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^ cademy oi Managem ent Review
2000,
Vol. 25, No. 1, 217-22G.
NOTE
THE PROMISE OF ENTREPRENEURSHIP AS A
. FIELD OF RESEARCH
SCOTT SHANE
University of Maryland
S. VENKATARAMAN
tiniversity of Virginia
To date the phenom enon of entrepreneurship ha s lacked a conceptual framework. In
this note we draw upon previous research conducted in the different social science
disciplines and applied fields of business to create a conceptual framework for the
field. With this framework we explain a set of empirical phenomena and predict a set
of outcomes not explained or predicted by conceptual frameworks already in exis-
tence in other fields.
For a field of social science to have useful-
n ess ,
i t must have a conceptual framework that
explains and predicts a set of empirical phe-
nomena not explained or predicted by concep-
tual frameworks already in existence in other
fields. To date, the phenomenon of entrepre-
neurship has lacked such a conceptual f rame-
work. Rather than explaining and predicting a
unique set of empirical phenomena, enfrepre-
n urs ip
ha s becom e a broad label under which
a hodgepodge of research is housed. What ap-
pears to const i tu te entrepreneurship research
today is some aspect of the setting (e.g., small
businesses or new firms), rather than a unique
conceptual domain. As a result, many people
ha ve h ad troub le identifying the distinctive con-
tribution of the field to the broader domain of
bu sin ess stud ies, underm ining the field s legit-
imacy. Researchers in other fields ask why en-
trepreneurship research is necessary if it does
not explain or predict empirical phenomena be-
yond what is known from work in other fields.
Moreover, the lack of a conceptual framework
has precluded the development of an under-
standing of many important phenomena not ad-
equately explained by other fields.
One example of this problem is the focus in
the entrepreneurship l i terature on the relat ive
We acknowledge the helpful comments of Ed Roberts on
performance of individuals or firms in the con
text of small or new businesses. Since strategi
management scholars examine the difference
in and s ustain ability of relative performance be
tween competitive firms, this approach is no
un iqu e (Ve nkataram an, 1997). Moreover, the ap
proach does not provide an adequate test o
en t r ep ren eu r sh ip , s in ce en t r ep ren eu r sh ip
concerned with the discovery and exploitatio
of profitable op portu nities. A perform ance ad
va nt ag e over other firms is not a sufficient me a
sure of entrepreneurial performance, because
performance advantage may be insufficient t
compensate for the opportunity cost of other a
ternatives , a liquidity prem ium for time and cap
ital,
and a premium for uncertainty bearin
Therefore, although a conceptual framework
explain and predict relative performance b
tween firms is useful to strategic managemen
it is not sufficient for entrepreneurship.
We attempt an integrating framework for th
entrepreneurship field in the form of this not
We believe that this framework will help entr
preneurship researchers recognize the relatio
ship among the multitude of necessary, but n
sufficient, factors that compose entrepreneu
ship, and thereby advance the quality of empi
ical and theoretical work in the field. By provi
ing a f ramework that both sheds l ight o
u n e x p l a i n e d p h e n o m e n a a n d e n h a n c e s t h
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tion as only a rese arch setting or teaching
applicat ion.
The note proceeds as follows. First, we define
the domain of the field. Second, we explain why
organizat ional researchers should study entre-
preneurship. Third , we descr ibe why entrepre-
neurial opportunities exist and why some peo-
ple, and not others, discover and exploit those
opportunities. Fourth, we consider the different
modes of exploitation of entrepreneurial oppor-
tunities. Finally, we conclude with brief reflec-
tions on the potential value of the framework
presented here.
EFINITION OF ENTREPRENEURSHIP
Perhaps the largest obstacle in creating a con-
cep tua l f ramework fo r the en t repreneursh ip
field has been its definition. To date, most re-
searchers have defined the field
solely
in terms
of who the entrepreneur is and what he or she
doe s (Ve nka taram an, 1997). The problem with
this approach is that entrepreneurship involves
the nexus of two phenomena: the presence of
lucrative opportunities and the presence of en-
terp risin g ind ivi du als (V enk ataram an, 1997). By
defining the field in terms of the individual
alone, entrepreneurship researchers have gen-
erated incomplete definitions that do not with-
stand the scrutiny of other scholars (Gartner,
1988).
