Printer Friendly

The entrepreneur and the initiation of new venture launch activities.

Entrepreneurship has for some time been thought to epitomize individual action in the U.S., and academicians have responded with an astonishing outpouring of research on entrepreneurial traits (Churchill & Lewis, 1986). Despite this, empirical research has failed to fully agree on characteristics distinguishing entrepreneurs from other business persons or from the population at large (Sexton & Bowman, 1986). Though many continue to espouse a focus upon the individual as key to entrepreneurship research (Carland, Hoy, & Carland, 1988), entrepreneurial trait research as such is clearly on the defensive.

Gartner (1988) has proposed focusing on entrepreneurial behavior as the key to explaining entrepreneurship. Gartner's simple yet elegant notion of focusing on behavior has in fact cut the "Gordian knot" entangling entrepreneurship trait theory and research. The dichotomy between those who stress individual-centered approaches versus those who emphasize behavior-centered approaches appears exaggerated. Behaviors are not disembodied, after all, but are the acts of individuals; and personality trait research is not the only means of focusing upon individuals as the unit of analysis. In fact, the investigation of behaviors themselves at the individual level promises to yield much fruitful information about entrepreneurship (Bird, 1989; Herron, 1990).

Approaches to entrepreneurship that utilize psychology and information processing concepts at the level of the individual possess numerous advantages over those that do not. For example, because motivation plays an important part in the creation of new organizations, theories of organization creation that fail to address this notion are incomplete. Yet motivation occurs within the individual, and any serious explanation of motivation must be anchored there. Likewise, while it can be argued cogently that entrepreneurship is largely a situational phenomenon (Sapienza, 1989; Stevenson, Roberts, & Grousbeck, 1985), no confluence of contextual circumstances can by itself create a new enterprise; the individual entrepreneur employs an impressive array of skills to shape a new organization out of complexity and chaos (Herron, 1990). In sum, while much is gained through focusing on entrepreneurial behavior and taking into account the circumstances under which behavior occurs, approaches that totally remove the entrepreneur from the equation run the great risk of missing or misapprehending the soul of the process. For these reasons, the model developed here utilizes behavioral theory and recognizes the role of context but is centered on the individual.

The following discussion focuses on the aspects of organization creation leading up to and including the initiation of "launch activities." We define launch activities as those that go beyond internal planning for the venture and thus involve the creation of relations on a formal basis within the organization or between the organization and others. Further, although we will explain them in broad terms, we do not intend to focus upon the evolution of launch activities once begun, nor the evolution of plans and strategies affecting those activities. We leave to others the task of elaborating these later stages.

THE BASIC MODEL

In construction of our basic model, we initially make a series of simplifying assumptions for the sake of ease and clarity. Once we have constructed the model, we then relax most of these constraints. Thus, at the outset, we postulate a single, nascent entrepreneur who, when properly motivated, engages in a conscious search for a profit-making business opportunity. Each "link" in our model represents a proposition about the process leading up to new venture creation.

March and Simon (1958) distinguish between the performance of problem-solving repertoires or programs used by individuals (routine problem solving), and the construction of new programs (innovation). The construction of new programs involves search (which is a cost of innovation), and search behavior is negatively driven by satisfaction; that is to say, the amount of search increases as satisfaction decreases and vice versa (March & Simon, 1958, pp. 47-52, 173-175). Since discovering and exploiting new venture opportunities involves the discovery and construction of new "programs," the concept of search will be central to our basic model. In order to express it as a positive relation, we have substituted the construct "dissatisfaction" for "satisfaction." With that change, this proposition has been displayed in our model as link 1. Both the type and level of dissatisfaction will be instrumental in determining the search behavior. For example, dissatisfaction in pay level may lead to search for a pay raise whereas dissatisfaction in amount of autonomy may lead to a search for a new job or position.

March & Simon (1958) further postulate that dissatisfaction is a function of "level of aspiration" (March & Simon, 1958, pp. 48-52). This proposition has been displayed as link 2. Again, both type and level of aspiration are viewed as important, the same argument holding as above.

