LITERATURE REVIEW

(i) Entrepreneurship: Origins and an historical overview

a) From Cantillon to Schumpeter and beyond

THE PURPOSE OF THIS SECTION IS TO END WITH A RIGOROUS

EXPLANATION OF ENTREPRENEURSHIP AS A SUB-PROCESS OF

ECONOMIC ACTIVITY AND A ROBUST DEFINITION OF THAT PROCESS

HIGHLIGHTING ITS FUNDAMENTAL CHARACTERISTICS.

And in the beginning they were called ‘Undertakers’ …

Given the unique and critical role of entrepreneurship in an economic

system characterized by the private ownership of capital, one would have

thought a vast body of research would exist for economists to draw on in

support of their predictions, not to mention the army of budding entrepreneurs

wanting to know more about entrepreneurship. Sadly, however, reference to

any elementary text on economics reveals little on the subject if it is

mentioned at all. Whilst anecdotal evidence dating back to the middle-ages

suggests that the origins of entrepreneurship can be traced to the role some

individuals played when appointed by the nobility to oversee and take

responsibility for the successful completion of large scale production projects

(Berthold, 1951), there is little subsequent theoretical support for the notion.

In formal economic theory the concept of ‘entrepreneur’ and

‘entrepreneurship’ are first acknowledged in the essays of Richard Cantillon

(1734). Cantillon described the entrepreneur as an agent who purchased the

means of production for combination into marketable products. The word

‘entrepreneur’ derives from the French verb ‘entreprendre’ meaning ‘to

undertake’ and was originally translated from the German verb ‘unternehmen’

of the same meaning. The original essays of Richard Cantillon (1755) refer to

this individual as an ‘undertaker’ acknowledging that such a person undertook

or managed large scale projects and acted as a ‘go-between’ in sizeable

transactions.

“The circulation and exchange of goods and merchandise as well as their

production are carried on in Europe by Undertakers, and at a risk. The farmer

is an undertaker who promises to pay to the landowner, for his farm or land, a

fixed sum of money (generally supposed to be equal in value to the third of

the produce) without assurance of the profit he will derive from this enterprise.

The undertaker or merchant who carries the products of the country to the city

cannot stay there to sell retail as they are consumed. No city family will

burden itself with the purchase all at once of the produce it may need, each

family being susceptible to increase or decrease in number and in

consumption or at least varying in the choice of produce it will consume.

For this reason many people set up in a city as merchants or undertakers, to

buy the country produce from those who bring it or to order it to be brought on

their account. These undertakers can never know how great will be the

demand in their city, nor how long their customers will buy of them since their

rivals will try all sorts of means to attract customers from them. All this causes

so much uncertainty among these undertakers that every day one sees some

of them become bankrupt.”

(Richard Cantillon ‘Essai sur la nature du commerce en general’ 1755,

Chapter 13, pg. 12).

Cantillon’s original insight acknowledges that discrepancies between supply

and demand exist and that such discrepancies create market opportunities for

someone to buy cheap goods and to sell them more profitably in that market.

It is this sort of arbitrage that brings competitive markets into equilibrium.

Displaying a willingness to engage with economic uncertainty and to assume

a degree of risk are two of the most important distinguishing characteristics of

the classic entrepreneur. According to Cantillon (1755), the entrepreneur was

not necessarily involved in manufacture nor did they essentially use personal

funds to invest in the enterprise, although many did. The entrepreneur was

any individual who was self-employed and not directly engaged for their labor

in some productive process. Cantillon therefore makes a clear distinction

between the capitalist and the entrepreneur in the economic process.

Cantillon also included beggars and thieves in his definition of entrepreneurs,

as they were not working for an employer and therefore faced economic

uncertainty. This could possibly be one reason why the notion of

entrepreneurship and the identity of entrepreneurs have been excluded from

pure discussion in economics for fear of a less than worthy image being

associated with the profession.

From Cantillon’s early description we can visualize many of the

characteristics and qualities later theorists would focus on in an attempt to

more accurately define what an entrepreneur was and how they engaged in

economic activity. In the first paragraph above, for example, the Farmer is

identified as a primary producer that accepts risk, a notable attribute of

entrepreneurs, without any assurance of making a profit. Cantillon

acknowledges the presence of simple supply chain issues and the presence

of a market by referring to merchants who transport their goods to cities for

sale. He also recognizes that certain merchants will ‘create new ventures’ for

the purpose of selling their goods, the presence of competitors in the market,

the ambiguities and uncertainty surrounding market conditions and the

ongoing problems associated with business sustainability.

Despite this early insight and acknowledgment of entrepreneurship and

entrepreneurs traditional neoclassic macroeconomic theory has failed to

develop the concept further. The disappearance of entrepreneurship from

economic debate has a long history. Adam Smith (1776) in the ‘Wealth of

Nations’ clearly separates the functions of the capitalist from those of the

manager, emphasizing the fact that the profits accumulated by the capitalist

excluded the ‘wages’ paid to management citing these as payment for the

labour of inspection and direction. Furthermore, Smith did not distinguish

between the capitalist as the provider of the enterprise’s stock and the

entrepreneur as the ultimate decision maker. Although the terms ‘projector’

and ‘undertaker’ can be found in Smith’s work the terms were used

synonymously to identify the business proprietor. The acknowledged status of

Adam Smith’s work and his subsequent failure to elaborate on the role of the

entrepreneurial function and distinguish it from the pure ownership of capital

ultimately filters through to ensuing standard practice for all classic English

economists. Baumol (1968, pg.66) notes that; “The theoretical firm is

entrepreneur-less; the Prince of Denmark has been expunged from the

discussion of Hamlet”.

In some respects the classic economist can be forgiven for this oversight. If

one considers that the most prevalent form of business ownership at the time

of the Industrial Revolution was small to medium size enterprise, commonly

family-owned, with capital provided by the owner, relatives and friends, it is

little wonder that economists failed to highlight the distinctive nature of the

entrepreneurial function. It would seem that early business structures have an

inherent entrepreneurial orientation that is embedded in the way they operate

and which cannot be separated from normal economic activity. Others,

however, perceive this as gross negligence particularly when this distinction

was clearly set out in Cantillon’s work and which was written some 20 years

prior to Adam Smith’s seminal text (Blaug 2000). Whilst formalized neoclassic

economic models do not explain the role of the entrepreneur and

entrepreneurial activity, it does not mean that the concepts have been

ignored. They have simply not been accorded the same importance in the

advancement of neoclassic economic theory. According to Baumol (1968,

pg.67)) “there is no room [in modern economic theory] for enterprise or

initiative”. John Stuart Mill (1848), another neoclassic economist, for example,

refers to the entrepreneur and considered entrepreneurship to be direction,

supervision, control, and risk taking, with risk being the main distinguishing

feature between the manager and the owner-manager.

Jean Baptiste Say (1803) writing after Adam Smith’s seminal text ‘Wealth of

Nations’, cannot bring himself to dwell on the role of entrepreneurs in

economic theory. Say refers to entrepreneurs as ‘adventurers’ and describes

them as, “the master-manufacturer in manufacture, the farmer in agriculture,

and the merchant in commerce; and generally in all three branches, the

person who takes upon himself the immediate responsibility, risk, and conduct

of a concern of industry, whether upon his own or a borrowed capital” (pg.

18). Say’s interpretation of the entrepreneur / adventurer furthermore

suggests they are not unique from any other capitalist agent in the economic

process; “The ownership of land, capital, and industry are sometimes united in

the same hands. A man who cultivates his own garden at his own expense, is

at once the possessor of land, capital, and industry, and exclusively enjoys,

the profit of proprietor, capitalist, and labourer. The knife-grinder's craft

requires no occupancy of land; he carries his stock in trade upon his

shoulders, and his skill and industry at his fingers' ends; being at the same

time adventurer, capitalist, and labourer”, (Say, 1830, pg. 19). The proprietor,

capitalist, craftsman, labourer and adventurer are one and the same person.

What does this mean for entrepreneurship as a discrete process? It supports

a view that there is no distinction between the business owner (capitalist) and

an entrepreneur. Say’s proprietor/craftsman inherently possesses all the

talents associated with entrepreneurship and is therefore equipped to identify,

assess and exploit entrepreneurial opportunities as they come along. Such an

interpretation relegates entrepreneurship to metaphoric use; i.e.,

entrepreneurial activities are performed ad hoc by anyone engaged in

economic processes.

Similarly, David Ricardo (1821) who borrowed heavily from Cantillon in

distinguishing between the provision of capital to business enterprise on the

one hand and the functions of superintendence, direction and control on the

other, largely ignores the role of entrepreneurship in the economic process.

Ricardo, like many other of the era, regarded production and the investment

of capital as an automatic process that did not involve risk and where

decisions were made against a fairly stable backdrop of certainty. Ricardo did

however recognise that the first capitalist agent to introduce some form of

innovative improvement such as a new machine or process, was likely to reap

some extra advantageous return initially but this did not single them out as

being any different from other capitalist agents (para. 5.29).

For Marxist economic theorists the economic process is also virtually

automatic once the question of where to source capital had been addressed.

The only problematic aspect of the production process for Marxists was the

labour process; the control and direction of the work force in such a way as to

maximise the intensity of human effort. For Marx himself, the fact that an

entrepreneur was prepared to accept an element of risk for economic gain

was of lesser importance than the purpose behind accepting the risk in the

first place (Marx, 1867; Sweezy, 1942). Marxist theorists perceived the

entrepreneur as an agent directly involved in the accumulation of capital (for

his/her own gain), a key element in their perspective of the economic process.

For Marxists, the entrepreneur is a pest, a drain on the economic system and

something to eradicate, an enemy to the collective process of capital

accumulation by the masses. The entrepreneur is a Capitalist agent, an

opposite to the collectivist ideologies of the Marxists on the economic

spectrum, seeking only to accumulate wealth at an individual level. The

Marxist school does not therefore dwell on any qualities of entrepreneurship

other than to identify it as a process working independently and for its own

selfish gain. Like the English neoclassic economists of the day Marx did not

consider whether the residual income left over after paying interest on

borrowed capital and management wages corresponded to any particular

economic function such as buying raw materials at certain prices and selling

outputs at uncertain prices, resulting in possible losses or profits. Marx

assumes then that decision making under uncertain conditions entails no risk

or, if it does, then there are readily available capitalists (necessary ‘evils’)

willing to take on such risk. Marx is consequently perpetuating what Adam

Smith and David Ricardo have posited by conflating the functions of the

capitalist and the entrepreneur.

At roughly the same time, John Stuart Mill (1848) was busy popularizing the

term ‘entrepreneur’ amongst English economists but he was simply

perpetuating the Adam Smith and David Ricardo view that the entrepreneur

was a multifaceted capitalist . A shift of focus away from the internal

mechanisms of the organization ultimately eliminated further discussion of the

role of the capitalist and the entrepreneur. The general equilibrium theory of

Leon Walras heralded a new era of neoclassic economics which seems to

have ultimately spelt the demise of any further discussion regarding

entrepreneurship. Walras refers to the notion of ‘productive agents’ in a

competitive economy who are rewarded on the basis of their marginal

product, i.e., the increment of output that is contributed by the marginal unit of

that agent. So, when one productive agent hires others to produce a particular

output, this hiring agent is forced, through wage and market competition, to

pay the marginal product of all the agents he employs. Whatever is left after

all productive agents have been paid represents the reward or marginal

product of the hiring agent for his services. This encourages productive

agents to become hiring agents thereby eliminating the residual positive

marginal product. If on the other hand the hiring agent incurs a negative

marginal product after paying all the agents, in other words a loss, then the

hiring agent ceases to be a residual income recipient and reverts to renting

his services to others at the value of his marginal product. In the final analysis

Walras claimed that the residual outcome would tend to become zero. When

‘perfect competition’ had done its work and when long and short term

equilibrium had been reached, labor would have received its wages, capital

would have received its interest but profit would have been eliminated, along

with the entrepreneur who Walras claimed neither ‘benefited’ or ‘lost’ (Hebert

& Link, 1982).

Unfortunately, economic theory founded on an equilibrium model is

predicated on the assumption of perfect information and efficient markets.