The definition of an entrepreneur as a person
who establis hes a new o rganizat ion is an exam-
ple of this problem. Because this definition does
not include consideration of the variation in the
quality of opportunities that different people
identify, it leads researchers to neglect to mea-
sure oppor tun i t ies . Consequent ly , empir ica l
support (or lack of support) for attributes that
differentiate entrepreneurs from other members
of society is often questionable, because these
attributes confound the influence of opportuni-
t ies and individuals.
In contrast to previous rese arch, w e define the
field of entrepreneurship as the scholarly exam-
inatio n of how, by whom, and w ith wha t effects
opportunities to create future goods and ser-
vices are discovered, evaluated, and exploited
(Ve nkata ram an, 1997). Co nseq uen tly, the field
involves the study of
sources
of opportunities;
ploitation of opportunities; and the set of
indi
viduals who discover , ev alu ate , an d explo
th em.
Although the phenomenon of entrepreneur
ship provides research questions for many dif
ferent scholarly fields, ' organization scholar
are fundam entally concerned w ith three sets o
r e sea r ch q u es t io n s ab o u t en t r ep ren eu r sh ip
(1) why, when , and how o ppo rtun ities for th
creation of goods and services come into exis
tence; (2) why, when, an d how some p eople an
not others discover and exploit these opportuni
t ies; an d (3) why, whe n, and how different mo de
of action are used to exploit entrepreneurial op
portunities.
Before reviewing existing research to answe
these quest ions, we provide several caveat
about our approach. First, we take a disequilib
rium approach, which differs from equilibrium
approaches in economics (Khilstrom & Laffon
1979) and social psychology (McClelland, 1961
In equilibrium models, entrepreneurial opportu
nities either do not exist or are assumed to b
randomly distributed across the population. Be
cause people in equilibrium models cannot dis
cover opportunities that differ in value from
those discovered by others, who becomes a
entrepreneur in these m odels depen ds solely o
th e a t t r ib u te s o f p eo p le . Fo r ex amp le , i
Khilstrom and Laffont 's (1979) equil ibr ium
model, entrepreneurs are people who prefer un
certainty.
Although we believe that some dimensions o
equilibrium models are useful for understand
ing entrepreneurship, w e argue that these mod
els are necessar i ly incomplete . Entrepreneuria
behavior is transitory (Carroll & Mosakow sk
1987).
Moreover, estimates of the number of pe
p le who eng age in en t reprene ur ia l behav io
ra ng e from 20 perc ent of the pop ulatio n (Reyn
olds White, 1997) to over 50 percent (Aldrich
Zimmer, 1986). Since a la rge an d div erse grou
of people engage in the transitory process o
entrepreneurship, it is improbable that entrepre
neu rship ca n be explain ed solely by reference
a cha racteristic of certain peo ple ind epen dent o
the situations in which they find themselve
Therefore, when we argue that some people an
For example, economists are interested in the distrib
tion of entrepreneurial talent across productive and unpr
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Shane and Venia taraman
21
not others engage in entrepreneurial behavior ,
we are describing the tendency of certain peo-
ple to respond to the situational cues of oppor-
tunities—not a stable characteristic that differ-
entiates some people f rom others across al l
situations.^
Second, we argue that entrepreneurship does
not require, but can include, the creation of new
organizations. As Amit, Glosten, and Mueller
(1993) and Casson (1982) explain, entrepreneur-
ship can also occur within an existing organiza-
tion. Moreover, opportunities can be sold to
other ind ividu als or to existing o rganization s. In
this note we do not exam ine th e creation of new
organizations per se but, rather, refer interested
readers to excellent reviews on firm creation in
org ani zat ion al ecology (Aldrich, 1990; Singh &
Lu m sd en , 1990), ec on om ics (C av es, 1998;
Ge roski, 1995), an d o rga niz atio nal theory (Gart-
ner, 1985; Katz & Gar tne r, 1988; Low & MacMil-
lan, 1988).^
Third, our framework complements sociologi-
cal and economic work in which researchers
have examined the population-level factors that
influence firm creation. Stinchcombe (1965) iden-
tified societal factors that enhance incentives to
organize and organizing ability. Aldrich (1990)
and Singh and Lumsden (1990) have provided
review s of factors en ha nci ng firm foundings and
have described the effects of such factors as
environmental carrying capacity, interpopula-
tion processes, and institutional factors. Simi-
larly, Baumol (1996) has related the institutional
environment to the supply of people who are
willing to create firms.