The next proposition in the model is that skills will interact with dissatisfaction in the determination of search (link 3). Hollenbeck and Whitener (1988) as well as Maier (1965) have postulated that abilities interact with motivations to determine performance. Our model therefore implies that skills and motivation interact to determine the intensity, type, and effectiveness of opportunity search. Link 4 follows Maier's (1965) hypothesis that skills are at least partially determined by the interaction of aptitudes with training. (It should be noted that "training" in our model is intended to include experience as well as more formal training.)

The proposition described by link 5 is that greater skills lead to higher aspirations. This formulation is a melding of March & Simon's (1958, pp. 48-49) hypothesis that aspirations are a function of expectancies and of Bandura's (1982) idea that self-expectancies are a function of past achievements.

While the level of aspirations is partly determined by the level of skills, it is also affected by the values and personality traits of the entrepreneur (Hollenbeck & Whitener, 1988; March & Simon, 1958). March & Simon (1958) also postulated that environment (context) affects aspirations. Our model suggests that these effects are determined by an interaction between personal values and context (link 6) and between traits and context (link 7). These propositions fit Stevenson, Roberts, and Grousbeck's (1985) emphasis on the situational underpinnings of entrepreneurship. For example, an individual with low risk aversion and the ability to take on considerable debt may aspire to high growth opportunities; another who highly values environmental protection and has contacts with environmentally oriented colleagues may restrict aspirations to opportunities that fit this value.

At this juncture, the basics of the first part of the model have been laid out: the precursors of search behaviors. The type of search behavior will be most directly influenced by the interaction of the entrepreneur's skills (an outcome of aptitude and training) and dissatisfactions (an outcome of aspiration level, which has been influenced by context, values, traits, and skills). For example, an entrepreneur who has skill in dealing with the steel industry and in manufacturing and engineering, as well as dissatisfaction in level of compensation, may search for an opportunity to start a steel company. If, on the other hand, he/she is relatively unskilled in most business activities and is dissatisfied largely in the area of autonomy, he/she may search for a lifestyle-type opportunity in the retail area.

When search has commenced, discovery will involve both context and strategy (link 8). This is because the discovery is of opportunity, and opportunity implies both. For instance, in the above case of the entrepreneur contemplating entry into the steel business, he/she may initially discover an opportunity to start a mini-mill to manufacture structural steel. At this point, the idea may not be thoroughly developed and the means-end analysis (March & Simon, 1958) may not exist on a detailed level, but the "idea," in order to be conceived of as an "opportunity," would consist of both a rough context (the steel industry) as well as a rough strategy (a mini-mill manufacturing structural steel). This step, from search to discovery of an opportunity, is what Kirzner (1985) defines as the essence of entrepreneurship, and what March & Simon (1958) describe as the basis of innovation.

The genuine novelty I attribute to the entrepreneur consists in his spontaneous discovery of the opportunities marked out by earlier market conditions (or future market conditions as they would be in the absence of his own actions) (Kirzner, 1985, p. 11).

The mechanism of discovery is a matter of debate among psychologists and information theorists (Langley, Simon, Bradshaw, & Zytkow, 1987), but its operation apparently involves a subconscious evaluation. Once this process has synthesized an opportunity, however, conscious evaluation will begin to operate (March & Simon, 1958, pp. 140-141). This is shown in our model as link 9.

The conscious evaluation process may be thought of in terms of the Barnard-Simon theory of organizational equilibrium (Barnard, 1938; Simon, 1945). This theory holds that an organization will remain in existence only so long as the contributions provided by participants, customers, and other elements of the environment are sufficient to provide the inducement necessary to cause participation (March & Simon, 1958, pp. 84-88). This equilibrium evaluation is accomplished by way of a more detailed means-end analysis of the opportunity (March & Simon, 1958, pp. 190-191). Program elaboration takes place by setting forth a more detailed set of substrategies to accomplish the main strategy and so forth, until the entrepreneur feels comfortable with the equilibrium analysis.