Macroeconomics has been taught and practiced this way for over 100 years

but the assumptions it has been based on are manifestly untenable in a real-

world setting. Whilst these assumptions have led to a degree of

understanding and progress in empirical research, their dogmatic retention

has become a barrier to future economic progress because they fail to

recognize variations in individual decision making processes. According to the

classic economic model uncertainty does not exist. It therefore eliminates the

existence of the entrepreneur who, by definition, assumes the risk for

decisions made under conditions of uncertainty. General economic

equilibrium theory provides a static conceptualization of economic competition

with no room for change or entrepreneurial adaptation. Indeed, innovation, a

hallmark of Schumpeter’s economic theory (1934), was far removed from any

discussion on economic growth in neoclassic economics.

It is perhaps prudent to pause at this time and summarise the status of

entrepreneurship and the role entrepreneurs play in economic theory. From

Cantillon’s discovery of the entrepreneur and his acknowledgment that

entrepreneurship is a separate process of economic activity involving the key

characteristics of risk and uncertainty, there has been a concerted drive by

subsequent economic theorists to subvert any reference to the phenomenon.

Equilibrium theory has systematically dismantled any suggestion of a rogue

creative process that, by its very nature, is complex, disruptive and which

causes imbalances in the standard economic framework. The argument that

organizations of the time were much smaller, sourced capital from wealthy

family and friends, and may have had entrepreneurial flair embedded within

them has merit. Equilibrium theory has continued to focus on the growth of the

modern organization and the dynamics of a growing economy. However, rigid

adherence to a notion that ultimately economic exchanges tend toward ‘zero’

and perfect balance, is to suffer from what Barker (1984) refers to as

‘paradigm paralysis’; we ignore that which does not fit within our paradigm

(Kuhn, 1952).

Western European theories of early entrepreneurship focus primarily on the

contributions of two economists, Johann von Thunen, a German economist

and Joseph Schumpeter, an Austrian born economist. Both have used

Cantillon’s work on the entrepreneur’s acceptance of risk as their point of

departure, a feature which is strongly represented in their respective works on

entrepreneurship.

Von Thunen in particular concentrated on economic activity that resulted in

‘entrepreneurial profit’ as opposed to profit from capital only. This required a

more advanced model of risk and decision making under uncertain conditions

that suggested entrepreneurs were not people who simply received a fixed

contractual income similar to that of an employee but rather they operated as

freelance agents generating income on the basis of their innovative capability

(Von Thunen, 1850). Specifically, von Thunen defines the gains made by

entrepreneurs as being that which is left over from gross profits of a business

operation after paying the interest on invested capital, management wages

and the insurance premium against calculable risk of losses. Thus, the profit

generated purely by capital (through interest) was seen to be different from

the profit generated by following an innovative, and by his definition,

entrepreneurial process, which was the return for incurring risks that no

insurance company would cover because they were unpredictable. The

investor would therefore generate a return or profit from the capital invested in

the project, usually predetermined and contractually stated, whilst the

entrepreneur would generate a profit on top of this through his ingenuity

(talent) and willingness to accept those risks that could not be covered. Von

Thunen’s entrepreneur appears to have played a stabilizing role in the

economic process, in other words, by accepting risk the challenge for the

entrepreneur would be to manipulate the economic situation, using his

specific talents and expertise, from a situation of uncertainty to one of

certainty thereby minimizing not only the investor’s but the entrepreneur’s own

exposure to risk, in order to profit. Through Von Thunen’s work we begin to

see a return to an acknowledgement of the entrepreneur’s role in the

economic process.

Buried in the depths of American economics literature was another theorist,

Frank Knight, (????) who focused extensively on Thunen’s original factors of

‘risk’ and ‘uncertainty’. His contribution emphasized that entrepreneurship as

a process was not noted for it’s accuracy in ‘probable forecasting’, i.e. using

historical events, past performance and calculable formulae to predict

conditions for the future, but rather it’s focus on ‘uncertain forecasting’ where

probability formulae and past performance do not apply. The distinguishing

feature of this perspective from that of Von Thunen is that Knight’s

entrepreneur takes risks where there is a high degree of uncertainty, whilst

Von Thunen’s manages risk and the uncertainties have to some extent either

been marginalized or are not significant enough to have any direct impact on

the entrepreneurial process. These two perspectives are later echoed by both

Schumpeter and Kirzner. Schumpeter’s entrepreneur breaks the equilibrium

cycle by taking risk through the introduction of disruptive innovations, whilst

Kirzner’s entrepreneur returns the economic cycle to equilibrium by managing

risk.

There is, however, another interpretation to be offered here which clarifies

the distinction between Von Thunen and Knight. Von Thunen’s entrepreneur

can perform multiple roles including managing and administering but he

remains in essence a creator or innovator. According to Von Thunen, an

entrepreneur confronted by significant ‘uncertainty’ would be more inclined to

manage the risks associated with the venture based on historical events and

formulae that have proven to have had a certain reliability in outcome.

However, this runs contrary to the essence of his entrepreneur who is

supposed to be creative and seek out unique solutions. Knight, on the other

hand, does not impose managerial or administrative constraints on his notion

of the entrepreneur. He retains the fundamental quality of creativity but allows

the entrepreneur to develop unique solutions to uncertain events by taking

risks and thereby creates a more proactive and dynamic image of the

entrepreneur.

In many respects, Knight’s view of the entrepreneur is more that of a

strategic thinker and has a broader conceptualization of situational factors that

could have an impact on the enterprise whilst Von Thunen is more inwardly

and organizationally focused on minimizing the impact of situational factors

through management. The Board of Directors in an organization, for example,

is expected to deal with strategic issues, a high degree of uncertainty and an

increasingly complex world of business. Using this analogy one would expect

Knight’s entrepreneur to fit in with the Board of Directors, i.e., a body that is

more strategically focused and Von Thunen’s entrepreneur with the senior

executive structure of the organization, a level that is more operationally /

managerially focused. This point will be addressed again later in this chapter,

however, it is relevant to mention here that entrepreneurs demonstrate the

same degree of creativity that strategists do and one cannot help but wonder

whether entrepreneurship and being entrepreneurial is not simply another

form of strategic management and possessing the capacity for strategic

thinking one would find in larger, modern organizational structures. The

evolution of the modern corporate organization from its smaller industrial

revolution beginnings seems to support the neoclassic economist’s view that

entrepreneurship is simply an aberration to equilibrium theory. Indeed, it is

perhaps this view of the entrepreneur that has led to the development of an

Institutionalism perspective of Entrepreneurship and a recent swing to the

notion of ‘Corporate Venturing’.

Weber (1905-6), seeing the entrepreneur as the ultimate source of formal

authority in an organization, analyzed the presumed relationship between the

"Spirit of Capitalism" and the "Protestant Work Ethic." According to his thesis,

the success of the entrepreneur could be traced to cultural values such as

asceticism, deferred gratification, frugality, and thrift; fundamental elements of

a Protestant culture (but not exclusive to it). Culture was the explanatory

variable that predisposed some people towards being drawn into

entrepreneurial activity while other people tended to refrain from new venture

creation. This explains why Protestants in France, for example, were more

often perceived as entrepreneurs. Thus, the Weberian approach argues that

entrepreneurial behavior is culturally influenced by values and beliefs.

Weber (1905-6) also elaborated on how religion, the caste system, and the

family framework affected the emergence of entrepreneurship in India. He

noted that the ‘Jains’ (an ascetic religious sect) became a trading sect for

purely ritualistic reasons, because only in ‘trading’ could one practice

‘ahimsa’, the absolute prohibition of the killing of living things. In much the

same way, Gadgil (1959) showed that Muslims, Christians, and Jews were

the chief traders of Kerala, in South India, and Jenkins (1984) showed that

Protestants in Northern Ireland used ethnicity in the territory of economic

transactions in order to dominate the country. From a Weberian perspective

then, the entrepreneur is not attracted to entrepreneurship because of its risk;

the individual is attracted to entrepreneurial activity because it is compatible

with the cultural values to which the individual was previously conditioned.

The turning point for a substantial return to debate on the role of

entrepreneurship and entrepreneurs is best represented through the work of

Joseph Schumpeter (1911). The concept of innovation is central to

Schumpeter’s theory of entrepreneurship. Schumpeter places

entrepreneurship and its connection with dynamic uncertainty at the centre of

economic enquiry. In developing this argument Schumpeter constructed a

model of an economy where any form of technological change was absent.

He posited that such an economy would eventually settle down to become a

repetitive and perfectly routine process where there was no uncertainty about

the future (a state of perfect equilibrium – the neoclassic economy). He further

contended that such an economy would be devoid of profit and that even

interest rates would trend toward zero. However, as has been previously

argued a static conceptualization of equilibrium theory denies the possibility

for change and economic growth. Dynamic change and technological

innovations are central to Schumpeter’s argument; these caused tensions to

develop in economic balance but also introduced new methodologies,

products, services, sources of supply and new forms of organization.

Schumpeter defines innovation as the implementation of new combinations in

a commercial sphere. The origin of these innovations is the entrepreneur; the

source of all dynamic change in an economy (Schumpeter, 1942).

The evolution of capitalism according to Schumpeter is a process of

‘creative destruction’. “The opening up of new markets, foreign or domestic,

and the organizational development from the craft shop and factory to such

concerns as U.S. Steel illustrate the same process of industrial mutation - if I

may use that biological term - that incessantly revolutionizes the economic

structure from within, incessantly destroying the old one, incessantly creating

a new one. This process of Creative Destruction is the essential fact about

capitalism;

It is what capitalism consists in and what every capitalist concern has got to

live in” (Schumpeter, 1934, pg. 83). The entrepreneur is an active and

creative member of this economic process of ‘industrial mutation’

(entrepreneurship) who does not passively adapt to re-equilibrating

circumstances but continues to push ahead. Schumpeter recognizes that the

entrepreneur is a crucial element of the creative destruction process but is

distinct from the person supplying the capital. Besides being an innovator of

dis-equilibrating technology the entrepreneur can also function as a manager

but Schumpeter acknowledges this is not their true essence. Thus the

innovative (entrepreneurial) businessman ultimately loses this characteristic

as they build their business and settles into running it along similar forms of

other established business. The consequence of this is that the population of

entrepreneurs in a capitalist economy is constantly changing and the process

of entrepreneurship becomes less identifiable because it is mixed in with other

kinds of business activity.

Following World War II, economic recovery was of paramount importance

and mainstream economic philosophy split into two diametrically opposed

ideologies, namely, the Planned Economy which was based on the writings of

Karl Marx and Engels and the Free Market economy, a continuation of the

neoclassic theories formulated by Adam Smith and John Stuart Mills. As

previously mentioned entrepreneurship and entrepreneurs do not feature in

Marxist economics other than in a negative context and I will therefore not

elaborate on this in further discussion. In the Free Market framework,

however, entrepreneurship continued to flourish as a field of theoretical

enquiry through two main schools; the Austrian school comprising the writings

of Ludwig von Mises and Friedrich Hayek; and the Chicago school based

mainly on the contributions of Milton Friedman and Israel Kirzner.

For von Mises (1949) it was the entrepreneur who determined the course of

production in a society’s economic organization. In doing so the entrepreneur

is subjected totally to the demands made by the consumer. If they fail to

produce what the consumer wants in the cheapest and best possible way,

they will lose their potential for profit and be eliminated from their competitive

position. If they succeed, however, consumers will continue make their

purchases and the entrepreneur will ultimately gain in profit. Von Mises makes

the point that entrepreneurs are different from other people because if all

people were able to correctly predict the future state of any given market then

entrepreneurs would neither earn any profit nor suffer any loss. Successful

entrepreneurs are therefore those who can predict future prices more

accurately than anyone else and bring the means of production together

cheaply. The challenge for the entrepreneur is to select new technological

methods of production that provide consumers with those products and

services that are urgently needed, in the cheapest possible way. More

specifically, von Mises recognises that the key to entrepreneurial profit was

the decision making capacity of the entrepreneur. Von Mises recognised that

it was ‘mental acts’ in the mind of the entrepreneur from which profit ultimately

originated. ‘Profit is a product of the mind, of success in anticipating the future

state of the market. It is a spiritual and intellectual phenomenon’ (pg. 97).

Unfortunately the Austrian theory of entrepreneurship reduces the process to

simple arbitrage and eliminates many of the critical questions that have been

posed about the phenomenon.