Although these other frameworks are valu-
able to entrepreneurship scholars, they involve
a set of issues different from those with which
we are concerned. Our framework differs from
the se in that (1) w e focus on the existen ce, dis-
covery, and exploitation of opportunities; (2) we
examine the influence of individuals and oppor-
tunit ies, rather than environmental antecedents
an d con sequ enc es; and (3) we consider a frame-
work broader than firm creation.
We also argu e that entrepreneurship can be undertaken
by a single individual or a set of people who undertake the
steps of the process collectively or independently.
Many researchers argue that entrepreneurship occurs
Fourth, our framework also complements re
sea rch on the p roc ess of firm crea tion (e.g., Gart
ne r, 1985; Katz & G ar tn er , 1988; Katz, 1993). Ex
plaining this process is important, but researc
on it involves examining a different set of issue
from those we explore. Firm creation proces
researchers examine resource mobilization, firm
organizing, and market making, starting wit
the assumption that opportunities exist, hav
been discovered, and will be exploited throug
the creation of new firms. Since we lack th
space to review both the processes of entrepre
n e u r s h i p t h r o u g h m a r k e t m e c h a n i s m s a n
through firm creation, we limit our discussion t
the conditions under which entrepreneurial op
portunities are exploited through firms and mar
kets, and we refer readers to these other frame
works for information on the process of firm
creation.
WHY STUDY ENTREPRENEURSHIP?
Many scholars ask, either implicitly or explic
itly, why anyone should study entrepreneurship
Data are difficult to obtain, theory is underde
veloped, and many f indings to date are th
same as those obtained in other areas of bus
ness. In response, we offer three reasons fo
studying the topic. First, much technical info
mation is ultimately embodied in products an
services (Arrow,
1962),
and e ntreprene urship is
mechanism by which society converts technic
information into these products and service
S e c on d , e n t r e p r e n e u r s h i p i s a m e c h a n i s m
through which temporal and spatial inefficien
cies in an economy are discovered and mit
g at ed (Kirzner, 1997). Fi na lly , of the differen
sources of ch an ge in a capitalis t society, Schum
peter (1934) isolated entrepreneurially driven i
novation in products and processes as the cru
c i a l e n g i n e d r i v i n g t h e c h a n g e p r o c e s
Therefore, the abse nce of entrepr ene ursh ip fro
our collective theories of markets, firms, organ
zations, and change makes our understandin
of the business landscape incomplete . As Bau
mol eloquently remarks, the study of busine
without an understanding of entrepreneursh
is like the study of Sh ak esp ear e in which th
Prince of Denmark has been expunged from th
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THE EXISTENCE DISCOV ERY AND
EXPLOITATION OF ENTREPRENEURIAL
OPPORTUNITIES
The Existence of Entrepreneuria l Opportunit ies
To ha ve entre pren eurs hip, you must first hav e
entrepreneurial opportunit ies. Entrepreneurial
opportunities are those situations in which new
goods, services, raw materials, and organizing
methods can be introduced and sold at greater
th an thei r cost of produ ction (C ass on, 1982). Al-
though recognition of entrepreneurial opportu-
nities is a subjective process, the opportunities
themselves are object ive phenomena that are
not known to all parties at all times. For exam-
ple, the discovery of the telephone created new
opportu nities for comm unication, w hethe r or not
people discovered those opportunit ies.
Entrepreneurial opportunities differ from the
larger set of all opportunities for profit, particu-
larly opportunities to enhance the efficiency of
exisfing goods, services, raw materials, and or-
ganizing methods, because the former require
the discovery of new me ans-e nds relat ionships,
whereas the latter involve optimization within
existing means-ends frameworks (Kirzner, 1997).
