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Summary Articles Essentials of Entrepreneurship
WEEK 1
Discovery and creation: alternative theories of entrepreneurial action
Two internally consistent theories of how entrepreneurial opportunities are formed
(discovery- and creation theory) are described. Are entrepreneurial opportunities discovered
or do entrepreneurs create these opportunities (mountain climbing vs mountain building)?
Both theories described are examples of teleological theory and therefore have much in
common, three assumptions in this theory: nature of opportunities, nature of entrepreneurs
and nature of decision making context.
Both theories recognize that opportunities exist when competitive imperfection exists in a
market or industry, but they differ in their analysis of the origin of these imperfections.
Discovery Theory:
Imperfections occur exogenously due to changes in for example technology or consumer
preferences. Entrepreneurs bring ‘agency to this opportunity’ by exploiting them. The
entrepreneurs who do discover these opportunities are significantly different from others
who do not see these opportunities. The decision making context is risky because it assumes
that opportunities are objective in nature.
Creation Theory:
Opportunities are created, endogenously by the actions, reactions and enactment of
entrepreneurs exploring ways to produce new products or services. Entrepreneurs and non
entrepreneurs are different because of the path they take and not just a case of
entrepreneurship. The decision making context is uncertain because opportunities do not
exist until they are created and can therefore not be risky.
Understanding the implications of these two sets of assumptions for the effectiveness of a
wide variety of entrepreneurial actions is important. 7 actions are discussed.
Discovery Context Creation Context
Leadership Based on expertise and Based on charisma
experience
Decision Making Risk based, importance of Biases and heuristics are
opportunity costs used, affordable loss
important
Human Resource Practices Recruitment: specific Recruitment: recruited from
human capital recruited preexisting social networks
broadly
Strategy Complete unchanging Emergent and changing
Finance External sources Internal (friends etc)
Marketing Changes can manifest Change as a result from new
opportunities opportunities that emerge
Sustaining Competitive Speed, secrecy and erecting Tacit learning in path
Advantages barriers to entry may dependent process may
sustain advantages sustain advantages
, Implications:
It is important to acknowledge both theories and look at their different actions to articulate
a truly general theory of entrepreneurship
Creation theory can cause a link between micro-level processes and macro-level.
It may be necessary to identify different bases for creating firms when entrepreneurs seek to
create firms in a creation context.
The Promise of Entrepreneurship as a Field of Research
Entrepreneurship has not yet a conceptual framework to understand the concept. In this
paper a framework is given to enhance the legitimacy of the entrepreneurship field.
In previous definitions it is mainly about who the entrepreneur is and what he does, we
define it as the scholarly examination of how, by whom, and with what effects opportunities
to create future goods and services are discovered, evaluated and exploited. We focus on
existence, discovery and exploitation of opportunities, look more at individuals than
environmental issues and consider the framework to be broader than firm creation.
Why study entrepreneurship?
1. Entrepreneurship converts technical information into products and services
2. Entrepreneurship discovers inefficiencies.
3. Entrepreneurship causes change (innovation)
Entrepreneurial opportunities come as; new information, exploitation of market
inefficiencies, and the reaction to shifts in the relative costs and benefits of alternative uses
for resources. For entrepreneurship to occur, the resource owners must not share
completely the entrepreneur’s conjectures and expectations of people must be different for
entrepreneurs to make a profit (asymmetry of information and beliefs).
Why do some people see the opportunities? (1) the possession of the prior information
necessary to identify an opportunity and (2) the cognitive properties necessary to value it.
Why do some exploit the opportunity and others not? It lies in the nature of the opportunity
(expected value) and the individual (money, information, optimism, achievement).
How is the exploitation organized in the economy? In a firm or a new novo startup (more
likely low market imperfections, not possible in large organizations, information cannot be
protected, uncertain opportunities)
1
Summary Articles Essentials of Entrepreneurship
WEEK 1
Discovery and creation: alternative theories of entrepreneurial action
Two internally consistent theories of how entrepreneurial opportunities are formed
(discovery- and creation theory) are described. Are entrepreneurial opportunities discovered
or do entrepreneurs create these opportunities (mountain climbing vs mountain building)?
Both theories described are examples of teleological theory and therefore have much in
common, three assumptions in this theory: nature of opportunities, nature of entrepreneurs
and nature of decision making context.
Both theories recognize that opportunities exist when competitive imperfection exists in a
market or industry, but they differ in their analysis of the origin of these imperfections.
Discovery Theory:
Imperfections occur exogenously due to changes in for example technology or consumer
preferences. Entrepreneurs bring ‘agency to this opportunity’ by exploiting them. The
entrepreneurs who do discover these opportunities are significantly different from others
who do not see these opportunities. The decision making context is risky because it assumes
that opportunities are objective in nature.
Creation Theory:
Opportunities are created, endogenously by the actions, reactions and enactment of
entrepreneurs exploring ways to produce new products or services. Entrepreneurs and non
entrepreneurs are different because of the path they take and not just a case of
entrepreneurship. The decision making context is uncertain because opportunities do not
exist until they are created and can therefore not be risky.
Understanding the implications of these two sets of assumptions for the effectiveness of a
wide variety of entrepreneurial actions is important. 7 actions are discussed.
Discovery Context Creation Context
Leadership Based on expertise and Based on charisma
experience
Decision Making Risk based, importance of Biases and heuristics are
opportunity costs used, affordable loss
important
Human Resource Practices Recruitment: specific Recruitment: recruited from
human capital recruited preexisting social networks
broadly
Strategy Complete unchanging Emergent and changing
Finance External sources Internal (friends etc)
Marketing Changes can manifest Change as a result from new
opportunities opportunities that emerge
Sustaining Competitive Speed, secrecy and erecting Tacit learning in path
Advantages barriers to entry may dependent process may
sustain advantages sustain advantages
, Implications:
It is important to acknowledge both theories and look at their different actions to articulate
a truly general theory of entrepreneurship
Creation theory can cause a link between micro-level processes and macro-level.
It may be necessary to identify different bases for creating firms when entrepreneurs seek to
create firms in a creation context.
The Promise of Entrepreneurship as a Field of Research
Entrepreneurship has not yet a conceptual framework to understand the concept. In this
paper a framework is given to enhance the legitimacy of the entrepreneurship field.
In previous definitions it is mainly about who the entrepreneur is and what he does, we
define it as the scholarly examination of how, by whom, and with what effects opportunities
to create future goods and services are discovered, evaluated and exploited. We focus on
existence, discovery and exploitation of opportunities, look more at individuals than
environmental issues and consider the framework to be broader than firm creation.
Why study entrepreneurship?
1. Entrepreneurship converts technical information into products and services
2. Entrepreneurship discovers inefficiencies.
3. Entrepreneurship causes change (innovation)
Entrepreneurial opportunities come as; new information, exploitation of market
inefficiencies, and the reaction to shifts in the relative costs and benefits of alternative uses
for resources. For entrepreneurship to occur, the resource owners must not share
completely the entrepreneur’s conjectures and expectations of people must be different for
entrepreneurs to make a profit (asymmetry of information and beliefs).
Why do some people see the opportunities? (1) the possession of the prior information
necessary to identify an opportunity and (2) the cognitive properties necessary to value it.
Why do some exploit the opportunity and others not? It lies in the nature of the opportunity
(expected value) and the individual (money, information, optimism, achievement).
How is the exploitation organized in the economy? In a firm or a new novo startup (more
likely low market imperfections, not possible in large organizations, information cannot be
protected, uncertain opportunities)
1