Shapero (1984) concluded that culture was an explanatory variable for

entrepreneurial activity or the lack of it. He also noted that some cultures

value entrepreneurship more than do others. "Some cultures that value

entrepreneurship are the: Ibos in Africa, Gujeratis, Jains, and Parsis in India,

the Chinese in Southeast Asia, Antioquerios in Colombia, Jews, Lebanese,

the people from Pyongan in North Korea, and Mennonites and Mormons in

the United States (p. 26)." I will return to the point of culture and values in

further discussion below.

Numerous empirical studies report some cultures as being more

represented than others in the small business sector. Among them, Lasry

(1982) noted the percentage of entrepreneurs among Sephardi immigrants in

Montreal as being significantly higher (38 percent) than among immigrants in

general.

Some cultures, in contrast, do not value entrepreneurial behavior. Becker

(1956) suggested that some societies, because of their non-entrepreneurial

culture, would rather welcome outsiders to perform entrepreneurial functions.

In effect, some groups with entrepreneurial values do become the

predominant entrepreneurs of host societies. Sayigh (1952), for instance,

found Christians and Jews to be the most prominent group of entrepreneurs in

Lebanon. Also, Kong, Soon, and Hwa (1991) showed how Singaporean

Chinese are active entrepreneurs in Malaysia.

Entrepreneurship as an economic process

In the context of modern economic theory, Entrepreneurship, being a sub-

class of economic activity, can lead to two possible outcomes. The first deals

with the introduction to the market of new products / services that meet

defined needs or expectations and that create wealth. The second possible

outcome focuses primarily on the creation of new enterprise that could

ultimately meet defined market needs or expectations through the creation of

innovative products or services. Whilst there has been considerable debate

surrounding what Entrepreneurship is there is also a substantial body of

knowledge telling us what entrepreneurship comprises. For example;

It is a purposeful activity to initiate, maintain and aggrandize a profit

oriented business (Cole, 1949)

It is the creation of new enterprise (Low & Macmillan, 1988)

It is the creation of new organizations (Gartner, 1988)

It is the process of creating something different with value by devoting the

necessary time and effort; assuming the accompanying financial,

psychological and social risks; and receiving the resulting rewards of

monetary and personal satisfaction (Hisrisch & Peters, 1989)

It is the process by which individuals – either on their own or inside

organizations – pursue opportunities without regard to the resources they

currently control (Stevenson & Jarillo, 1990)

Entrepreneurship is ‘new entry’ (Lumpkin & Dess, 1996)

It is taking advantage of opportunity by novel combinations of resources in

ways that which have an impact on the market (Wiklund, 1998)

A common thread running through all of the above explanations, some

more explicitly stated than others, is that entrepreneurship is a process, i.e., a

purposeful and deliberate course of action that occurs in an economic context

which produces an outcome that creates wealth for the agent engaged in it

(Kirzner, 1983).

Fig.1. Entrepreneurship as a class of economic activity.

The entrepreneur is an integral part of the entrepreneurial process, so

much so that any study of entrepreneurship that does not include the

entrepreneur would render the findings meaningless Carland, Hoy & Carland

(1988). Similarly, Shaver and Scott (1991) state “Economic circumstances are

important, marketing is important, finance is important, even public agency

assistance is important. But none of these will, alone, create a new venture.

For that we need a person, in whose mind all of the possibilities come

together, who believes that innovation is possible, and who has the motivation

to persist until the job is done. Person, process and choice: for these we need

a truly psychological perspective on new venture creation.” (pg. 39).

Entrepreneurship

Process: Opportunity identification, assessment and

exploitation

Entrepreneurs

Opportunities

The notion that entrepreneurship is a process means that it can be

managed and broken down into defined phases. If this is the case then not

only can it be managed but it can also be analyzed and researched.

Somebody must perceive an opportunity (opportunity recognition), assess its

feasibility and desirability (opportunity assessment) and make the decision to

pursue it (opportunity exploitation). The following broad discussion examines

the three phases of this process in greater depth.

Opportunity recognition

In order to initiate the process of entrepreneurship an opportunity must exist,

be discovered or created. The discovery or creation of an opportunity requires

different skill sets from the entrepreneur. If we accept the premise that an

opportunities objectively pre-exist, it is highly probable that some form of

‘triggering event’ in the environment has enabled it (Morris, 1998). Opportunity

recognition thus becomes tied to circumstance and the opportunistic abilities

of the entrepreneur. Skills such as constant environmental scanning and

strategic thinking are therefore important to the individual. It is the task of the

entrepreneur to ‘discover’ them. According to Shane (2003), access to

information through life experience and social networks as well as broad

cognitive skills are necessary for opportunity recognition. On the other hand,

creation theory suggests that opportunities are constructed by entrepreneurs

themselves. Opportunity recognition is therefore an intensely personal

experience, generating potential ideas that cannot be substantiated by

prevalent conditions in the environment. The entrepreneur’s tolerance for

ambiguity, uncertainty and risk are consequently tested in the decision making

process.

Opportunity assessment

The decision to pursue an opportunity in the face of inadequate or non-

existent supporting data is one that confronts all entrepreneurs. However, a

fundamental principal to assessing the viability of an opportunity is that the

entrepreneur must believe that the resulting gain will be more than what they

are sacrificing (Venkataraman, 1997). Several factors must be considered

during the assessment process such as, opportunity cost, and perceived

resulting income. Those personal attributes associated with the assessment

process include a combination of personal experience, education, age, social

networks, industry experience and cognitive abilities (Shane, 2003).

Opportunity exploitation

Once the opportunity has run the gamut of analysis a decision to exploit or not

to exploit must be made. Many of the personal attributes associated with

opportunity assessment influence the entrepreneur’s decision at this point:

The better educated the entrepreneur the greater the expected return from

the opportunity (Le, 1999; Casson, 1995; Clouse 1990; Storey, 1994b;

Reynolds, 1997)

Career experience reduces the uncertainty surrounding the expected

return from exploiting the opportunity (Shane & Khurana, 2001)

The greater the general business experience of the entrepreneur the

greater the likelihood of opportunity exploitation (Romanelli &

Schoonhoven, 2001; Klepper & Sleeper, 2001)

Entrepreneurs with a broader range of functional experience (marketing,

finance, operations and product development) are more likely to exploit

opportunities (Klepper & Sleeper, 2001).

Knowledge of the industry or market entrepreneurs will be entering has a

significant impact on the decision to exploit opportunities (Praag & Pohem,

1995; Aldrich, 2000).

Start-up experience is another factor influencing opportunity exploitation.

(Jovanovic, 1982; Herbert & link, 1988)

The focus of this study will be on opportunity recognition and the cognitive

content of the opportunity identification process. In particular the focus is on

those beliefs and values which influence the entrepreneur’s ability to either

recognize (discover) or create viable opportunities. Before we can do this

however we need to carefully examine what constitutes an entrepreneur.

What does this have to do with opportunity recognition? The answer to this

is perhaps less explicit in the context of the above quote. What can be

inferred however is that the ‘undertaker’ would have had to identify the need

for goods in the cities, identify a source that could provide sufficient quantity of

product, organize the resources necessary to bring those products to the

cities, estimate the presence of sufficient demand for those products and

assess the risks associated with not only the day-to-day operational

requirements of selling goods but also the establishment of an enterprise that

could viably supply products over a sustainable period of time. In other words,

opportunity recognition gives rise to a series of assessments and calculations

warranting the exploitation of an opportunity.

Jean Baptist Say (1816), Knight (1921), and Oxenfeldt (1943) also

recognized the centrality of risk in the entrepreneurial undertakings of the

traditional self-employed. There is no reference to Schumpeterian innovation

(Schumpeter 1911, 1934, 1949) or technology in this school of thought.

b) Entrepreneurs: Differing schools of thought.

Much of the confusion in defining entrepreneurs stems from an exclusive

focus on narrow disciplinary perspectives. Despite having vanished form

discussion in economic theory for a substantial period, the entrepreneur has

been identified as a distinctly different category of capitalist agent who follows

a rather eclectic methodology to conducting commercial activity. Attempts

have been made to define Entrepreneurs along psychological, socio-

economic, demographic and metaphorical strata but in all cases theorists

have thus far failed to assemble a convincing and comprehensive set of

characteristics for entrepreneurs that set them apart from other business

people.

The ‘Great Person’ concept of entrepreneurs is predicated on the belief

that certain individuals are endowed with traits or qualities that at birth. This

intuitive ‘sixth sense’ and inherent instinct is what differentiates the

entrepreneur from other mortals. Examples of such individuals reflect their

status and charismatic leadership within society and include people such as

Henry Ford, Lee Iaococca, Donald Trump and Enzo Ferrari to name a few

(Garfield, 1986; Hughes, 1986; Silver, 1985). One key quality of the ‘Great

Person’ is their intuition which fuels their persistence and energy in typically

the start-up phase of a business. The defining characteristic however, is an

exceptional belief in him / herself and their ability to succeed. Although not

empirically tested at that time, later work done by Bandura (1994) in

social learning theory giving rise to the concept of ‘self-efficacy’ and

‘entrepreneurial role identity’ developed by Jelinek & Litterer, (1995).

Krueger & Hamilton (1996) lend weight to the argument that at a

cognitive level an appreciation of identifying oneself as entrepreneurial

holds merit.

The psychological characteristics school focuses on personality factors and

these are said to be the distinguishing features of entrepreneurs (Coulton &

Udell, 1976; McClelland, 1965; McClelland 1968). Three key personality

characteristics have been identified in the literature; (i) a personal value base

reflecting honesty, obligation, responsibility and ethical behavior (Lachman,

1980), (ii) risk-taking propensity (Mill, 1984) and (iii) the need for achievement

(McClelland, 1961). The view that entrepreneurs have a proportionately

higher need for achievement and success than their managerial counterparts,

has been consistently addressed in the literature to the point where it has

become the norm. Similarly, risk-taking propensity has been a feature of

entrepreneurs since their discovery by Cantillon (1735). Personally held

values such as honesty, ethical behavior and responsibility, have not been

empirically substantiated but do have relevance to this study because they

involve the deeper cognitive structures that are to be explored. Whilst there is

considerable support for these features there has been less agreement

amongst theorists regarding an entrepreneur’s defining characteristics.

The classic school of entrepreneurship attempts to make a distinction

between entrepreneurs and managers. A fundamental difference between the

two is the notion of ‘innovation’ Innovation, creativity and discovery are the

key factors underpinning the classical body of theory and research into

entrepreneurship (Schumpeter, 1934). Furthermore, theorists have

emphasized the subjective and individualistic nature of the process of

innovation. Those that innovate are often motivated to satisfy some personal

need or desire and therefore exclude the interests of society and

organizations. Steven Jobs and Apple Computers are often referred to in the

classic entrepreneurial tradition as an example innovation giving rise to a level

of energy and creativity rarely seen by other industries at the time. Questions

do arise however, when one considers that innovation is difficult to sustain

over long periods and what impact the entrepreneur, in this case Steven Jobs,

would have on the organization in the longer term. Could the same drive for

creativity and innovation displayed by the founder eventually undermine the

ongoing efficiency of the organization and its management?

The management interpretation of entrepreneurship is based primarily on

the theories of management developed in the early 1900’s. The focus of these

was on the major management functions of planning, organizing, directing

(leading) and controlling. An entrepreneur is thus defined as “a person who

organizes or manages a business undertaking, assuming the risk for the sake

of profit” (Webster’s, 1966). Mill (1984) furthermore noted that in addition to

risk-taking, entrepreneurial functions included management functions such as

supervision, control and providing direction for the business. Early

interpretations of entrepreneurs from this perspective seem to concentrate on

the development of strategies for new ventures, business planning and growth

(Good, 1989; Kao, 1989). Later interpretations appear to dilute, if not totally

eliminate, the crucial role creativity and innovation play in the process of

entrepreneurship. In doing so, an interpretation arises that, like management,

entrepreneurs and entrepreneurship can be taught (Bird, 1988) and it

consequently becomes possible to reduce the number of business failures

providing a more stable economic environment. The criticism against this

premise lies in the fact that entrepreneurs are first and foremost creative and

innovative individuals and that in order to achieve a measure of economic

growth and health entrepreneurs are needed to create new ideas, ventures

and innovative products and services.