Because the range of options and the conse-
quences of exploiting new things are unknown,
e n t r e p r e n e u r i a l d e c i s i o n s c a n n o t b e m a d e
through an optimization process in which me-
chanical calculat ions are made in response to a
given set of alternatives (Baumol, 1993).
Entrepreneurial opportunities come in a vari-
ety of forms. Although the focus in most prior
research has been on opportunities in product
markets (Venkataraman, 1997) , opportunit ies
also exist in factor markets, as in the case of the
discovery of new materials (Schumpeter, 1934).
Moreover, within product market entrepreneur-
ship,
Drucker (1985) has described three 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 asym-
metry, as occurs across time and geography;
an d (3) the reac tion to shifts in the rel ativ e c osts
an d benefits of altern ative us es for resources, a s
occurs wi th po l i t ica l , regu la to ry , o r demo-
graphic changes .
Previous researchers have argued that entre-
preneur ia l oppor tun i t ies ex is t p r imar i ly be-
cause different members of society have differ-
given the potential to transform them into a dif
ferent s ta te (Kirzner, 1997). B eca us e pe op le po s
sess different beliefs (because of a lucky hunch
superior intuition, or private information), the
make different conjectures about the price a
which markets should clear or about what pos
sible new m arkets could be create d in the future
When buyers and s ellers hav e different belief
about the value of resources, both today and i
the future, goods and services can sell above o
below their marginal cost of production (Schum
peter,
1934).
An entrepreneurial discovery occu
when someone makes the conjecture that a se
of reso urce s is not put to its best use (i.e., th
reso urce s are price d too low, given a belie
about the price at which the output from thei
combination could be sold in another location
at another time, or in another form). If the con
jecture is acted upon and is correct, the individ
ual will earn an entrepreneurial profit. If th
conjecture is acted upon and is incorrect, th
individual will incur an entrepreneurial los
(Casson, 1982).
Eritrepreneurship requires that people hol
different beliefs about the value of resources fo
two reasons. First , entrepreneurship involve
joint production, where several different re
sources ha ve to be brought togethe r to crea te th
new product or service. For the entrepreneur t
obtain control over thes e resourc es in a way th a
makes the opportunity profitable, his or her con
jecture about the accuracy of resource price
must differ from those of resource owners an
other po tent ial e ntr ep ren eu rs (Cass on, 1982).
resource owners had the same conjectures a
the entrepreneur, they would seek to appropr
at e the profit from th e opportunity by pricing th
resources so that the entrepreneur 's profit ap
proach ed zero. Therefore, for e ntrep rene ursh i
to occur, the resource owners must not shar
completely the entrepreneur 's conjectures. Se
ond, if all people (potential entrepreneurs) po
sessed the same entrepreneurial conjecture
they would compete to capture the same entr
preneurial profit, dividing it to the point that th
incentive to pursue the opportunity was elim
nated (Schumpeter, 1934).
But why should people possess different b
liefs about the prices at which markets shou
clear? Two answers have been offered. First,
Kirzner (1973) has observed, the process of di
covery in a market setting requires the partic
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22
wide variety of things. People make decisions
on the basis of hunches, intuition, heuristics,
and accurate and inaccurate information, caus-
ing their decisions to be incorrect some of the
t ime.
Since decision s are not alw ay s correct, this
proc ess lea ds to errors that crea te shorta ges,
surpluses, and misallocated resources. An indi-
vidu al alert to the pres enc e of an error may
buy resou rces wh ere prices are too low, recom-
bine them, and sell the outputs where prices are
too high.
Second, as Schumpeter (1934) explained, econ-
omies operate in a constant state of disequilib-
rium. Technological, po litical, social, regulatory,
and other types of change offer a continuous
supply of new information about different ways
to use re source s to en ha nc e wea lth. By making it
possible to transform resources into a more
valuable form, the new information alters the
value of resources and, therefore, the resources'
proper equ ilibrium price. Becau se information is
imperfectly distributed, all economic actors do
not receive new information at the same time.