At this point, it is possible for this more detailed equilibrium evaluation to result in several different outcomes which we have labeled "poor," "bland," and "good." "Poor" means that the "opportunity," when subjected to more detailed analysis, fails to yield a satisfactory contributions-inducements balance for the contemplated organization. This will lead to a reinstitution of the search process and quite possibly a readjustment of aspirations (March & Simon, pp. 48-50). We have shown this process in the model as link 10.

A second outcome of the equilibrium analysis is that the opportunity, while not revealing a "poor opportunity," yields one which yet needs improvement. This will motivate a further search (link 11).

Whenever the equilibrium estimation reveals a "good opportunity," launch activities will be initiated (link 12). These launch activities will be directed at developing an organization structure that corresponds to the elaborated industry context and strategy. This proposition echoes Thompson (1967), who postulates that organization structure is strongly affected by environment and technology.

MODEL APPLICATION

The foregoing presentation of the model implies a high level of rationality and

linearity of thought processes. In fact, we neither believe that the entrepreneurial process is strictly rational and linear, nor that the model need be applied only in such cases. An opportunity may be thrust upon someone without his/her undertaking a conscious search process. For example, an experimental scientist who makes an exciting discovery may be moved to explore its potential as a business opportunity. We would argue here that this individual's level of aspiration has been raised by unanticipated circumstances, initiating search through a positive happenstance. Thus our model may account for both positive "pull" factors as well negative "push" factors in search initiation (Smilor & Feeser, 1991).

The model is also applicable to team entrepreneurship. In that case, we have each member of the team with his/her own process operating internally. At some point, several of the team members may join together in conscious search; similarly, some may be brought in after search and discovery and will engage in evaluation based on inducements versus personal aspirations and opportunities.

For the sake of simplicity and in order to focus on pre-launch activities we have not included in Figure 1 an elaboration of the connection between launch or later activities and the initiation process. In fact, we would argue that there is a loop (which is extant as long as the organization itself survives) from launch (or other) activities back to context as the entrepreneur continually reevaluates, innovates, and renews the firm. Thus, in the post-initiation phases we essentially have a learning model of the entrepreneurial firm. The more history, activities, and people that have traversed this loop, the more complex, non-linear, and political it may become. It is likely, in fact, to eventually become more administratively than entrepreneurially driven (Stevenson et al., 1985). Changes in firm styles such as those from "high-potential" to "lifestyle" modes (Wetzel, 1979) also take place through this mechanism. The founding mode is driven by the initial context, aspiration, and discovery; changed modes result from the model's merry-go-round over time.

The model is also applicable to corporate entrepreneurship, both of the top-driven and the bottom-up kinds. Since the model operates within each employee in a firm, it explains how an individual "intrapreneur" (Pinchot, 1985) launches his/her venture. But since an organization is a decision-making network comprising individuals (March & Simon, 1958), the organization itself can be looked at as taking on the model. Thus, the basic model applied to organizations themselves explains top-down corporate entrepreneurship and the launching of parented ventures.

Further, the model is usable in many non-business organization launch situations. The type of aspiration may be of any kind, such as power or altruism or any other generator of utility to the nascent, non-business entrepreneur. Likewise, estimation of equilibrium is applicable to all organizations, not just those engaged in business endeavors.

IMPLICATIONS

The implications of our model are several. First, though it considers the impact of personality traits on entrepreneurship, it focuses largely on behaviors and explains how those behaviors are driven by additional variables such as context, values, aptitudes, and training. It implies that entrepreneurship is possible to those who have the necessary level of aspiration and skills, and is not necessarily a phenomenon restricted by birth to certain "entrepreneurial types"; it also implies that while context is very important, it is not sufficient to explain entrepreneurship: given the same set of situations and opportunities, not all people will act on them in the same way--the individual is important.

Second, it indicates the importance of entrepreneurial skills over personality traits by showing that skills are closer to discovery in the "causal chain" than are personality traits. And though skills are partly dependent upon "nature" in the form of aptitudes, they are also subject to "nurture" in the form of training and experience.