A less mainstream interpretation of entrepreneurs is actually a combination

of the ‘Great Person’ and ‘Management’ perspectives aptly referred to as the

‘Leadership’ perspective. Entrepreneurial leadership goes beyond the

normally attributed characteristics and interpersonal styles. According to Kao

(1989) the function of the entrepreneurial leader is to motivate change,

reinforce shared values, set goals and create opportunities. The leadership

school describes the entrepreneur as a ‘social architect‘ (Bennis & Nanus,

1985), or the ‘expert’ in promoting and protecting the shared value base

(Peters & Waterman, 1982). In this context it appears the entrepreneur is little

more than a figurehead acting in a custodial capacity that perpetuates the

organization’s existence. Stephen Tindall of the Warehouse could be seen as

a current example of such an entity. Having been entrepreneurial in the start-

up of the Warehouse Tindall’s behavior would have had to adapt to changing

circumstances to the point where today he is the figurehead of a large and

impressive corporate entity adopting a managerial style of leadership.

Finally, the intrapreneurial perspective assumes that innovation can be

achieved within an existing organization by encouraging people to be creative

and work within semi-autonomous units. The problem with this assumption is

that it does not take account of the creative individual who, through sheer

frustration with internal mechanisms designed to control and manage not only

staff but innovations as well, ultimately leaves the organization and starts their

own venture (Knight, 1988). The notion of Intrapreneurship has not been well

developed and has consequently slipped into obscurity as a meaningful

description of the entrepreneur. However, with the dynamic evolution of the

managerial role in organizations, attention has returned to the notion of

‘Corporate Entrepreneurship’ or ‘Corporate Venturing’ where creativity and

innovation are attracting greater recognition. Organizations such as 3M, Sony,

Merck Sharp and Dhome, who have a long history of successful continuous

improvement and innovation, are test beds for the ongoing development of

theory in this area.

A current view of Entrepreneurs

The lack of substantive empirical data has led to a relatively weak

conceptual framework on which to base generalized definitions of

entrepreneurs. More recently, however, research and applications of the ideas

and concepts from cognitive science have contributed significantly to a series

of successful studies underpinning not only the nature of entrepreneurs but

also the manner in which opportunities are recognized, assessed and

exploited (Kreuger, 1993, 2007; Kreuger & Brazeal, 1994; Kreuger & Dickson,

1994; Mitchell, Busenitz, Bird, Gaglio, McMullen, Morse & Smith, 2007).

Past theories of entrepreneurship, for example, view the contribution of

entrepreneurs to be almost exclusively focused on the creation of new

enterprise (Low & Macillan, 1988; Rumelt, 1987; Schumpeter, 1934). This

outcome based description of entrepreneurial activity, whilst useful in

explaining some of the broader generalized issues of the role entrepreneurs

play in new venture creation, does not adequately explain the finer, micro

level issues such as ‘how and why’ entrepreneurs would engage in this

process (Baumol, 1993; Bull and Willard, 1993).

More recently, two distinctly different approaches appear to have

been used in the literature to define entrepreneurs. The first

approach is to define what an entrepreneur is and then observe

them (Alverez, 2005). This method presupposes that

entrepreneurship and entrepreneurs are one and the same (the

terms being used interchangeably) and therefore the two cannot be

analyzed independently of one another, i.e., the entrepreneur is

entrepreneurship and vice versa. Based on behavioral observations,

entrepreneurship would consequently be defined inductively in

terms of what these individuals do. However, of all the possible

activities that an entrepreneur can engage in, how would we be able

to discern which of those activities are associated with

entrepreneurship and which, are simply normal business routine?

Treating entrepreneurs and entrepreneurship as one and the same

also ignores the subtle differences in tactics, analysis and decision

making from one entrepreneurial process to another.

The second approach is to propose an a priori definition of

entrepreneurship and its related behaviors, and define

entrepreneurs as those who engage in entrepreneurial activity

based on an ex post assessment of their behavior (Shaver, 1995). The

main criticism of this approach is that the results of an ex post

evaluation of entrepreneurial behavior is at best a speculative stab

in the dark. Firstly, the entrepreneur is often at a loss to completely

and accurately explain what they did and how they did it without

embellishing the process and secondly, there are factors beyond the

direct control of the entrepreneur which can best be described as

fortuitous circumstance, i.e., being at the right place at the right

time which may have a significant impact on the outcome.

There is however, a third approach i.e.; that entrepreneurship

can be defined independently of the actors engaged in the process.

Bygrave & Hofer (1991) propose that the focus of research into

entrepreneurship change from a concentration on the

characteristics of the entrepreneur to the features of the

entrepreneurial process. By focusing on the process, entrepreneurs

can be identified by their engagement with the process, not by a

unique set of characteristics. The focus on the entrepreneurial

process supports an a priori definition of entrepreneurs. This makes

sense in that we achieve little by assigning labels to people who

have yet to demonstrate their competence when engaging in

entrepreneurial activities and even less when asking so-called

entrepreneurs to recount their actions. The downside of this

approach though is that it introduces a characterization of the

entrepreneur as being a question of degree, i.e., there will be those

who ‘lightly dabble’ in aspects of entrepreneurial process

sometimes and there will be those who climb in ‘boots and all’

constantly - what objective criteria do we then have to make the

distinction between who is and who isn’t an entrepreneur? Efforts to

isolate common physiological or psychological characteristics to all

entrepreneurs have generally met with failure due to the weak conceptual

framework and ex post research results which continue to be challenged.

Theorists have been, and will necessarily continue to be, unable to agree on a

fundamental set of personality traits that categorically define the entrepreneur

(Brockhaus & Horowitz, 1986; Sexton & Bowman-Upton, 1991).

Entrepreneurs don’t really exist, or do they?

If we were to refer to the previous discussion concerning some of the

historical perspectives on what constituted an entrepreneur there is the

position posited by Schumpeter (1934) that entrepreneurs who start new

ventures ultimately evolve to the ranks of management. Is the entrepreneur

then simply a trainee manager, an inventor or innovator who will eventually

succumb to corporate life? Or is there truly a tribe of ‘opportunists’ who will

continue to push the boundaries of innovation and more importantly can they

be identified?

The former question can be addressed by reference to research in

strategic management which has attempted to cross the divide between long

term corporate sustainability and how the performance of a new venture is

influenced by the entrepreneur. The notion that the large corporate entity

evolved from humble beginnings as a new venture is well entrenched in

economic literature (Mill, 1984; Schumpeter, 1934). Could we therefore claim

that strategic thinking at the corporate level is merely the evolution of

entrepreneurial thinking at the new venture level? The dynamics of the two

processes do not differ markedly; both require a measure of creativity in

generating solutions to changing environments, both require consideration of

past and future events, a degree of abstraction compared to current concrete

subjects and the focus on innovative responses to multiple issues at one time.

Indeed, in this context, one could argue that ‘entrepreneurship’ and

‘entrepreneurs’ do not really exist - there are no fundamental differences

between strategic thinking and entrepreneurial thinking. Consequently, new

venture creation, innovation and creativity can occur at a corporate level and it

is merely an extension of an individual’s ability to think strategically within a

corporate environment. Thinking in this way ultimately results in spin-off

businesses and ideas for new ventures (Herron, 1990; Kunkel, 1991;

McDougall, 1987; Sandberg, 1986, Shane & Venkataraman, 2000).

There is some support for this perspective when one considers the degree

of creative thinking that applies at both a strategic and entrepreneurial level

regardless of whether a corporate is plotting the way forward in a competitive

environment or an individual is launching a new venture. However, Herron

(1990) demonstrated that individual entrepreneurial skill and skill propensity

were related to new venture performance thereby negating the attempts of

many other researchers bent on linking new venture performance with the

collective attributes one encounters in a corporate setting (Cooper, Willard &

Woo, 1986; MacMillan & Day, 1987; Sandberg, 1986). What is the difference

between individual entrepreneurial skills and other generally accepted

business skills? What is skill propensity? Why are entrepreneurs more adept

at demonstrating these skills on their own than in a corporate setting? What is

the foundation of this skill development? Is skill application, knowledge

acquisition and self-efficacy tied to deeper cognitive structures?)

Entrepreneurship, it is argued, is largely an independent activity that does

not simply arise from dramatic events in the environment. Whilst such events

can be seen as triggers that provide impetus for entrepreneurship they are not

solely sufficient cause for the process to be initiated (Morris 1998).

Entrepreneurs may observe that conditions, timing, resourcing and many

other factors are not conducive to opportunity exploitation at that time and

therefore delay the entrepreneurial process until circumstances become more

favourable. The process of entrepreneurship requires engagement from

perceptive individuals who can identify, assess and pursue opportunities. A

comprehensive theory based on multi-disciplinary views of entrepreneurship

is thus compromised because of a failure to link the environment and the

individual engaged in the entrepreneurial act into one cohesive and

continuous process.

(ii) Entrepreneurial opportunities and resources

‘Small opportunities are often the beginning of great enterprises.’

DemosthenesGreek orator & politician in Athens (384 BC - 322 BC)

(a) The nature of entrepreneurial opportunities

Before the entrepreneurial process can be initiated it seems self-evident that

an opportunity must exist. The definition of an entrepreneurial opportunity that

will be used here is – “… a situation in which a person can create a new

means-ends framework for recombining resources that the entrepreneur

believes will yield a profit.” (Shane, 2003, pg.18). The main distinguishing

feature of an entrepreneurial opportunity over any other business opportunity

is the perquisite creation of new means-ends frameworks (and which focus

primarily on Schumpeterian type opportunities) rather than seeking

improvements (as with Kirznerian type opportunities) within an existing

paradigm (Shane, 2003). A new means-ends framework refers to the process

of thinking about what the entrepreneur perceives and believes about the

value of resources. Shane (2003) argues that because the process of

opportunity discovery, i.e., constructing new means–ends frameworks

(thinking), is cognitive it cannot be a collective act. This somewhat negates

the position of several other theorists (Timmons, 2002; Timmons & Spinelli,

2004; Ryan, Ray & Hiduke, 2003) that the identification of opportunities is a

team effort. The logic of this is clear; only one person can come up with the

original idea, at best the contributions of the rest of the team refine the original

concept into a practical and implementable business innovation.

Shane (2003) furthermore posits the view that entrepreneurial opportunities

pre-exist objectively in the environment and that only certain individuals will

recognize them over others. Shane argues: “The formulation of conjecture is

influenced by the possession of information or beliefs that lead a person to

think a certain way about a means-end framework. Because both beliefs and

information are unevenly distributed across people, not everyone will

recognize a given entrepreneurial opportunity.” [emphasis added] (Shane,

2003, pg.45). (the reference to beliefs is highly relevant to this study and

needs to be returned to later) So, the distinguishing features that identify

entrepreneurs from non-entrepreneurs from Shane’s point of view are access

to information and their beliefs.

The question arises however as to whether entrepreneurial opportunities

exist independently of whether or not the entrepreneur recognizes them; an

objectivist perspective? (Kirzner, 1973; Shane & Venkataramen, 2000; Shane,

2003) Or, are entrepreneurial opportunities created by entrepreneurs

themselves; a subjectivist perspective? (Venkataraman, 2003; Schumpeter,

1934; Loasby, 2002; Langlois & Cosgel, 1993; Casson, 1982). The objectivist

perspective is based primarily on three key assumptions:

Opportunities originate from the attributes of the industries within which the

entrepreneur operates. Thus, if the entrepreneur has specific specialist

knowledge, skill and experience related to a particular industry, they are in

a better position to identify opportunities when industry characteristics

change and allow the entrepreneur to capitalize on them.

Entrepreneurs are different from other business agents. Entrepreneurs are

said to be more ‘alert’ (Kirzner, 1973) than their counterparts in the same

industry which makes them more perceptive to changes when they occur

and they have a proactive attitude enabling them to take swift action.

(more recent research from Kirzner develops a stronger link between

‘mental alertness and perception – develop the alertness argument,

mental agility and awareness - show a link to entrepreneurial perception)

Unfortunately, given the emphasis on perceiving opportunities and

cognitive reasoning in the entrepreneurial process it is curious that the

theory of mental alertness does not adequately explain how entrepreneurs

break the cycle of traditional thinking within an industry or develop useful,

innovative alternatives.