Consequently, some people obtain information
before others about resources lying fallow, new
discoveries being made, or new markets open-
ing up. If economic actors obtain new informa-
tion before others, they can purchase resources
at below their equilibrium value and earn an
entrepreneurial profit by recombining the re-
sources and then sell ing them (Schumpeter ,
1934).
The informational sources of opportunity m ay
be easier to see in the case of new technology,
but they need not be restricted to technological
developments. For example, the production of
the movie itanic generated new information
about who was a desirable teen idol. An entre-
preneur could respond to this new information
by acting on the conjecture that posters of Leo-
nard o DeCap rio would sell for grea ter than their
cost of production.
Because entrepreneur ia l oppor tuni t ies de-
pen d on asym m etries of information a nd beliefs,
eventual ly , en trepreneur ia l oppor tuni t ies be-
come cost inefficient to pursue. First, the oppor-
tunity to ea rn e ntrep rene urial profit will provide
an incentive to man y econom ic actors. As oppor-
tunities are exploited, information diffuses to
other members of society who can imitate the
innovator and appropriate some of the innova-
the opportunity and increase overall demand
compet i t ion even tua l ly beg ins to domina t
(Hann an & Fre em an, 1984). W hen the entry o
add i t iona l en t r ep reneurs r eaches a r a te a
which the benefits from new entrants exceed
the costs, the incentive for people to pursue th
opportunity is reduced, because the entrepre
neurial profit becomes divided among more an
more actors (Schumpeter, 1934).
Second, the exploitation of opportunity pro
vides information to resource providers abou
the value of the resources that they possess an
leads them to raise resource prices over time, i
order to capture some of the entrepreneur
profit for them se lv es (Kirzner, 1997). In short, t h
diffusion of information and learning about th
accuracy of decisions over time, combined wit
the lure of profit, will reduce the incentive fo
people to pursue any given opportunity.
The duration of any given opportunity de
pends on a variety of factors. The provision o
monopoly rights, as occurs with patent prote
tion or an exclusive contract, increases the du
ration. Similarly, the slowness of informatio
diffusion or the lags in the timeliness wit
which others recognize information also in
crea se the duration, particu larly if time provide
reinforcing advantages, such as occur with th
adopt ion of technical s tandards or learnin
curve s. Finally, the inability of oth ers (due
various isolating mechanisms) to imitate, su
stitute, trade for or acquire the rare resourc
required to drive down the surp lus (Venkatar
man, 1997: 133) increases the duration.
The iscovery of Entrepreneurial Opportun iti
Although an opportunity for entrepreneuri
profit might exist, an individual can earn th
profit only if he or she reco gnize s that the oppo
tunity exists and has value. Given that an asym
metry of beliefs is a precondition for the exi
tence o f en t r ep reneur ia l oppor tun i t i e s , a
opportunities must not be obvious to everyo
all of the time (Hayek, 1945). At any point in tim
only some su bset of the population will discov
a given opportunity (Kirzner, 1973).
Why do some people and not others discov
par t icular entrepreneur ia l oppor tuni t ies? A
though the null hypothesis is blind luck, r
search has suggested two broad categories
factors that influence the probab ility that pa rt
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t ies : (1) the p os se ssi on of the prior information
ne ce ss ary to identify a n oppo rtunity an d (2) the
cogni t ive propert ies necessary to value i t .
Information corridors. Human beings all pos-
sess different stocks of information, and these
stocks of information influence their ability to rec-
ognize particular opportunities. Stocks of informa-
tion create mental schemas, which provide a
framework for recognizing new information. To
recognize an opportunity, an entrepreneur has to
hav e prior information that is complem entary with
the new information, which triggers an entrepre-
neurial conjecture (Kaish Gilad,
1987).
This prior
information m ight be ab out u ser ne ed s (Von Hip-
pel,
1986) or specific as jjects of the produ ction
function (Bruderl, Preisendorfer, Ziegler, 1992).
The information necessary to recognize any
given opportuni ty is not widely dis t r ibuted
across the population because of the specializa-
tion of info rma tion in soc iety (Hayek, 1945). Peo-
ple special ize in information because special-
ized information is more useful than general
information for most a ctiv ities (Becker & Mur-
phy,
1992).
