Unpacking the uncertainty construct: Implications for entrepreneurial action

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Abstract

Uncertainty is central to entrepreneurship; however robust and generalizable findings that explain the conditions in which uncertainty may impede [or promote] entrepreneurial action remain elusive. We operationalize uncertainty as a multi-dimensional construct composed of state, effect, and response types of uncertainty (Milliken, 1987) to investigate the relationship between uncertainty and entrepreneurial action. We decompose more than 2800 exploitation decision policies nested within a sample of new product decision-makers working in entrepreneurial software firms. We focus on the primary decision-maker's willingness to exploit a given opportunity in the face of varying combinations and manifestations of uncertainty and find that the type of uncertainty experienced influences the willingness to engage in entrepreneurial action differently. Further, we find that differences in how each type of uncertainty is manifested in the environment, the scale of exploitation (i.e. large vs. small), and the entrepreneur's expertise serve to moderate the relationship between uncertainty and action in counter-intuitive ways. We discuss the implications for both theory and practice.

Section snippets

Executive summary

Entrepreneurship is a process that involves some degree of uncertainty, and thus the ability of entrepreneurs to interpret and respond to uncertainty is often what determines the degree of success or failure achieved by the venture. In fact, the notion that entrepreneurs make decisions and subsequently act in the face of inherently uncertain, even unknowable, futures is one of the most closely held assumptions in entrepreneurship (e.g., Knight, 1921, Shane and Eckhardt, 2003, Sarasvathy et al.,

Overview and boundary conditions

Uncertainty is fundamental to entrepreneurship (Knight, 1921, McMullen and Shepherd, 2006). While researchers widely acknowledge the important role uncertainty plays in entrepreneurship, the notion of exactly how scholars conceptualize uncertainty is unsettled in the literature. Some suggest that uncertainty refers to the “inability to assign probabilities as to the likelihood of future events”(Duncan, 1972, Pennings, 1981, Pfeffer and Salancik, 1978), while others define uncertainty to be “a

Sample

The sample for this study consisted of primary new product development decision makers working in the Swedish software industry. We chose this industry because it is notorious for fast-changing technology, a blurred competitive market, and shifting customer demands (Carmel, 1995, Zahra and Bogner, 2000). Therefore, we feel that this industry is theoretically relevant for studying decision-making under uncertainty. The Swedish software industry is flourishing and is comprised of many small

Individual level results

Individual level models explained a significant proportion of variance (p < 0.05) with a mean adjusted R2 of 0.84. These results are consistent with those found in similar conjoint designs (Choi and Shepherd, 2004, Haynie et al., 2009, Shepherd et al., 2000). These findings indicate that the independent variables' attributes provided in the experimental design were the primary drivers of the “willingness to act” decisions captured in the dependent variable and lead us to believe with a high level

Discussion and conclusion

The notion of uncertainty resides at the core of entrepreneurship from the domain's founding theories (Kirzner, 1973, Knight, 1921, Coase, 1937, Schumpeter, 1934) to the contemporary frameworks purported to inform entrepreneurial behaviors and outcomes, such as entrepreneurial intentions (Bird, 1988), effectuation (Sarasvathy, 2001), real-options reasoning (McGrath, 1999), and the RBV (Barney, 1991). We suggest that the theoretical importance of uncertainty to entrepreneurship, when considered

Acknowledgments

The authors would like to thank Dean Shepherd, Per Davidsson, Charles Murnieks, and the two anonymous reviewers for developmental comments on earlier versions of this paper. We gratefully acknowledge the financial support of the Entrepreneurship Research Lab at Jönköping International Business School.

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