Handbook of Entrepreneurship Research

The role of entrepreneurship in society has changed dynamically. Immediately following World War II, entrepreneurship seemingly lost importance fading nearly completely away. In 1968, when J.J. Servan-Schreiber warned Europeans of the American Challenge, it was not from small entrepreneurial firms, but the polar opposite—from the “dynamism, organizational, innovation, and boldness that characterized the giant American corporations.” By then a generation of scholars had systematically documented and supported the conclusion of Joseph A. Schumpeter (1942, 106): “What we have got to accept is that the large-scale establishment or unit of control has come to be the most powerful engine of progress and in particular of the long-run expansion of output ….”

The field of entrepreneurship has struggled since the 1970 s to define itself as a field and gain legitimacy as a valid academic area of research (Cooper, 2003). Much of the work in entrepreneurship was either theoretical or used the phenomena as a context in which to observe other theories (Alvarez & Barney, 2008). This led to a “land grab” mentality—almost a rapaciousness—regarding entrepreneurship research among many of the established disciplines—economics, sociology, organization behavior, strategy, organization theory—looking for something new to study.

This chapter extends and elaborates the individual-opportunity nexus framework on entrepreneurship. First, the chapter discusses in detail the existence of entrepreneurial opportunities, and the processes of opportunity discovery and exploitation. Second, the chapter describes several typologies of opportunities. Third, the chapter discusses the importance of the locus of opportunity discovery and exploitation.

For almost 50 years now, following the trail of issues raised by economists such as Hayek, Schumpeter, Kirzner, and Arrow, researchers have studied the economics of technological change and the problem of allocation of resources for invention (invention being the production of information). The bulk of this literature simply assumes that new technical information will either be traded as a commodity or become embodied in products and services (hereafter called “economic goods”), without addressing any specific mechanisms or processes for the transformation of new information into new economic goods or new economic entities (such as new firms and new markets). It is inside this gap that we begin our quest for the concept of an “entrepreneurial opportunity.”

In today’s hyper-competitive global economy corporate entrepreneurship (CE) has increasingly been recognized as a legitimate path to high levels of organizational performance (Garvin, 2004; Garvin & Levesque, 2006; Morris et al., 2008). Researchers have continually cited corporate entrepreneurship’s important potential as a growth strategy (Antoncic & Hisrich, 2001; Kuratko, 1993; Kuratko et al., 1993; Merrifield, 1993; Pinchott, 1985; Stopford & Baden-Fuller, 1994; Zahra, 1991; Zahra & Covin, 1995; Zahra et al., 1999). The understanding of corporate entrepreneurship as a valid and effective area of research has real and tangible benefits for emerging scholars, as their work will have significant impact on an important strategy. As an example, Dess, Lumpkin, and McGee (1999) noted that, “Virtually all organizations—new start-ups, major corporations, and alliances among global partners—are striving to exploit product-market opportunities through innovative and proactive behavior”—the type of behavior that is called for by corporate entrepreneurship. Barringer and Bluedorn (1999) suggested that in light of the dynamism and complexity of today’s environments, “… entrepreneurial attitudes and behaviors are necessary for firms of all sizes to prosper and flourish.” Developing organizational environments that cultivate employees’ interest in and commitment to innovation contribute to successful competition in today’s global economy. Ireland, Kuratko, and Morris (2006a, 2006b) pointed out that to simultaneously develop and nurture today’s and tomorrow’s competitive advantages, advantages that are grounded in innovation, firms increasingly rely on “corporate entrepreneurship.”

In recent years, economists have come to recognize the crucial role of entrepreneurs in innovation and growth and the significant contribution of innovation and growth to prosperity and economic welfare (Acs & Armington, 2006; Audretsch, 2006; Schramm, 2006). Innovation and growth—much more than state-guided efforts to ameliorate static “market failures” such as monopoly power—allow economies to lift individuals out of poverty and to provide for growing and aging populations. According to Leibenstein (1978, 50)

Equity financing for entrepreneurial firms has attracted increasing attention in both the popular press and academic literature. The dramatic growth in the venture capital industry in past two decades has been accompanied by new academic research that explores its form and function. Angel financing, while less well-understood, is also attracting attention. At the same time, many of the questions that are most critical to policy-makers remain unanswered. Thus, this chapter has a twofold role: to summarize and synthesize what we do know about equity finance from recent research, and to indicate the important questions that we cannot yet answer.

In 2006, Israel Kirzner received the International Award for Entrepreneurship and Small Business Research prize.¹ The award cemented Kirzner’s status as a leading figure in the study of entrepreneurship. It also brought at the forefront of the literature, the important contributions that the Austrian view of markets has provided and continues to provide to the field. Indeed, the last 5 years have seen a significant amount of work in entrepreneurship as well as the emergence of a new generation of scholars whose works are rooted in the Austrian tradition. While some have continued developing Kirzner’s encompassing view of the entrepreneur and entrepreneurship (for example, see works by Koppl and Minniti), others have branched out in areas such as the theory of the firm (among others see works by Klein and Foss), institutions (see Boettke and Coyne), and economic growth (see Sautet and Leeson). The purpose of this chapter is to review the most important contributions to entrepreneurship emerging from the Austrian approach and position them properly within the context of Austrian social science.