As a result , no two peop le s har e all of
the same information at the same time. Rather,
information about underutilized resources, new
technology, unsated demand, and poli t ical and
regulatory shifts is distributed according to the
idiosyncratic life circumstances of each person
in the population (Venkataraman, 1997).
The development of the Internet provides a
useful example. Only a subset of the population
has had entrepreneurial conjectures in response
to the development of this technology. Some
people sti ll do not know what the Internet is or
that profitable opportunities exist to exploit it.
Cognitive properties. Since the discovery of
entrepreneurial opportunities is not an optimi-
zat ion process by which people make mechani-
cal calculations in response to a given a set of
alternatives imposed upon them (Baumol, 1993),
people must be able to identi fy ne w me ans-e nds
relat ionships that are generated by a given
change in order to discover entrepreneurial op-
portunities. Even if a person possesses the prior
information necessary to discover an opportu-
nity, he or she may fail to do so because of an
inabi l i ty to see new means-ends relat ionships.
Unfortunately, visualizing these relationships is
difficult. Rosenberg (1994) points out that history
is rife with examples in which inventors failed
to see commercial opportuni t ies (new means-
tion of important technologies—from the tel
graph to the laser.
Prior research has shown that people differ i
their ability to identify such relationships. Fo
example, research in the field of cognitive sc
ence has shown that people vary in their abil
t ies to combine existing concepts and inform
tion into new ide as (see Ward, Smith, & Vai
1997,
for sev era l revie w a rticles). Recently, a fe
researchers have begun to evaluate empir ical
the role that cognitive properties play in th
discovery of entrepreneurial opportunities (se
Busenitz & Barney, 1996; Kaish & Gilad, 199
Shav er & Scott, 1991). For exam ple , Sa ras va th
Simon, an d Lave (1998) ha ve s how n tha t s ucc es
ful entrepreneurs see opportunities in situation
in which other people tend to see risks, where
Baron (in press) has found that entrepreneu
may be more likely than other persons to di
cover opportunities because they are less like
to engage in counterfactual thinking (i .e. , le
likely to invest time and effort imaging wh
might hav e been in a given situation), le
likely to exp erien ce regret over mis sed opport
nit ies,
and are less susceptible to inaction ine
tia.
The Decision to Exploit Entre prene urial
Opportuni t ies
Although the discovery of an opportunity is
necessary condition for entrepreneurship, i t
not sufficient. Subsequent to the discovery of a
opportunity, a potential entrepreneur must d
cide to exploit the opportunity. We do not hav
precise figures on the aborting of discovere
opportunities, but we do know that not all di
covered opportunities are brought to fruitio
Why, whe n, and how . do some pe ople a nd n
others exploit the opportunities that they di
cover? The answer again appears to be a fun
tion of the joint ch ara cte ristic s of the o pportun i
and the nature of the individual (Venkatarama
1997).
Nature of the opportunity. The characteristi
of opportunities themselves influence the wil
ingn ess of people to exploit them . Entreprene u
ial opportunities vary on several dimension
which influences their expected value. For e
ample, a cure for lung cancer has greater e
pected value than does a solution to student
need for snacks at a local high school. The e
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Shane and Venicafaraman
d v alu e of the entr epre neu rial profit will be
lack of liquidity of the in vestm ent of
n ce rta in ty (Kirzner, 1973; Sch um pete r, 1934).
To date, research ha s shown that , on avera ge,
en t rep reneurs exp lo i t oppor tun i t i e s hav ing
higher expected value. In particular, exploita-
tion is more common when expected demand is
large (Schmookler, 1966; Schumpeter, 1934), in-
dustry profit margins are high (Dunne, Roberts,
Sam uel son , 1988), the technology life cycle is
young (Utterback, 1994), the density of competi-
tion in a particular opportunity space is neither
too low nor too hig h (Ha nna n Fre em an, 1984),
th e cost of cap ita l is low (Sha ne, 1996), a nd pop -
ulation-level learning from other entrants is
av ai la bl e (Aldrich W ieden me yer, 1993).
Indiv idual differences. Not all potential entre-
preneurs will exploit opportunit ies with the
same expected value. 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
w a y s .
