The Collective Nature of Entrepreneurship Brayden King Northwestern University Law and Entrepreneurship Retreat

Arizona’s charter schools – An experiment in entrepreneurship

Arizona’s charter schools – An experiment in entrepreneurship Arizona legislation (1994) sought to enhance autonomy of schools and encourage innovation & novelty Freedom and encouragement to deviate from norm “Do things differently!”

Proportion of charter school students in state population (2008) Source: http://uscharterschools.org

Self-reports revealed a surprising amount of heterogeneity Examples: NFL YET Academy – sports training and leadership skills Flagstaff Arts and Leadership – fine arts teaching in all subjects Center for Academic Success – culturally diverse training and emphasis on at-risk students ACE (Alternative Computerized Education) – job training, technical skills for potential dropouts

What explains charter school novelty? Most school districts exhibited mid- to high levels of homogeneity of charter school attributes However, school districts that previously had magnet schools exhibited much higher levels of novelty Magnet schools legitimated educational innovation and experimentation – entrepreneurs collectively learned how to build novel organizations

Key takeaway Successful entrepreneurship is fundamentally a collective project. A need to move our vision up a level analysis from the individual entrepreneur to the entrepreneurial group / community

Entrepreneurs - sources of economic creativity and vitality Novelty: new ideas, new products, and new organizational forms Wealth and job creation Entrepreneurship – “the discovery and exploitation of profitable opportunities” by newly founded organizations

Two perspectives on entrepreneurship The entrepreneurial actor – focus on individual attributes and incentives designed to encourage entrepreneurship Who is an entrepreneur? The collective process of entrepreneurship – focus on the interdependence of various actors in producing novel ideas How do groups collectively generate novel ideas?

Collective generation of novel ideas Collective creativity Knowledge spillover Collective action and legitimation of new industries Entrepreneurial identities & mental models

Collective creativity Entrepreneurial ventures are rarely the product of a single individual (Ruef 2010) Creative process is the outcome of group interaction Group v. individual creativity (Sawyer 2006) Familiarity, network and demographic composition, norms, incentives tied to group collaboration, Novel ideas are often generated in “contexts of collective creativity” (Armstrong 2002) Cultures and norms; entrepreneurial identities

Knowledge spillover Knowledge needed to innovate and create new entrepreneurial groups diffuses more freely in some contexts than others Proliferation of venture capitalists and start-up specialists – roles as information intermediaries Spillover amongst peers and former employees Inter-dependence of startups Stuart and Sorenson (2003) found that communities with high IPO rates had subsequent high rates of new firm foundings in the biotech industry Negatively moderated by enforceability of state non-compete covenants

Collective action Entrepreneurs work together, especially when their industry is new, to create legitimacy and demand Industry associations / peer networks Rao’s study on the certification contests and the development of the automobile industry

Entrepreneurial identities / mental models Being an entrepreneur is not just an activity, it is a shared identity Commitment to broader goals, values Entrepreneurs form communities of fellow travelers Mental models – how to do it Sociability and social support Example: Microbrewers

Implications for law and entrepreneurship I don’t know, you tell me How can law incentivize groups / communities to do more collaboration, experimentation with new organizational forms, innovation? What tradeoffs are there between incentivizing individual entrepreneurs vs. group entrepreneurs (e.g., individual property rights vs. free information flow)?