Informal Entrepreneurship Theory

What is informal entrepreneurship? Informal entrepreneurship happens outside of the formal economy. The formal economy is the part that is legal and legitimate. The legal economy is where companies and entrepreneurs pay taxes, abide by regulations, and attain licenses that are set out by governments or institutions. Informal entrepreneurship is not about purely black market enterprises, like illegal gambling rings, outlaw biker gangs, or illegal fireworks factories. Informal entrepreneurship can involve everything from street vendors to domestic work within the home. In many societies, informal entrepreneurship is a major part of the economy, especially in developing countries. Often informal entrepreneurship is so normalized in a society that it is considered legitimate in the minds of the majority, even if it might also be illegal ( Webb et al., 2009 ). According to Suchman (1995) , legitimacy is: “a generalized perception or assumption that the actions of an entity are des

Slacker theory of entrepreneurship

Do slackers have an advantage in entrepreneurship? This theory is passed around more as rumor than formal theoretical framework. The theory starts with a premise about how entrepreneurial ventures come about. Entrepreneurial opportunities are viewed as difficult to discover or create, requiring a lot of time and trial and error. Perhaps slacker have nothing more important to do, allowing them the resilience to keep trying, even after repeated failures. The slacker theory suggests that people with slack time and slack resources have an advantage in entrepreneurship. They are able to pursue ideas that may not be profitable, and are still able to survive. This means they can take risks and experiment. Perhaps this elicits the image of a young adult from a well-to-do family that engages in social activities and gambles (engages in risky behaviors) rather than pursuing a real job or taking education seriously. The slacker theory would suggest that if one is born or thrust into a situat

Feminist Theory of Entrepreneurship

How can feminist theory enlighten us about entrepreneurship? For the most part, women entrepreneurs are in the minority, and they are less likely to be funded by venture capitalists. This naturally leads to criticism of the old boys club in venture capital investment that tends to invest less in women led ventures. There are some indications that these trends are changing but its far from over. Much of the feminist literature that discusses entrepreneurship tends to look at differences between entrepreneurial entry rates and opportunities for women entrepreneurs as well as the systems and structures that cause the disparities between men and women. Hurley (1999) : "Traditional anthropological theories stated that the key factor in human evolution was the male’s hunting activities. The men developed the important social skills of  communication, co-operation and tool making, while women contributed little...Feminist theories showed that women’s activities were the key

Dynamic Capabilities Theory and Entrepreneurship

Do entrepreneurs exhibit dynamic capabilities?  At the core of the theory of dynamic capabilities is the assumption that an organization's current resources and capabilities, which may be optimally suited to the current environmental conditions, will not likely be relevant under future conditions. Recognizing that changes in technologies, policies, and tastes make for a continuously evolving landscape of needs and wants, an organization needs to be able to respond. Organizations need to be able to transform their capabilities over time as needed to seize new opportunities. They also need to be continually sensing new opportunities. According to Teece (2007) : "the competitive advantage of firms stems from dynamic capabilities rooted in high performance routines operating inside the firm, embedded in the firm’s processes, and conditioned by its history" Responding to change How do they respond effectively to changes on the order of converging industries and inter

Information Asymmetry Theory and Entrepreneurship

Information asymmetry refers to a conditions whereby two parties in a market or organizational relationship have access to different information about the exchange.  It can be seen as an alternative to the classical assumption of "perfect information" in economics. Information asymmetries have been acknowledged by regulators who have made laws forbidding insider trading. Insiders have special access to the real financial picture of a company and have an unfair advantage when buying and selling company stock ( Aboody, 2000 ). Company executives, like CEOs also have fiduciary responsibilities toward their investors which require them to be truthful and forthcoming. Information asymmetry is also a potential source of problems in entrepreneurship. For example, an entrepreneur knows much more about the real potential of their ventures because they have inside access to knowledge about their customers and the issues with production. The investors, on the other hand, have le

Diffusion of Innovations Theory and Entrepreneurship

Could understanding the diffusion of innovations help in entrepreneurship? The diffusion of innovations has been studied by many scholars over the ages, but notably from 1970 onward by American sociologist Everett Rogers . Dr. Rogers was interested in trying to get farmers to adopt innovations that could better their lives and make their businesses more productive. He pondered the forces that lead some to adopt and others to abstain. Modeling adoption curves He suggests that different types of adopters: innovators, early adoptions, early majority, late majority and laggards have different adoption criteria. For instance, a strategy that may attract early adopters may not attract the early majority because they want different things. The size distributions of the different types of adopters (i.e., number of members of a particular adopter category), grow and then shrink giving rise to an inverted u-shaped curve, giving rise to the famous s-curve of total adoption. Image sour

Hybrid Entrepreneurship Theory

What is hybrid entrepreneurship? Most entrepreneurs work for organizations before or while they start their businesses. There is macho entrepreneurship dogma that says you have to go all in, experience "the fear" and dedicate yourself for 80 hours a week to your venture. Implicit in this is the notion that an entrepreneur cannot succeed if they hedge their bets by keeping one foot in employment. Why go all in to a startup if startups are probabilistic events, not givens. Many employers and regulators allow employees the freedom to pursue new ventures on the side, especially those that do not directly compete with their employers (and therefore not breaching a duty of loyalty).  Hybrid entrepreneurship refers to entrepreneurship whereby an employee starts a business on the side and keeps their day job until the startup reaches a certain size. Once the business is large enough to command the founder's full attention, then the employee makes their exit. However, it i

Lean launchpad and entrepreneurship

What is the Lean Launchpad? The Lean Launchpad was developed by Steve Blank (serial entrepreneurs and adjunct professor at Stanford) and colleagues as a repeatable process to create a startup. It is probably the most popular methodology today, featuring in a great number of entrepreneurship programs for students and mature students. It is also the method used at Y-Combinator and other top incubator programs. Despite its popularity, there is little empirical research examining the method. Assumptions behind the Lean Launchpad The theory behind the Lean Launchpad can be described as a discovery theory. The entrepreneurship literature is divided about the nature of entrepreneurial opportunities. At one end of the spectrum is the creationist school that views entrepreneurship as a process of opportunity creation led by teams and individuals (McMullen and Dimov, 2013). At the opposite end of the spectrum, the discovery school defends an objective view of entrepreneurship where oppo

Social safety nets and entrepreneurship

What is the risk compensation theory of entrepreneurship? Peltzman’s (1975) pioneering study of automobile accidents revealed that expected positive effects of safety regulations rarely materialized upon implementation. He argued that when drivers feel safer, they take more risks, which compensate for the safety interventions. Support for what is now dubbed the ‘Pelzman effect’ (or risk compensation theory) is far reaching and extends to varying contexts including new rules in NASCAR racing, mandated visor use in hockey, consumer vigilance in response to food safety messages, and bike helmet laws. But does this phenomenon also explain greater entrepreneurial risk-taking in the presence of social safety nets? There is emerging evidence that social safety nets can have positive benefits for entrepreneurs by reducing the risk associated with entry. Olds (2016a) finds that states that provided more food stamps have more limited liability company registrations among members of newly

Individual Ambidexterity and Entrepreneurship

What is the individual ambidexterity theory of entrepreneurship? 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 fou