Thus, people consider the opportunity
cost of pursuing alternative activities in making
the decision whether or not to exploit opportuni-
ties and pursue opportunities when their oppor-
tunity cost is lower (Amit, Mueller, 8f Cockburn,
1995; Reynolds, 1987). In addition, people con-
sider their costs for obtain ing the resources nec-
essary to exploit the opportunity. For example,
Evans and Leighton (1991) showed that the ex-
ploitation of opportunit ies is more common
when people have greater f inancia l capi ta l .
Similarly, Aldrich and Zimmer (1986) reviewed
research findings that showed that stronger so-
cial ties to resource providers facilitate the ac-
quisition of resources and enhance the proba-
bility of opportunity exploitation. Furthermore,
Cooper, Woo, and Dunkelberg (1989) found that
people are more likely to exploit opportunities if
they have developed useful information for en-
trepreneurship from their previous employment,
presumably because such information reduces
the cost of opportunity exploitation. Finally, the
transferability of information from the prior ex-
perience to the opportunity (Cooper et al., 1989),
as wel l as pr ior entrepreneur ia l exper ience
probability of exploitation of entrepreneurial
opportunity because learning reduces its cost.
The decision to exploit an entrepreneurial op-
portunity is also influenced by individual differ-
ences in perceptions. The creation of new prod-
uc t s and marke t s invo lves downs ide r i sk
because time, effort, and money must be in-
vested before the distribution of the returns is
know n (Knight, 1921; V en ka ta ram an , 1997). Sev
eral researchers have argued that individua
differences in the willingness to bear this risk
influence the decision to exploit entre pren euria
opportunities (Khilstrom Laffont, 1979; Knigh
1921). For exam ple, people who exploit opportu
nities tend to frame information more positively
and then respond to these positive perceptions
(Palich Bagby, 1995).
The decision to exploit entre pren euria l oppor
tunities is also influenced by individual differ
ences in optimism. People who exploit opportu
n i t i e s typ ica l ly pe rce ive the i r chances o f
success as much higher than they really are—
and much higher than those of others in thei
indu stry (Cooper, Woo, Du nke lber g, 1988)
Moreover, when these people create new firms
they often enter industries in which scale econ
omies play an important role at less than mini
mum efficient sc al e (Audre tsch, 1991), an d they
enter industries at rates exceeding the equilib
rium nu m be r of firms (Gort Kleppe r, 1982).̂
However, in most industries, at most points i
time,
most new firms fail (Dunne et al.,
1988),
an
few firms ever displace incumbents (Audretsch
1991),
sug gestin g that p eople who exploit oppo
tunities, on avera ge, are overly optimistic abou
the valu e of the opportun ities they discover. Thi
overoptimism motivates the exploitation of op
portunity by limiting information, stimulatin
rosy forecasts of the future (Kahneman
Lovallo, 1994), trig ge rin g th e se ar ch for rela
tively small amounts of information (Kaish
Gilad , 1991), an d l ea din g pe op le to act first an
analyze later (Busenitz Barney, 1997).
Other individual differences may be impo
tant in explaining the willingness to exploit op
portunit ies . Researchers have argued that peo
ple with greater self-efficacy and more intern
locus of control are more likely to exploit oppo
tunities, because exploitation requires people
*
The information signals generated by the entrepren
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Academy o anagement fleview Janua
act in the face of skepticism of others (Chen,
G re e ne ,
Crick, 1998). Sim ilarly, opp ortun ity ex -
ploi ta t ion involves ambiguity, and people who
have a greater tolerance for ambiguity may be
more likely to exploit opportunities (Begley
Boyd, 1987). Finally , the e xp loitatio n of o ppo rtu-
nity is a setting in which people can achieve,
providing a valuable cue for those who possess
a high need for achievement (McClelland, 1961).
Consequently, those who are high in need for
achievement may be more l ikely than other
members of society to exploit opportunities.