From the perspective of the researcher and theorist, the model emphasizes not only the centrality of the individual to the entrepreneurial process, but also suggests the importance that behavior and context may lend to empirical studies. For example, our model suggests that more empirical work should be conducted to explore interactions between values or traits and context. Our model is capable of operationalization as well as being subject to elaboration. We hope that it will stimulate future empirical research.

REFERENCES

Bandura, A. (1982). Self-efficacy mechanism in human agency. American Psychologist, 37(2), 122-147.

Barnard, C. (1938). Functions of the executive. Cambridge, MA: Harvard University Press.

Bird, B. J. (1989). Entrepreneurial behavior. Glenville, IL: Scott, Foresman and Co.

Carland, J. W., Hoy, F., & Carland, J. C. (1988). "Who is an entrepreneur?" is a question worth asking. American Journal of Small Business, 12(4), 33-39.

Churchill, N. C., & Lewis, V. L. (1986). Entrepreneurship research. In D. L. Sexton & R. W. Smilor (Eds.), The art and science of entrepreneurship, pp. 333-365. Cambridge, MA: Ballinger Publishing.

Gartner, W. B. (1988). "Who is an entrepreneur?" is the wrong question. American Journal of Small Business, 12(4), 11-32.

Herron, L. A. (1990). The effects of characteristics of the entrepreneur on new venture performance. Unpublished doctoral dissertation. University of South Carolina.

Hollenbeck, J., & Whitener, E. (1988). Reclaiming personality traits for personnel selection. Journal of Management, 14(1), 81-91.

Kirzner, I. M. (1985). Discovery and the capitalist process. Chicago: The University of Chicago Press.

Langley, P., Simon, H. A., Bradshaw, G. L., & Zytkow, J. M. (1987). Scientific discovery: Computational explorations of the creative process. Cambridge, MA: MIT Press.

Maier, N. (1965). Psychology in industry (3rd ed.). Boston: Houghton Mifflin.

March, J. G., & Simon, H. A. (1958). Organizations. New York: John Wiley & Sons.

Pinchot, G. (1985). Intrapreneuring. New York: Harper & Row.

Sapienza, H. J. (1989). Variations in venture capitalist-entrepreneur relations: Antecedents and consequences. Unpublished doctoral dissertation. University of Maryland.

Sexton, D. L., & Bowman, N. B. (1986). Validation of a personality index: Comparative psychological characteristic analysis of female entrepreneurs, managers, entrepreneurial students and business students. In R. Ronstadt, J. A. Hornaday, R. Peterson, & K. H. Vesper (Eds.), Frontiers of entrepreneurship, pp. 40-51. Wellesley, MA: Babson College.

Simon, H. A. (1945). Administrative behavior. New York: Free Press.

Smilor, R. W. & Feeser, H. R. (1991). Chaos and the entrepreneurial process: Patterns and policy implications for technology entrepreneurship. Journal of Business Venturing, 6(3), 165-172.

Stevenson, H. H., Roberts, M. J., & Grousbeck, M. I. (1985). New business ventures and the entrepreneur (2nd ed.). Homewood, IL: Richard D. Irwin.

Thompson, J. D. (1967). Organizations in action. New York: McGraw-Hill.

Wetzel, W. H. (1979). The cost of availability of credit and risk capital in New England. In J. A. Timmonds & D. E. Gumpert (Eds.), A region's struggling savior: Small business in New England. Waltham, MA: Small Business Foundation of America.

Lanny Herron is Assistant Professor of Management in the Merrick School of Business, University of Baltimore.

Harry J. Sapienza is Assistant Professor of Management at the University of South Carolina.
COPYRIGHT 1992 Sage Publications, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Author:Herron, Lanny; Sapienza, Harry J.
Publication:Entrepreneurship: Theory and Practice
Date:Sep 22, 1992
Words:2832
Previous Article:What happened before the organization? A model of organization formation.
Next Article:The creation corridor: environmental load and pre-organization information-processing ability.
Topics:

Terms of use | Privacy policy | Copyright © 2022 Farlex, Inc. | Feedback | For webmasters |