This chapter is concerned with the relationship between the entrepreneur and the firm. It is written from the perspective of the modern economic theory of the entrepreneur, which is explained in the first part of the chapter. This perspective is rather different from that which dominates the small business literature, as reflected in some of the other chapters in this handbook.

Just as the economy has been besieged by a wave of technological change that has left virtually no sector of the economy untouched, scientific understanding of the innovative process—that is, the manner by which firms innovate, and the impact such technological change has on enterprises and markets—has also undergone a revolution, which, although somewhat quieter, has been no less fundamental. Well into the 1970s, a conventional wisdom about the nature of technological change generally pervaded. This conventional wisdom had been shaped largely by scholars such as Alfred Chandler (1977), Joseph Schumpeter (1942), and John Kenneth Galbraith (1956) who convinced a generation of scholars and policymakers that innovation and technological change lay in the domain of large corporations and that small business would fade away as the victim of its own inefficiencies.

Imagine that you have a brilliant idea for a new business. In fact, your experience and expertise lead you to believe that this is a sure-fire winner. You approach the bank with your idea and they only laugh. You also discover that venture capitalists require a very high interest rate (or equity stake) in order to fund your venture. What’s going on here? One explanation is that, because you are an entrepreneur, you are more willing than investors to undertake risk, that is, you are less risk averse. This is a long-standing argument in the literature on what makes an entrepreneur (Brockhaus 1980). An alternative explanation is that entrepreneurs seeking funding think they are selling US treasury bills while investors think they are being offered pre-Castro government bonds.

Social psychology has traditionally divided its study of meaningful social behavior into the intrapersonal processes that affect action and the interpersonal processes that describe relationships between two and more individuals. This chapter describes some of the intrapersonal factors – social cognitive processes, attributions, attitudes, and elements of the self-concept – that are implicated in entrepreneurial behavior.

Organizations are social structures – patterned and relatively stable arrangements of roles and statuses – that constitute the building blocks of modern capitalist societies. Efforts to understand their emergence typically focus on the role of entrepreneurs and concentrate on the firm level. Such firm-level analyses make sense in already existing populations and communities, because most new firms follow the paths of their predecessors and survive by filling an existing niche. However, in the case of new ventures that are the first of their kind, the formation of a firm cannot be the final step. Entrepreneurs creating organizations that depart from the established order must not only create a coherent and self-sustaining entity, but must also organize with other entrepreneurs to build a new, more favorable context.

In the opening pages of the New York Times bestseller, The World is Flat, Thomas Friedman (2005, 12–15) recounts the story of Rao, a Mumbai native who founded an India-based accounting firm which performs accounting work for American firms. Rao and the millions of other “international entrepreneurs” around the world who do business across national borders have captured the interest of business and government leaders, as well as scholars across a broad range of disciplines, including international business, management, economics, geography, sociology, and entrepreneurship.

Between 1945 and 1980 nearly 100 colonies in Africa, Asia, and the Caribbean gained their independence and began the process of initiating a development strategy for their citizens. Sadly, many of those countries experienced neither significant per capita growth nor economic development (Easterly, 2001, 141–43). Indeed, moderate and extreme poverty remains a significant concern for many developing countries (Sachs, 2005, 22–23)

From the earliest records of ancient civilizations to present-day accounts of the knowledge-economy, the geographic concentration of people and their activity has been and always will be a constant feature of human existence. In broad historical terms, the concentration of people in villages, towns, and cities has served many cultural, security, and commercial ends (Kotkin, 2005). Dense pockets of people enable a shared culture, ease enforcement of the rule of law, facilitate a common defense, allow efficient economic exchange, and free people to acquire specialized skills and knowledge. In the modern era, the defensive walls of ancient cities have given way to the provision of public goods and the operation of local markets open to all to buy and sell consumer and commercial necessities.

The present chapter deals with the consequences of entrepreneurship for macro-economic growth. It consists of eight sections: (1) Introduction; (2) The influence of economic development on entrepreneurship; (3) Types of entrepreneurship and their relation to economic growth; (4) The effects of the choice between entrepreneurship and employment; (5) Entrepreneurship in endogenous growth models; (6) Strands of empirical evidence; (7) The time lag structure; and (8) Conclusion.

Public policy is currently shifting from SME policy toward entrepreneurship policy, which supports entrepreneurship without directing attention to quantitative goals and specific firms or employment groups. The institutional framework set by public policy affects the prevalence and performance of both productive entrepreneurship and so-called high-impact entrepreneurship in turn. Although varying contexts and economic systems make prescribing a general panacea impossible, a number of relevant policy areas are identified and analyzed. Independent of environment, productive entrepreneurship should be rewarded and unproductive entrepreneurship should be discouraged. Successful ventures must also have the incentive to continue renewing themselves just as it must be easy to start and expand a business. In particular, we analyze regulatory entry and growth barriers, labor market regulation, liquidity constraints, and tax policy at length.

In the beginning was the corporation. Or so it seems, as it is pointed out in the first chapter of this handbook. However, the “modern industrial corporation” is a relatively recent invention in historical terms. Chandler (1990) dates its emergence to the last-half of the nineteenth century, when advances in transportation and communications both enabled and demanded the formation of large corporations managed by professionals. Such corporations came to represent the engines of national economic growth and of individual wealth creation in countries whose very membership in the group of industrialized nations speaks to the success of this organizational form (Acs, Introduction, this volume; Baumol, 2002).