The third assumption upon which this perspective is based deals with risk.

Based on an analysis of the above two assumptions there is a logical

conclusion that identifying opportunities will invariably lead to the presence

of some degree of risk. The dynamic nature of conditions within an

industry structure will assume that information, factors and resources are

imperfectly distributed and may be costly to acquire (Alverez, 2005).It is

therefore the ‘alert’ entrepreneur who is able to gain access to this

information at a lower cost than his counterparts that will succeed in

generating a profitable outcome (Shane, 2003).

The core of this view is that entrepreneurship can be explained by

considering the special abilities of individuals with specialist knowledge and

skill within an industry gaining access to information about opportunities that

already exist before any other person and converting them into something of

value. The speed at which the entrepreneur assesses and exploits this

information will then determine their advantage in the market place and their

ability to secure a profit. This view also suggests that entrepreneurs are

somewhat forced to seize on opportunities within the limits of a particular

industry. The entrepreneur’s bank of knowledge, skill and experience is

confined to one industry and possibly even a specific element of it.

The creation theory on the other hand focuses primarily on the entrepreneur

and new ventures. Similarly it is based on three major assumptions:

Entrepreneurial opportunities are created through a process of decisions

to exploit a particular idea. In other words they do not exist independently

of the actors but are created by them. Creation theory argues that under

conditions of uncertainty the changing attributes of an industry render the

outcomes unknowable and difficult to predict. It is therefore not risk but

uncertainty that influences the decision-making framework. Under these

circumstances opportunities are created through a process of

hypothesizing, testing and revision until the hypothesized opportunity

roughly approximates with what turns out to be an objective opportunity

(Alverez, 2005).

Unlike the objectivist theory seeking differences in people, creation theory

suggests there are differences in decision-making under conditions of

uncertainty. The entrepreneur is therefore someone with the confidence

and courage to coordinate resources and assess probable outcomes.

Creation theory makes no reference to individual ability or characteristics

other than to suggest they have a heightened ability in exploiting potential

opportunities.

Entrepreneurs accept uncertainty and not risk as part of the process of

opportunity creation and exploitation. A decision is risky when two

conditions are met:

i. All possible outcomes of the decision are known at the time the

decision is made, and

ii. The probability of each of those outcomes is known at the time the

decision is made.

Uncertainty in decision making on the other hand regards all possible

outcomes of a decision and the probability of their occurrence as

unknowable, ex ante. The decision maker is therefore ignorant of possible

future outcomes. An example would be the numerous books on personal

success and wealth purporting to have discovered the formula for infinite

wealth. Interviews of their authors consistently reveal the absence of

specific measures, tasks or activities they followed on the road to fame or

fortune.

In summary, creation theory suggests the actions needed to be taken to

exploit opportunities are not knowable a priori and must be hypothesized and

tested over a period of time by exploiting imperfections in the process. One

insight the theory provides is that meaningful, value-creating and wealth-

providing innovation is a time consuming process and not as one would

believe an ‘overnight sensation’. It is this hypothesizing and testing that

influences and trains the entrepreneur to the extent that the final outcome of

the opportunity reveals its uniqueness. In the process, the entrepreneur

acquires certain skills, knowledge and expertise which may prove useful in the

future. A danger in this for the entrepreneur is to become dogmatic and

focused on one particular process that has worked in the past and is

subsequently applied to all future opportunities without question. Such a state

would essentially remove the inherent innovative and creative qualities of

entrepreneurship from the agent rendering them static and inflexible in the

face of new opportunities.

Which theoretical position is better suited to opportunity recognition? On the

face of it the two appear to be diametrically opposed to one another and yet

the nature of their respective assumptions is not that dissimilar that they

cannot be perceived in some respects as being complementary. Is it possible,

for example that an entrepreneurial opportunity can be both discovered and

created? They are perhaps a combination of both. A market need that gives

rise to an entrepreneurial opportunity can be ‘discovered’, if conditions are

suitable. The ‘creative’ solution to that market need can also be an

entrepreneurial opportunity if it is sufficiently innovative and unique. In the

context of this study the process of entrepreneurship does not focus on

whether opportunities exist objectively from the observer or whether they are

created by them – both possibilities are comfortably accommodated. It is also

not a case of whether we are dealing with risk or uncertainty in the decision

making process. Risk and uncertainty are both factors that are taken into

consideration during opportunity assessment and measured against the

dimension of feasibility. Opportunity recognition on the other hand inherently

focuses on the dimension desirability.

(b) Origins of entrepreneurial opportunities

If we accept a focus on the qualities associated with Schumpeterian type

opportunities as does Shane (2003), then the following characteristics

distinguish entrepreneurial opportunities from normal business opportunities:

Dis-equilibrating – entrepreneurial opportunities cause imbalance and

destabilize existing processes. They are ‘frame-breaking’ technologies that

cause paradigmatic shifts.

New information - there is no information concerning the feasibility,

desirability or viability of the entrepreneurial opportunity. Equally, existing

decision making frameworks are inadequate for solving complex problems

associated with the new opportunity.

Innovative – entrepreneurial opportunities are unique and have

considerable commercial potential.

Rare – truly entrepreneurial opportunities are quite rare which can be a

function of two possible perspectives. First, conditions are not presently

conducive to opportunity exploitation and resources / technology may not

currently exist to enable the opportunity. Second, there are insufficient

entrepreneurs in the environment to engage with the opportunity, i.e.,

entrepreneurial capacity is depleted (Allen, 2004).

Involve creativity – a critical precursor to innovation, entrepreneurial

opportunities require a great deal of creative effort to come to fruition.

There is some empirical evidence that the source of entrepreneurial

opportunities emanate from three main domains (Bhide, 2000). A common

feature running through all three domains is the presence of change, a

characteristic of reinforced by Schumpeter’s early theory of ‘Creative

destruction’ explained above. Hence, when change occurs in either,

technology, politics and regulations, or society and demographics, the three

primary sources of entrepreneurial opportunity, conditions become more

favorable for entrepreneurship.

Technological change – the speed and pervasiveness of change in the

technology arena is obvious. Technology change is an important source for

entrepreneurial opportunity because it has the capacity to change the

economic landscape rapidly and in innovative ways (Shane, 2003). Empirical

evidence gathered by Blau (1987) points to significant increases in the rate of

self-employment in the United States as a result of technological advances.

The number of technology start-ups is prolific throughout the world. For

example, changes in technology have created entire new markets (traditional

retail versus online shopping) and the growth of cross border purchasing. New

Zealand’s ‘Trademe’ is a good example of radical transformational change

within the auctioning industry giving rise to several new start-ups such as

‘Ferrit’ and ‘Smile City’. Technology has furthermore enabled the introduction

of social networking sites such as ‘Facebook’, ‘Bebo’ and ‘Youtube’ which in

turn have had a significant impact on how individuals socialize.

Social and Demographic change – There can be little doubt that we are

living at a time of great mobility and in an increasingly uncertain era. Changes

in the socio-demographic structure are important because they produce new

information concerning the way in which people and communities distribute

resources and create potential for scale economies (Shane, 2003). The recent

shift in rural communities from sheep to dairy farming in New Zealand is one

example of demographic shifts for economic sustainability and long term

viability. There is a trend toward greater urbanization as evidenced by the

demand for more affordable housing which opens entrepreneurial

opportunities to address this significant need with low cost alternatives. The

significant influx of international students mainly from China to New Zealand

during 2003/2004 created major entrepreneurial opportunities in the form of

language schools and private tertiary educational institutions. The current

substantial drop off in student numbers has had a noteworthy impact on this

industry as a number of private education facilities have subsequently gone

out of business. Changes in attitude toward social networking, brought about

largely by the developments of technology, are beginning to influence both

tradition and culture throughout the world.

Political and regulatory changes – Central and local government policy

changes create opportunities through the re-allocation and re-distribution of

funding and resources to different parts of society. For example, skill

shortages in the employment market cause a shift in focus toward

encouraging young mothers to re-engage with the workforce. Incentives, such

as subsidized child care, gratuitous payments for services and education

assistance programs are put in place to facilitate such strategies. The recent

deregulation of the telecommunications industry and the ‘unbundling of the

local loop’, previously the property of Telecom, suddenly opens up the

competitive landscape and allows entrepreneurs to take advantage of

technology and regulatory change in ways that result in a more competitive

and innovative market.

(iii) The Entrepreneur and opportunity recognition

a) Emerging theories of entrepreneurial cognition

An entrepreneurial opportunity does not just ‘happen’. The opportunity must

first start out as an idea, that idea is usually the product of the entrepreneur

either perceiving a unique blend of existing resources in such a way that they

lead to a viable innovation, i.e., ‘discovering’ the opportunity or as a result of

their own creative and evolving thought processes that take the concept from

a level of abstraction to a concrete form, i.e., ‘creating’ the opportunity. The

process of opportunity identification is therefore a cognitive exercise in

entrepreneurial thinking. In order to understand what promotes or inhibits

entrepreneurial activity we need to understand how entrepreneurial

opportunities are perceived and assembled. Identifying, assessing and

exploiting an entrepreneurial opportunity is an intentions-driven process

motivated by known critical antecedents (Krueger, 2007).

Since the discovery or creation of an entrepreneurial opportunity is a

cognitive process it is meaningless to talk about it in a collective context

(Venkataraman, 2003). It requires the agency of one individual, namely the

entrepreneur, to perceive the opportunity. Opportunity assessment and

exploitation could well be collective acts, as they perhaps should be. It would

take an entrepreneur significantly longer to exploit an opportunity they had

first perceived without the support and assistance of others.

Differences in opportunity recognition exist for a number of reasons. The

formulation of conjecture is influenced by the possession of information or

beliefs that lead a person to think a certain way about a means-ends

framework (Shane, 2000). Because beliefs differ from one individual to

another and information is unevenly distributed across the population not

everyone will recognize a potential opportunity. Generally speaking,

opportunity recognition by some differs from others for two main reasons; first,

some individuals have better access to information about the possibilities of

an entrepreneurial opportunity. Second, some people are simply better than

others at processing even the same information because they have superior

cognitive capability (Shane, 2003). Superior access to information comes

about as a result of a number of factors such as; job experience, searching

capability, social networks and the individuals ‘absorptive capacity’, the ability

to process and categorize that information efficiently and effectively (Cohen &

Levinthal, 1990). McGrath and MacMillan (2000) suggest that entrepreneurs

with prior start-up experience have developed an "entrepreneurial mind set"

that drives them to seek and pursue entrepreneurial opportunities with

enormous discipline, and hence, can be expected to pursue only the very best

opportunities. Prior experience consequently confers an ability to recognize

the value of new information, to learn, and to apply it to new commercial ends

(Cohen & Levinthal, 1990). Experienced entrepreneurs are therefore more

likely to search information within a specific industry based on their past

experiences and knowledge of processes and information sources that have

worked well in the past (Cyert & March, 1963; Fiet, Piskounov, & Gustafsson,

2000; Shane, 2003), while nascent entrepreneurs with little or no prior

experience may have fewer guidelines to follow in discerning information that

would be relevant to the identification of an entrepreneurial opportunity

(Cooper, Folta, & Woo, 1995). The amount of prior experience seems in this

respect to be highly associated with an entrepreneur's effectiveness in

recognizing and acting on entrepreneurial opportunities.

Cognitive differences enable some people to process information differently

from others and allow them to ‘see’ new patterns based on the information

they have received. Kirzner (1997) refers to this as the individual’s capacity

for ‘alertness to opportunity’. Other identified cognitive differences refer to

‘intelligence’ (Knight, 1921) supported indirectly by research conducted by

Busenitz (1996) who found that entrepreneurs were more likely than

managers in organizations to generate ideas for new businesses. ‘Perceptive

ability’ is another difference supported by Hills & Schrader (1998) showing

that members of the Entrepreneurship Hall of Fame were significantly more

likely to report opportunity identification as a natural attribute they possessed

over their business counterparts. ‘Creativity’ Shane (2003) describes as a

critical component of the new means-ends framework formulation.

Imagination and creativity are needed to generate and define novel solutions

to open-ended problems (Harper, 1996; Sarasvathy, 2001). Other theorists

have posited that entrepreneurs have a higher degree of ingenuity or

creativity that the rest of the population (Schumpeter, 1934; Wu, 1989).

