© Phillip PhanIACMR July 2007 Challenges and Opportunities in Entrepreneurship Research Phillip H. Phan Warren H. Bruggeman ’46 and Pauline Urban Bruggeman Professor of Entrepreneurship Rensselaer Polytechnic Institute Troy, New York, USA

© Phillip PhanIACMR July 2007 Approach  The distinctiveness of entrepreneurship theory  Testing the theory Constructs Data Analyses Implications  Conclusions

© Phillip PhanIACMR July 2007 What’s wrong with this picture?  Most new products – even the line extensions – and most new ventures still fail  Most business plans raise no money (and probably should never have been written!)  Only 1 or 2 in 10 companies in most venture capital portfolios achieve returns in excess of the cost of capital

© Phillip PhanIACMR July 2007 A problem?

© Phillip PhanIACMR July 2007 Why so poorly understood?  Most research has focused on process and not outcomes Outcomes are not easily examined through cross- sectional research Post-hoc biases  The confounding of implementation effects  Divergent academic perspectives have not been brought together (the “blind man describing the elephant” problem)

© Phillip PhanIACMR July 2007 What is entrepreneurship?  Why, when and how opportunities for the creation of goods and services come into existence  Why, when, and how some people and not others discover and exploit these opportunities  Why, when and how different modes of actions are used to exploit entrepreneural opportunities

© Phillip PhanIACMR July 2007 How are opportunities defined?  Economics: Creative destruction (Schumpeter); Discovery (Austrian School)  Strategy: Industry attractiveness, generic strategies (Porter); cognition (Kahneman); resource-based view (Peteraf)  Finance: Real options (Dixit and Pindyke)  Bottom line: Ideas with economic value

© Phillip PhanIACMR July 2007 What is an entrepreneurial opportunity?  Confluence of: Idea for a new way to create value People to give substance to the idea Context to ground the idea in time and space

© Phillip PhanIACMR July 2007 Research implications  Theory Multidimensional Multilevel Dynamic Multiple dependent variables (not all are economic)  Empirical Left censorship Right censorship Multi-operationalization

© Phillip PhanIACMR July 2007 Where do ideas come from?  Kirzner (entrepreneurial discovery is the gradual and systematic pushing back of the boundaries of sheer ignorance) – ideas are discovered  Schumpeter (creative destruction on the process by which a new economic order replaces an older one through the new application of technology to problems) – ideas are created  Viable ideas are ‘competitively’ determined (market for ideas)  ‘Equilibrium’ does not exist

© Phillip PhanIACMR July 2007 How are ideas discovered?  Hayek (information exist and are simply discovered) – structural imperfections in the marketplace prevent discovery  Cognition (information do not always exist and are created) – cognitive biases prevent us from creating new ideas, ‘alertness’

© Phillip PhanIACMR July 2007 Research implications  Theory Economics of information (network effects, increasing returns, spillovers, appropriability) Theory of knowledge (interactions between individual and group cognition, group and organization, individual and organization) Technology change and diffusion of innovations Sources of industry differences  Empirical Recursive process models require dynamic modeling with updating Panel data (or at least longitudinal data)

© Phillip PhanIACMR July 2007 The entrepreneur (team)?  Why do they choose to (not) exploit the idea? Individual differences (Kahneman, Baron) Human experience (demographics) (Laffont, Caroll)

© Phillip PhanIACMR July 2007 The context?  Where do they choose to (not) exploit the idea? Existing organized enterprise Newly formed enterprise Virtual enterprise  How do they choose to (not) exploit At what point is the idea exploitable?  Can there be exploitation without enterprise?

© Phillip PhanIACMR July 2007 Research Implications  Theory Individual and group decision making processes Emergence of ordered systems from constituent components (complexity theory) Moderated structural models (contingency theory) Brain studies/ genetic studies? New conceptualizations of value creation (e.g., monetization of virtual worlds)  Empirical Measuring and counting nascent organizations (also in corporate settings) Finding failures (projects and organizations)

© Phillip PhanIACMR July 2007 The formation of new firms  Most common expression of the entrepreneurial process  Where does the process start? Idea? Individual (serial entrepreneurs)? Formal organization?  Where does it end? Idea? Individual (life span)? Dissolution of formal organization?

© Phillip PhanIACMR July 2007 Research implications  Contingency models Effectuation (person, idea, context)  The importance of non-economic actors Family Community Advocacy associations Pressure groups  Appropriate dependent variables Value creation and value appropriation (create economic value but appropriate it in non-economic ways)

© Phillip PhanIACMR July 2007 Resource assembly  The resources (venture capital, technology, people, legitimacy)  Process of resource assembly (networking, coalition building, political models)  Who gets involved (customers, suppliers, technology and capital providers)

© Phillip PhanIACMR July 2007 Note on empirical issues  Use of panel data (right censorship)  Event history analysis (critical incident technique, event studies)  Assumptions about the reaction of markets and competitors to entrepreneurial events (based on equilibrium paradigm)  Constant updating of information (appropriate time frame)  Dependent variable(s) congruency contradictions

© Phillip PhanIACMR July 2007 Roundtable discussion Questions and Answers