent firms do not see the value in their discoveries, or choose not to exploit them due to a lack of fit with the firm’s strategy. When employees leave to start new ventures, we call their ventures employee spinouts .  Ambidextrous behaviors have been observed in entrepreneurs. Entrepreneurs display ambidextrous through boundary-spanning relationships, by avoiding excess exploitation and keeping time aside for exploration, by using platforms for discussing issues related to exploration, and by shifting focus from exploration to exploitation and vice versa as the current situation requires (Volery et al., 2013). The entrepreneurial process is often conceptualized as stage-based. For example, Kazanjian and Drazin (1990) suggest four stages: conception and development, commercialization, growth, and

Attribution Theory and Entrepreneurship

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Attribution theory was developed by Austrian psychologist Fritz Heider in the 1950s. The fundamental assumption of attribution theory is that people are motivated to find causes for their own success and failure events as well as the behaviors of others. Individuals are more likely to attribute the causes of a successful event to themselves or their in-group, whereas they are more likely to attribute the causes of failure events to distal forces or out-group members. This is called a self serving bias. Similarly, when we see others fail, we are likely to attribute their failure to internal causes, such as laziness or incompetence rather than considering environmental conditions. This is called fundamental attribution error. Thus, when we see an entrepreneur fail in business, we assume that the failure is because they did something wrong. This may lead to a belief in wrong causes because the entrepreneur could have failed for reasons outside of his or her control. If attribution t

Self‐competition theory of entrepreneurship

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Elias Khalil (1997) at Monash University asks why is it that some entrepreneurs that have prior accomplishments continue to risk their capital again and again? Why don't they retire? One possibility is that these entrepreneurs are trying to be the best in the world or in a given territory or space. Another possibility is that they are striving just to be better than their former selves. Self-competition theory's main assumption is that individuals develop the desire to improve themselves, or rather, upon their former selves. Entrepreneurship can be viewed as behaviors that individuals use to better themselves. The theory also assumes that individuals keep track of their personal best and have the ability to compare themselves to their former bests. For example, one might try to obtain a return on investment that is double what a previous venture was able to provide. Or one might try to expand the scale of the venture to be larger than previous ventures, or to span more

Embeddedness Theory of Entrepreneurship

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What is the embeddedness theory of entrepreneurship? Karl Polanyi was an Austrian-Hungarian economic sociologist in the middle years of the twentieth century. He coined the term 'embeddedness' to mean the extent that economic activity is constrained by institutions that are non-economic. Non-economic institutions may include: 1) kinship or family 2) religious or cultural 3) power and politics Embeddedness can also be thought of as the nature, depth and extent of an individual’s ties into the environment (Jack and Anderson, 2002). Patterns of economic exchange become embedded in webs of social relations that over time leading to the development of trust and reciprocity (Uzzi, 1997). Embeddedness affects decisions about who to transact with including potential investors and customers of entrepreneurs' ventures. For instance, someone that graduates from Stanford may be more likely to get investment from someone in the Stanford venture capital network, but they may also

Social judgement theory and entrepreneurship

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What is the social judgement theory of entrepreneurship? The central concept in social judgement theory is legitimacy (Suchman, 1995), as the buyers and suppliers of any new venture must believe that the startup is legitimate in order to commit their scarce resources or risk capital. A startup must meet the regulatory, normative and cognitive institutional requirements of the markets where it competes.  A social judgment theory of entrepreneurship looks to the entrepreneurs stakeholders' social judgement about their ventures. These judgments are important because of the way that stakeholders make decisions to support a burgeoning venture or not to. Impression management? Perhaps and interesting critique of the social judgement theory as stated above is that is may be descriptive rather than prescriptive. For example, if the theory is considered prescriptive (i.e., normative), then an entrepreneur might thus manages the impressions that stakeholders build about them in o

Biculturalism and Entrepreneurship

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What is the biculturalism theory of entrepreneurship? Biculturalism refers to an individual characteristic that develops as a result of exposure to two cultures. The typical case is the immigrant who must learn the host country's local culture and in doing so adopts elements of a second culture. The Al-Shammari team examines individuals with bi-cultural skills and experiences: "those who are exposed to different cultures and environments will experience different types of experiences in their social interactions and thus will accumulate rich knowledge that is diverse" (page 7). They theorize that biculturalism provides advantages in the opportunity recognition, evaluation, selection and exploitation stages . They find that bicultural individuals have advantages in the earlier stages, but struggle with exploitation (due to institutional constraints), unless they are able to build networks in the host country. This is an interesting theory, though obviously lends its

Resilience and entrepreneurship

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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

(Employee) spinout versus (corporate) spinoff: What's the difference?

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When we talk to private sector entrepreneurs and managers, there is much confusion about the difference between employee spinouts and corporate spinoffs. This confusion is due to the ambiguous use of these terms both in practice and in academia (Laplume & Yeganegi, 2024).   Employee spinout ("spinout") is the outcome of the independent decisions of employees that leave employment to start a new venture. Neither the parent organizations, nor their investors typically receive any ownership shares in a spinout. Spinouts are owned and controlled by the former employees and their own investors (often venture capitalists or angel investors). Because they often are not "authorized" or "sanctioned" by their parent organizations, spinouts may be met with hostility from parent firm managers and owners (Walter, Heinrichs, & Walter, 2014). Parent organizations may litigate against spinouts for violating fiduciary duties, breaching non-competes, non-solicitati

Hoselitz Theory of Entrepreneurship

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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    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

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    “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

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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

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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

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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

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