Finally, ‘Risk-taking’ or rather the attitude toward risk is a cognitive difference

between entrepreneurs and non-entrepreneurs. Research conducted by

Sarasvathy, et al (1998) suggests that entrepreneurs identified fewer risks

than their bank colleagues in a simulated computer game on

entrepreneurship. One explanation given for this is that entrepreneurs

possessed with higher levels of self-efficacy perceive opportunities whereas

others identify risk (Shane 2003).

In summary, entrepreneurial opportunity identification is the sole domain of

an individual, teams and organizations go on to provide support and expertise

in opportunity assessment and exploitation. Opportunity identification is also

largely a cognitive affair involving perception, a considerable degree of

entrepreneurial thinking, the development of attitudes and beliefs that support

the entrepreneur’s sense of self-efficacy and a large measure of creativity and

imagination to bring the opportunity into reality.

The focus of this study is on the intangible infrastructure. Individuals need to

perceive a prospective new course of action, believe that it is a credible and

desirable opportunity, and creatively engage their minds to exploit it.

Thinking 'entrepreneurially': the need for cognition-based models

The centrality of perceptions in opportunity identification argues for taking a

cognitive approach to develop insights into the nature of opportunity

identification and how to nurture it. In particular, social psychology offers the

construct of intentions as a consistently useful device to integrate past

findings from a theory-driven, empirically robust vantage (Ajzen, 1987; Tubbs

& Ekeberg, 1991). From a research perspective, intentions models have

proven consistently forceful both in explanatory power and in predictive

validity (Ajzen, 1987; Tubbs & Ekeberg, 1991). From an entrepreneurial

standpoint, the conceptual framework offers a prudent mechanism for

examining the process of opportunity identification.

Entrepreneurship research sorely needs a framework solidly grounded in

well established theory (MacMillan & Katz, 1992; Jelinek & Litterer, 1994).

Intentions-based models provide a comprehensive theory-driven conceptual

framework. We need models that reflect how individuals actually make

decisions and take action; these models include scripts and schemata (Lord &

Maher, 1990). Intentions models perform this role.

A tangible infrastructure can be constructed to support the assessment and

exploitation of existing opportunities. However, what about future

opportunities? Regardless of whether the opportunity is discovered or created

there is a need for cognitive construction. “Opportunities are thus very much

in the eye of the beholder” (Krueger, 2007). This tells us that perceptions and

other cognitive phenomena are critical. What sort of cognitive infrastructure

enables an entrepreneur’s orientation toward seeing opportunities and acting

on them? This is the 'heart of entrepreneurship' - an orientation toward seeing

(and acting on) opportunities regardless of whether resources exist or not

(Stevenson & Jarillo, 1990). In a rapidly changing world, economies need to

continually identify new opportunities if they are to continue to grow and

survive (Hamel & Prahalad, 1989, 1994; Mintzberg, 1994) This is what Covin

and Slevin describe as an "entrepreneurial orientation" (1991; Lumpkin &

Dess, 1996). Entrepreneurs need to focus strategically on the identification of

viable new opportunities.

The relevance of ‘deep beliefs’ in opportunity recognition

Developing new competencies to identify and exploit entrepreneurial

opportunities is a critical antecedent to profiting from innovation (McGrath,

Tsai, Venkataraman, & MacMillan, 1996). However, what is necessary for an

entrepreneur to learn in order to identify new opportunities? Even if an

individual possesses the prior information or experience necessary to identity

or create an opportunity, he or she could still fail in actually doing so because

of his or her inability to perceive potential new means-ends relationships or be

subjected to unpredictable circumstances over which they have no control.

The cognitive properties of an individual, i.e., the ability to combine existing

concepts and information into new ideas, therefore play a central role in the

process of entrepreneurial learning (Busenitz & Barney, 1997; Kaish & Gilad,

1991). An increased effectiveness in opportunity recognition consequently

means that the entrepreneur has learned more relevant information necessary

to identify entrepreneurial opportunities, and in so doing may well have

developed his or her cognitive faculties sufficiently to appreciate the

desirability and feasibility of the opportunity. (Shane & Venkataraman, 2000).

Prior experience in this context gives rise to further creativity, permitting the

sorts of associations and linkages that may never have been previously

considered. This argument also fits theories that argue that the level of prior

experience is a key factor for the ability to evaluate and utilize outside

knowledge and exploit new market opportunities (Cohen & Levinthal, 1990;

Gatewood, Shaver, & Gartner, 1995; Shane, 2003; Zahra & George, 2002).

Senge focuses on what he labels simply "mental models", individually

internalized cognitive schemata that guide much of our daily activity. We all

need multiple schemata to adapt to an ever changing environment. In turn,

this requires that we learn multiple mental models and, that we learn how to

learn new schemata (Senge, 1992).

Intentions are fundamental to schemas (mental models). Intentionality is

deeply ingrained in how we process information into action. Any deliberate

behavior is intentional by definition, thus the individual pursuit of an

opportunity is inherently intentional. It is therefore useful to understand that

intentions depend on a handful of critical antecedents. Personal and

situational influences affect intent only by affecting these critical antecedents.

For example, role models can help promote entrepreneurial activity, but only if

they influence perceptions of desirability or, more likely, perceptions of

feasibility.

Consider the notion of "entrepreneurial orientation" (Covin & Slevin, 1991).

We have an increasing understanding of what comprises the dimensions of

entrepreneurial orientation (Lumpkin & Dess, 1996), but we know relatively

little about its antecedents. For example, the outward behavioral expression of

an ‘entrepreneurial orientation’ is plain to see – the individual is enthusiastic,

energetic, seeking information or solutions, questioning, inquisitive, positive –

in short ‘driven’. What we don’t know, however are the intangible beliefs,

values and attitudes that drive that behavior.

Studying these deep beliefs is relevant and important because they play

such a crucial role in how we perceive opportunities, how we assess

desirability and how we determine feasibility. And yet for most entrepreneurs

it is these deep beliefs they are most unaware of. This is perhaps the key

reason behind the criticisms leveled at ex post research on entrepreneurial

success. How can the entrepreneur provide sound rational explanations or

data on the reasons for their successful opportunity identification if they are

unaware of the attitudes and beliefs that caused opportunity recognition in the

first place? Such a proposition renders an examination of the process of

entrepreneurship futile. If, however, we can discover the antecedents of

opportunity recognition that lead to successful entrepreneurial outcomes then

we will have provided another strut to the framework of a theory on

entrepreneurship.

In summary the pathway of argument where this study is focused is as

follows (Krueger, 2007):

Behind entrepreneurial opportunity identification lie entrepreneurial

perceptions;

Behind entrepreneurial perceptions lie entrepreneurial intentions;

Behind entrepreneurial intentions lie entrepreneurial attitudes;

Behind entrepreneurial attitudes lie deep beliefs and values.

Perceiving entrepreneurial opportunities – underlying principles

The actions of men are the best interpreters of their thoughts.

  -- John Locke

The first principle that applies to all entrepreneurs is that opportunities are

not collectively perceived – only individuals can perceive an opportunity. As I

have argued previously, collective effort by other team members is useful and

even perhaps necessary in the context of assessing and successfully

exploiting the opportunity, but the idea must first be perceived by an

individual.

Second, as human beings we have a natural tendency to simplify the world

around us by categorizing situations. From a strategic perspective we would

naturally scan the environment and categorize perceived events into

opportunities or threats (Hill, Jones, Galvin & Haider, 2007). More importantly

though, is an understanding at an individual cognitive level of what drives this

categorization process. Jackson and Dutton (1988) for example, showed that

acting on an opportunity depends closely on perceptions that the situation is

positive and that it is controllable. In contrast perceptions of threat depend on

perceptions that the situation is negative and uncontrollable.

Third, perceiving opportunity reflects an intentional process. Mental models

of what we intend reflect why we intend to perform an action. Dutton and

Jackson's antecedents of opportunity perceptions largely correspond with the

known antecedents of intentions. In short, intentions are driven by perceptions

of feasibility (e.g., controllability) and by perceptions of desirability (e.g.,

positiveness). Fishbein and Ajzen (1975) have developed a theoretically

sound and empirically robust framework (Theory of Planned Behavior) for

understanding intentions that appears applicable to most planned behaviors,

whether the action is narrowly or broadly defined or whether it is proximal or

distal. A number of other disciplines have also discovered this isomorphic

trend (Ajzen, 1987) which suggests that the framework is at the heart of

human decision making.

Fourth, there is some understanding of the mental models that

entrepreneurs share, the scripts and schema that differentiate entrepreneurs

from other business people (Bird, 1988; Mitchell & Chesteen, 1995). It

therefore seems probable that we have cognitive access to both an

'opportunity' schema and a 'threat' schema. Which schema is activated first

(or activated more strongly) depends on critical stimuli from the environment.

It is also known that humans process negative situations differently from

positive situations: we differ in how we value information; we may even use

different parts of our brain. Yet, one individual facing the same environmental

cues may see a threat while another sees an opportunity.

Fifth, a review of the literature on entrepreneurship finds strong arguments

for intentionality (Bird, 1988; Katz & Gartner, 1988). Existing applications of

intentions based models or self-efficacy (Bandura, 1977) show consistent

support (Krueger & Brazeal, 1994). For example, Shapero's model of the

'entrepreneurial event' (1982) is similar to the Ajzen-Fishbein framework

(Krueger, 1993; Krueger, Reilly, & Carsrud, 2000). Shapero argued that the

decision to undertake entrepreneurial activity required a pre-existing belief

that the activity is both desirable and feasible, coupled with some personal

inclination to act on opportunities and some sort of triggering event.

Sixth, at the heart of these scripts and schemas are critical attitudes that

form a common framework of intentionality. For example, we know that

attitudes of competence strongly influence our perceptions of whether a

situation is controllable. An attitude of self-efficacy is a substantial antecedent

of perceived opportunity (Krueger & Dickson, 1994). If we see ourselves as

competent we are more likely to see a course of action as feasible, thus we

are more likely to see an opportunity. However, how are these attitudes

formed? What deeper seated schema are there that support attitudes such as

self-efficacy?

Entrepreneurial perceptions

Identification of a viable economic opportunity is an important initial step in

the entrepreneurial process. In fact, an entrepreneurs’ decision to act often

stems from their belief that they have identified an opportunity no one else

has yet recognized and can therefore capitalize on this by being ‘first to

market’.

Theorists have long held that cognitive factors such as perception and

interpretation play a significant role in opportunity identification (Forbes,

1999). Kirzner (1979), for example states that entrepreneurial activity is

undertaken by individuals with high levels of ‘alertness’ to opportunity and

Knight (1921), discussed the process of entrepreneurship as being engaged

by individuals with different ‘conceptions’ of risk and opportunity. Perception is

a process which involves the recognition and interpretation of stimuli from the

environment which register on our senses (Rookes & Wilson, 2000).

To explore how humans see the world around them in greater depth

requires reference to the psychological theory of perception. Some

psychologists feel that perception is direct (Gibson, 1950; 1986) and all the

information needed to interpret what is being presented is contained in the

sensory picture. Others believe that the brain uses past experience and other

influences to construct a version of reality (Gregory, 1990; 1996). Theorists,

such as Neisser, (1976) have attempted to reconcile these opposing views,

and yet others have taken an ‘artificial intelligence’ approach using knowledge

about computer programs to help explain perceptual processes, for example,

Marr's computational theory (Marr, 1976).

First, it seems clear that perception plays a role. When an entrepreneur

identifies an opportunity (and let us assume for the moment that the

opportunity does in fact exist), this implies that there is ‘‘something’’ out there

to notice—some kind of stimulus or stimulus configuration that can be noticed

or perceived. Much basic research on perception has focused on this task,

which is known as object or pattern recognition: identification of a complex

array of stimuli which, together, allow perceivers to recognize an object or a

complex pattern of objects or events (e.g., Matlin, 2002). If it is assumed that

opportunities must, at some level, actually exist as discernible patterns or

configurations of observable stimuli (something that potential entrepreneurs

can actually observe), then the findings of basic research on object

recognition may be relevant to understanding this process. In other words,

such research may provide insights into the nature of the stimulus

configurations that are identified as opportunities—in other words, into the

essential nature of opportunities from the point of view of the entrepreneur.

This is a very basic question that, to date, has been largely ignored.