Readers should note that the a t t r ibutes that
increase the probability of opportunity exploita-
t ion do not necessari ly increase the probabil i ty
of success. For example, overoptimism might be
associated with a higher probability of both ex-
ploitation and failure. Of the population of indi-
viduals who discover opportuni t ies in a given
industry, those who are pessimist ic may choose
not to exploit discovered opportun i t ies b eca use
they more accurate ly est imate what i t wil l take
to compete and how many other people will try
to do similar things. Overoptimist ic individu als
do not stop themselves from exploiting these
opportuni t ies , because their overoptimism l im-
its information and motivates rosy forecasts of
the future.
shown that entrepreneurship is less l ikely t
take the form of de novo startups when capita
market imperfections make it difficult for inde
pendent ent repreneurs to, secu re finan cing (C
he n Levin, 1989). En trep ren eu rsh ip is mo r
likely when the pursuit of entrepreneurial op
portunity requires the effort of individuals wh
lack incentives to do so in large organizations
when scale economies, f i rs t mover advantages
and learning curves do not provide advantage
to ex istin g firms (Co hen Levin, 1989); an
when industries have low barriers to entry (Ac
Au dretsch , 1987). Re sear ch on the appr op
ability of information has shown that entrepre
neurship is more likely to take the form of d
novo startups when information cannot be pro
tected well by intellectual property laws, inhib
iting the sale of entrepreneurial opportunitie
(Cohen Levin, 1989). Fina lly, re se arc h on th
nature of opportuni t ies has show n that entrepre
neurship is more likely to take the form of d
novo startups when opportuni t ies are more un
certa in (Cas son, 1982), wh en op po rtun ities d
not require complementary assets (Teece, 1986
and when opportuni t ies des t roy competenc
(Tush man An derso n, 1986).
MO DES OF EXPLOIT TION
Another critical question concerns how the ex-
ploitation of entrepreneurial opportunities is or-
gan ized in the econom y. Two major institution al
a r ra nge me nt s fo r t he e xp lo i t a t i on o f t he se
opportunities exist—the creation of new firms
(hierarchies) and the sale of opportunities to ex-
is t ing fi rms (markets)—but the common as-
sumption is that most entrepreneuria l act ivi ty
occurs through de novo startups. However, peo-
ple within organizat ions who discover opportu-
ni t ies sometimes pursue those opportuni t ies on
behalf of their existing organizations and some-
t ime s e s t a b l i sh ne w orga n iz a t ions , w he re a s
independent actors sometimes sel l their oppor-
tuni t ies to exis t ing organiza t ions and some-
t imes establ ish new organizat ions to pursue the
opportuni t ies .
Research shows that the choice of mode de-
pends on the nature of the industria l organiza-
tion, the opportunity, and the appropriability re-
CONCLUSION
Entrepreneurship is an important and re le
vant field of study. Although those in the fiel
face many difficul t quest ions, we have pre
sented a framework for exploring them. We rec
ognize that we may hav e offered som e un certa i
assumptions, potent ia l ly f lawed logical argu
men ts, or hav e m ade s ta tem ents that wil l prov
ultimately, to be incon sistent with da ta yet to b
col lected. Nevertheless, this framework pro
vides a starting point. Since it incorporates in
formation gained from many disciplinary van
t a g e p o i n t s a n d e x p l o r e d t h r o u g h m a n
different methodologies, we hope that i t wi
prod scholars from many different fields to joi
us in the quest to create a systematic body o
i n f o r m a t i o n a b o u t e n t r e p r e n e u r s h i p . M a n
skep tics claim th at the crea tion of such a body o
theory and the subsequent assembly of empir
cal support for it are impossible. We hope tha
other scholars will join our effort to prove thos
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Shane and VenJcataraman
22 5
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Scott Shane is associate professor of entrepreneurship in the Robert H. Smith School
of Business and director of research at the Dingman Center for Entrepreneurship at
the University of Marylan d. He received his
Ph.D.
from the University of P enns ylvan ia.
His current research focuses on entrepreneurship in high-technology settings.
S. Venkataraman is the Sa mu el L. Slover Assoc iate Professor of Busine ss A dministra-
tion an d director of researc h at the Batten Center for Entrep reneuria l Lea dersh ip in the
Darden Graduate School of Business Administration at the University of Virginia. He
received his Ph.D. from the University of Minnesota. His current research focuses on
entrepreneurship theory.
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