It is important to note that this approach is opposite to one suggesting that all

opportunities are unique and that no underlying similarities exist between

them. The presence of highly successful repeat entrepreneurs raises doubts

about this interpretation. Such persons often recognize opportunities that, at

first glance, seem entirely unrelated to one another. This suggests that at

some basic level, diverse and seemingly unrelated opportunities do indeed

share recognizable components. Again, however, this question, which seems

crucial to the task of understanding the essential nature of opportunities and

the processes through which they are recognized, has not yet been

addressed in empirical research.

Putting this issue aside for the moment, it seems useful to consider the basic

findings of research on object or pattern recognition. Such work suggests that

human beings accomplish this task through a number of interrelated

processes. Considering these may shed light on the processes that play a

role in opportunity recognition. One such process is described by feature-

analysis models (e.g., Larsen and Bundesen, 1996). These models suggest

that objects or complex patterns of events are identified in terms of their

distinctive features. These distinctive features are stored in memory, and new

stimuli that individuals encounter are compared with these features for

purposes of identification. Consider, for instance, letters of the alphabet. Here,

distinctive features include vertical lines, diagonal lines, and curved

components. We can distinguish between the letter R and the letter K

because only the former has a curved component. Evidence for the accuracy

of feature-analysis models is compelling. For example, neuroscience research

suggests that within the visual cortex, different groups of neurons respond

primarily to horizontal, vertical, and diagonal lines (Hubel and Wiesel, 1979).

What might be the distinctive features for opportunities? Newness might be

one; nascent entrepreneurs (or experienced ones, too), may compare new

ideas with an existing concept of ‘‘newness’’ stored in memory in order to

determine whether a new stimulus configuration should be identified as an

opportunity. Similarly, practicality may constitute another distinctive feature.

Only ideas that exhibit this feature are identified as being bona fide

opportunities. A third distinctive feature might be novelty or uniqueness—only

ideas for new products or services, which do not currently exist, are identified

as being opportunities. These suggestions are, of course, largely speculative.

But if recognition of opportunities proceeds, even in part, through feature

analysis, then it should, in principle, be possible to identify the distinctive

features used by entrepreneurs to determine whether a new idea is, or is not,

an opportunity. While feature-analysis models of object or pattern recognition

are useful, they suffer from one major drawback: they are primarily applicable

to identifying relatively simple objects or patterns. In contrast, prototype

models of object or pattern recognition apply to more complex objects or

patterns and so may be more relevant to the process of opportunity

recognition.

Such models suggest that through experience, we construct prototypes; each

representing a set or category of objects (or patterns). In a sense, such

prototypes comprise our basic ideas of what a specific object or pattern is like

—its essential nature. For instance, most persons possess a prototype for

‘‘house.’’ This mental abstraction is broad enough so that everything from a

huge mansion to a simple cottage can be recognized as a house, while other

objects that do not match this prototype well (e.g., tents, skyscrapers, and

shopping malls) are excluded. Prototypes seem to be based on, and to

represent, the mode or most frequently experienced combination of attributes

associated with an object or pattern (e.g., Solso, 1999).

Thus, for example, the prototype of ‘‘house’’ would probably include such

attributes as windows, doors, rooms in which to sleep, eat, and wash, a roof

or other protection from rain, and so on. Applying prototype models to

opportunity recognition, it may be the case that entrepreneurs compare ideas

for new products or services with their existing prototype for ‘‘opportunity’’—a

mental abstraction they have acquired through experience. Such a prototype

might encompass a combination of attributes such as newness, novelty,

practicality, the ease with which it can be described to venture capitalists, the

likelihood of competitors, appeal to a specific, identifiable market, and so on.

According to such models, opportunity recognition would involve comparison

of ideas for new products or services with existing prototypes of opportunity;

the closer the match, the more likely would entrepreneurs be to conclude that

an idea for a new product or service does indeed constitute an opportunity

worth pursuing.

Other theoretical models of object or pattern recognition exist (e.g., the

recognition-bycomponents models; Biederman, 1995), but feature-analysis

models and prototype models are among the ones that are most widely

accepted. Together, such models call attention to the fact to date, that

researchers in the field of entrepreneurship have largely ignored the following

basic questions: (1) What patterns of discernible stimuli are recognized by

entrepreneurs as constituting opportunities? In other words, what is an

opportunity, from a perceptual point of view? And (2) What cognitive

processes play a role in this task? Answers to these questions may prove

invaluable to the field of entrepreneurship in its efforts to address the

question: ‘‘Why do some persons but not others identify opportunities?’’

The variety of theory on perception can be categorised into two main

approaches. Top-down and bottom-up approaches have been applied to

virtually every aspect of cognition including perception. The terms are used to

refer to the different methods of interpreting sensory data and they come from

the information processing approach to the study of areas like memory,

attention, perception, etc. This method constructs a model of the mind that is

similar to the flow charts used by computer programs, and it views the human

brain as a machine which manipulates information through a series of

processing stages.

Bottom-up processing theories – Information which is acquired from sensory

inputs is transformed and combined until we have formed a perception. The

information is transmitted upwards from the bottom, most basic levels (the

senses) to the higher, more cognitive levels. This kind of processing is also

called 'data-driven processing' because the information, i.e., the data received

by the senses determines (drives) perception. For example, when we observe

an object (e.g. a table) the visual system extracts all the simple, low-level

features like vertical and horizontal lines. These elementary features are then

combined into more complex, complete shapes like legs and a top. These

features are integrated at a higher cognitive level and ultimately these

integrated shapes are recognized as a table. How does this approach apply to

entrepreneurial opportunity recognition? Sensory stimuli are received by the

entrepreneur from the environment regarding the resources (e.g., finance, raw

materials, systems, processes, expertise, etc.) needed to assemble an

innovation (e.g. a new product / service or venture). Higher cognitive faculties

integrate the information from various sources into a cognitive picture of the

opportunity which is both desirable and feasible.

Top-down processing theories – these are the reverse of bottom-up

processing theories and are used to describe the higher, more cognitive

influences on perception. They are based on the notion that information from

the senses is insufficient to explain how we interpret information. We also

need to use our stored knowledge about the world in order to interpret

sensory input. This stored information works downwards from the higher

cognitive levels and influences the way in which we interpret sensory input.

This kind of processing is also called 'concept-driven processing' because

prior knowledge (stored mental schema) comes from the top to determine

(drive) interpretation of sensory input at the bottom. In a sense this is the

individual proactively scanning the environment ‘looking’ for combinations of

stimuli that are familiar and which require an appropriate behavioural

response. In the context of entrepreneurial opportunity recognition, top-down

processing means that the entrepreneur uses his/her prior experience and

knowledge to evaluate sensory stimuli against pre-determined criteria (mental

schema) assessing desirability and feasibility. The entrepreneur can therefore

be discerning regarding the recognized opportunity and set up cognitive

criteria based on previous experience and industry knowledge against which

to assess sensory data for ‘personal fit’ and viability. This explains to some

degree why entrepreneurs sometimes hesitate or fail to initiate the

entrepreneurial process. Environmental conditions / stimuli, as perceived by

the entrepreneur may not be suitable, when measured against these higher

cognitive criteria, for invoking the process, i.e. ‘something is missing’ that, if

present, would significantly alter the entrepreneur’s intention to act.

All theorists, generally acknowledge that there has to be some matching

process between sensory information and stored mental representation in

order for final identification to take place (Rookes &Willson, 2000). The

entrepreneur can only know whether an opportunity is feasible if it can be

matched with criteria stored in memory. The difference between the two sets

of theoretical approaches is that sensory-driven theorists posit that the

matching process itself operates in a bottom-up direction until a

corresponding match is found. This is like the entrepreneur saying, “I’m

receiving information from the environment that suggests an opportunity might

exist. I will continue to search for further information until such time as the

information matches directly my cognitive criteria for an entrepreneurial

opportunity”. Cognitive-driven theorists, on the other hand, assume that stored

experience and knowledge is required throughout the matching process. From

this perspective the entrepreneur says, “I know what an entrepreneurial

opportunity looks like and have set out the criteria against which I will evaluate

the information I receive from the environment. Until I find the information I

need, no determination can be made regarding this opportunity”.

The question is whether the entrepreneur recognizes an opportunity solely

from a bottom-up analysis of individual features like raw materials and

systems, differentiating it from other opportunities in terms of innovative

content, or whether his/her knowledge and experience with opportunities in

terms of factors, such as industry conditions and market drivers, helps him or

her in a top-down direction to create the opportunity. In practice, like the

debate whether entrepreneurial opportunities are created or discovered, there

is often an overlap between bottom-up and top-down processing. It therefore

seems plausible that entrepreneurs use both top-down and bottom-up

processing in identifying opportunities. Whether one approach is used more

than the other would seem to depend on the cognitive processing capacity or

style of the individual doing the perceiving and the environmental conditions

(Market and industry) at the time.

Neisser’s theory of ‘analysis-by-synthesis (1976) is an attempt to reconcile

the advantages and disadvantages of both the above approaches into one

cohesive model. It combines the process of perception based on prior

knowledge or schemas with the extraction of sensory cues from the

environment. The perceptual process is therefore seen as a continuous active

interaction between top-down and bottom-up processing.

Figure: Neisser's model of perception (1976)

A broad criticism of the theory is that it is too vague and does not show how

cognitive schemas interact with incoming data from the senses. It also does

not show at what point perception actually occurs. It describes what we do but

not how or why we do it. The question of ‘how’ is perhaps covered by the

notion of ‘entrepreneurial thinking’. Like strategic thinking (also known as

‘three bubble thinking’), data is cognitively evaluated against four key

dimensions as illustrated below. Data is compared with ‘concrete’ events in

the present and elevated to a level of abstraction to explore further

possibilities. Data is also evaluated against what has occurred in the past and

extrapolated into the future to understand possible implications. Finally, the

data is taken together in its totality and assessed against the entrepreneur’s

criteria for desirability and feasibility.

Sensory cues from the

environment

Analysis of sensory

cues(bottom-up)

Search for expected sensory

features(top down)

Perceptual Model

(Schema)

Figure: Evaluating opportunities using Entrepreneurial Thinking

Why we do it could be explained by the entrepreneur’s ‘attitude’, ‘intentions’

based theory and the personal goals of desirability and feasibility’.

Entrepreneurial intentions

Despite having all the data available to perceive the possibility of an

entrepreneurial opportunity, entrepreneurs may still not ‘see’ it. In the absence

of an intention to act, entrepreneurial behavior is unlikely. Intentions indicate

that the entrepreneur has mentally processed a range of events, factors,

contingencies, weighed alternatives and has ‘made up his or her mind’ on a

particular course of action. If there had been no intent to engage the cognitive

faculties it is unlikely an opportunity would be identified. Logically, intent

therefore precedes action. Bringing a commercially viable innovation to

fruition requires significant planning. Knowing, as entrepreneurs do, what it

will take to introduce an innovation into the market not only reflects their intent

to do so but also that they will follow a planned series of steps in order to

accomplish this intent. ‘Intent’ is therefore a critical antecedent of planned

behavior. Action (both mental and physical) requires effort; if we are to try, we

must first intend to try. At a deeper level, these mental models reflect why we

intend a given action. If we can better understand the cognitive impulses that

ABSTRACT

CONCRETE

PAST FUTURE

motivate why an entrepreneur behaves in a certain way, we can better

understand what it is they are trying to accomplish.

Ajzen (1987) argues persuasively that intentions-based models capture how

individuals actually think. Even routine behaviors are anchored by intentions;

the intentionality is simply more deeply placed. Ajzen and Fishbein’s model of

reasoned action and planned behavior illustrated below shows how the

intentions framework serves as a conduit to channel our interpretations of

events into action. This implies that intentions are constructed, even where

they appear to arise spontaneously.

This latest version of the framework suggests that the intent behind a

particular behavior depends on certain fundamental underlying attitudes.

These specific attitudes reflect the entrepreneur’s attributions about a

potential course of action. Entrepreneurs need to perceive the course of

action as (a) within their sphere of competence and control (thus feasible), (b)

personally desirable, and (c) consonant with social norms (Ajzen, 1991).

Barriers to any of these critical antecedents will represent a substantive

inhibition to an entrepreneur’s intent to seek and act on opportunities. In other

words, if we inhibit the intent, we inhibit the action.

Figure: Ajzen & Fishbein (2000) Model of reasoned action and planned

behavior

The above model argues that the perceptions of desirability and feasibility

explain (and predict) intentions significantly. Intentions are driven by

perceptions that outcomes from the behavior are not only personally desirable

but also that they are socially desirable. The entrepreneur’s Intentions toward

an innovation are therefore best predicted by three critical perceptions: that

the innovative activity (e.g., a new product, service or venture) is (a) perceived

as personally desirable, (b) perceived as supported by social norms including

that a market for the innovation exists, and (c) it is perceived as feasible.

BACKGROUNDFACTORS

INDIVIDUAL

PersonalityMood

EmotionIntelligence

ValuesStereotypes

GeneralAttitude

Experience

SOCIAL

EducationAge

GenderIncomeReligion

RaceEthnicityCulture

DATA

KnowledgeMedia

Intervention

BehaviouralBeliefs

Attitude Toward

Behaviour

BehaviourIntentionSubjective Norm

Normative Beliefs

Control Beliefs

Perceived Behavioural

Control

Actual Behavioural

Control

Exogenous factors such as individual, social and informational differences

as well as situational circumstances operate indirectly on intentions (and thus

behavior) by changing the above antecedents, not by directly affecting

intentions. That is, a change in objective circumstances would thus change

intentions if and only if the change altered the entrepreneur’s attitude toward

the opportunity. A change in legislation, for example, may not only restrict

opportunity exploitation but also alter the entrepreneur’s attitude toward

proceeding if it becomes undesirable. Path analyses using meta-analysis

clearly supports the causal linkage from attitudes to intentions to behavior

(Kim & Hunter, 1993). Research also suggests that certain exogenous

variables can serve to facilitate or 'precipitate' the realization of intentions into

behavior (Shapero, 1982; Krueger & Brazeal, 1994; Stopford & Baden-Fuller,

1994). Moreover, formal intentions models have already been applied

successfully to entrepreneurial behavior (e.g., Davidsson, 1991; Krueger &

Brazeal, 1994; Reitan, 1997).

Entrepreneurial attitudes

Based on the Ajzen-Fishbein model the entrepreneur’s personal attitude

depends on how they see the consequences of exploiting the entrepreneurial

opportunity: the likelihood of success as well as the magnitude of that

success; negative outcomes as well as positive, and the expected

intrinsic/extrinsic rewards. “An attitude is a predisposition to action, a state of

readiness to act in a particular way” (pg 213). Attitudes are generalized states

of the individual, which lead to or result in a wide variety of particular ways of

behaving (MacDonald & Morgan, 1959).

Perceptions of Desirability: Personal and Social - A personal attitude of

desirability is supported by a number of expectations which are necessary for

entrepreneurial behavior. According to the model, attitudes can not only be

learned but also influenced in order to increase the likelihood of

entrepreneurial behavior. For example, if positive outcomes are emphasized,

and the negatives are minimized one would expect the entrepreneur to pursue

the opportunity more pro-actively. The same applies to manipulating the

expected rewards should the idea succeed. Learning more about the

opportunity and gaining experience in the industry where the opportunity is

introduced enhance the entrepreneur’s portfolio of possible options and

reinforce its perceived desirability.

However, a strong personal attitude of desirability is not sufficient to predict

the intended behavior. Compliance with the normative beliefs of those around

the entrepreneur adds to the attitude of perceived desirability. Normative

beliefs reflect the culture within which the entrepreneur finds themselves. A

particularly supportive environment with good intergroup relationships which

are encouraging will influence the individual’s capacity for innovation (Scott &

Bruce, 1994).

Perceptions of Feasibility: Self-Efficacy - Bandura and his associates

developed and elaborated on a social-cognitive model of human agency

(Bandura, 1986, 1995) which is particularly relevant to entrepreneurs. This

model argues that taking action requires consideration of not just outcome

expectancies (i.e., desirability) but also perceived self-efficacy (i.e., feasibility).

Bandura defines self-efficacy as an individual's perceived ability to execute

some target behavior. Thus, it reflects the perception of a personal capability

to do a particular job or set of tasks. Increases in self-efficacy lead to

increased initiative and persistence and thus subsequent performance; low

self-efficacy reduces effort and thus performance (Eden, 1992).

Increasing self-efficacy requires more than just teaching competencies;

developing mastery in the skill sets relevant to entrepreneurship requires

nascent entrepreneurs to fully internalize the competency through application

and experience. Psychological and emotional support from the entrepreneur’s

supporters and peers reinforces perceptions of increased self-efficacy.

Developmental experiences provide opportunities to experience mastery at

those competencies (McCall, 1992; Senge, 1992). Exposure to diverse life

and work experiences broadens the entrepreneur’s range of what they

perceive as feasible.

Exogenous Factors - As the model suggests, most exogenous factors

influence intentions (and behavior) through influencing one or more critical

attitude. The various literatures on innovation and entrepreneurship offer

numerous examples of exogenous factors logically related to innovative or

entrepreneurial activity, though often with disappointing results. If effects are

actually indirect, then applying this framework may strengthen the findings.

For example, the presence of role models may increase entrepreneurial

behavior only if the role models actually change a key attitude such as self-

efficacy (Krueger & Brazeal, 1994).

Precipitating Factors

Exogenous factors may also influence the intention-behavior relationship by

precipitating, or facilitating the realization of intentions (Shapero, 1982; Ajzen,

1987; Stopford-Fuller & Baden, 1994). One such factor may be perceptions of

resource availability (Triandis, 1967). Another might be a personal propensity

to act on opportunities (Shapero, 1982). Tangible barriers may serve to

prevent an intention from coming to fruition, but the subtleness of cognitive

barriers can present even greater obstacles. While Shapero notes that purely

subjective conditions can precipitate action, such as facing a fortieth birthday,

it appears that the typical precipitating event reflects some sort of

displacement, a disruption of the entrepreneur’s inertia such as divorce or

being offered a big contract away from the immediate support structure. Yet,

how the entrepreneur reacts to displacement depends on his/her perceptions

of the impact of that event. Shapero argues that the entrepreneur’s reaction

also depends on the believable options that he/she perceives. Precipitating

factors are not well understood, so research in this area is very likely to shed

some new light.

(c) Deep cognitive structures in Entrepreneurs

Entrepreneur’s Values

The essence of this study focuses on the role personally held core values

play in entrepreneurial opportunity recognition. Limited extant research in this

area has explored cross-cultural values differences in entrepreneurial start-up

ventures (Morris & Schindehutte, 2005). The role values have played in

entrepreneurial activity is often predicated on Western values such as

‘individualism’, ‘competitiveness’, ‘material gain’ and ‘ strong work ethic’

(Herbert & Link, 1998; Cauthorn, 1989; Schumpeter, 1950). Researchers

have furthermore demonstrated relationships between entrepreneurial activity

and culturally based values such as individualism, achievement,

independence and masculinity (Berger, 1991; Lipset, 2000).

However, a number of questions still remain unanswered such as, whether

personally held values influence entrepreneurial behavior? Is there a core set

of values that all entrepreneurs subscribe to? And, do values have an impact

on the process of opportunity recognition; if so, what is the nature of that

impact?

What is a value? The term was first defined by Kluckhohn (1951) in an

anthropological context as “… a conception, explicit or implicit, distinctive of

an individual or characteristic of a group, of the desirable which influences the

selection from available modes, means and ends of actions.” (cited in

Hofstede, 2001, pg. 5). A clearer definition is provided by Rokeach (1972);

“To say that a person ‘has a value’ is to say that he has an enduring belief

that a specific mode of conduct or end-state of existence is personally and

socially preferable to alternative modes of conduct or end-states of existence”

(pg. 159 – 160). Values are feelings, cognitive non-rational principles that we

intuitively believe in to the extent that they guide how we perceive the world

around us and subsequently how we behave, alone and in concert with

others.

Hofstede (2001) refers to values as ‘feelings with arrows to them’ (pg. 6).

This means there is a certain qualitative dimensionality to values that enables

them to be expressed on a continuum, such as, ‘good vs. bad’ and all the

perceptions between those two extremes. Values have both intensity and

direction. In other words, how strongly we believe in a particular value

indicates its intensity. Because values function along a continuum it is

therefore possible for one person to hold strong views regarding their

interpretation of a type of behavior whilst someone else may hold a more

moderate view of the same behavior. Direction is indicated by outcome. For

example ‘being successful’ may be extremely relevant (intensity) to an

entrepreneur and he/she may consider ‘more success’ as good and less as

bad (direction). This means that values can be measured – intensity can be

measured from ‘irrelevant’ to ‘highly intense’ whilst direction can be measured

against desirability, i.e. ‘highly desired vs. unimportant’. Research problem -

Positivistic fallacy – the distinction between what people actually desire vs.

what they think they should desire. Measurement should therefore focus on

what entrepreneurs actually desire.

Another question that requires closer examination is which values are

relevant to entrepreneurial behavior? Bales & Couch (1969) produced an

inventory of approximately 900 values from a variety of different

questionnaires and eventually distilled into four clusters, namely, authority,

self restraint, equality and individuality. The Schwartz Value Survey

(Schwartz, 1992; Schwartz & Bilsky, 1990) cited 56 commonly held values

clustered around 10 universal sub-dimensions (power, achievement,

hedonism, stimulation, self-direction, universalism, benevolence, tradition,

conformity and security) and three higher order dimension (Individualism /

Collectivism; openness to change / conservation; and self-enhancement / self-

transcendence). This research also illustrates the extent to which the above

dimensions apply across all cultures, albeit in varying degrees. We also know

that entrepreneurial activity takes place in all societies under widely varying

circumstances and within equally differing cultures. Further, some cultures are

known to value entrepreneurial activity more than others and this is reflected

in the differing economic trends (Dana, 1997; Shapero, 1984). There is some

evidence that entrepreneurship flourishes where values such as achievement,

wealth generation, personal gain, acceptance of change and economic

advancement are prevalent (McClelland, 1965).

Mitchell et al. (2000) proposed that emerging cognitive theories of

entrepreneurship explain why entrepreneurs in different cultures do not think

differently in several significant respects and suggest the prevalence of a

global culture of entrepreneurship. They and others suggest that cognitions

vary systemically by entrepreneurial involvement rather than by culture

(McGrath et al. 1992; McGrath, MacMillan, and Scheinberg 1992). A case in

point, is Holt (1997) who found that the emphasis on individualism and

acceptance of uncertainty did not differ significantly between Chinese and

U.S. entrepreneurs. He concluded that the prospect of creating private

enterprise either fosters these values or attracts those that have values

comparable to entrepreneurs elsewhere; i.e., there is a universality to

entrepreneurial values.

Kilby (1993) noted that values are instrumental in advancing the constructive

understanding of human behavior and consequent change. Thus, it would

seem that personal values should have important implications not only for the

decision to pursue entrepreneurship but also in the way in which the

entrepreneur recognizes an opportunity (Bryan 1999; Bird 1989; Gasse 1977).

Values reflect the entrepreneur's conscious view of him/herself (Feather

1990). Moreover, the conscious view (or belief) that a person has about him/

herself directly shapes movement toward action, or one's motives (McClelland

1965).

The findings of the Morris and Schindhutte study (2005) first and foremost

indicate that entrepreneurship is a ‘values-driven’ activity. The value

orientation of the entrepreneur is a key antecedent to developing the

appropriate attitude toward recognizing entrepreneurial opportunities. The

researchers also seem to conclude that entrepreneurial attitudes are not as

deeply embedded in ethnic cultures as they are often portrayed, but that they

can rapidly adapt to changing economic and political circumstances without

undermining or altering the value base. So, whilst the entrepreneur’s

background culture matters, it is less of an antecedent to entrepreneurial

opportunity recognition and is instead a complex and dynamically interacting

factor. The findings also lend support to the conclusion that the pursuit of

entrepreneurial activity itself gives rise to certain shared values with other

entrepreneurs. Universal values such as independence, success,

achievement, and ambition, which have been traditionally associated with

entrepreneurship (Hebert and Link, 1988; Cauthorn 1989; Schumpeter 1950),

were consistently reinforced across ethnic groups in the study. A closer

examination of these universal values is necessary to determine what role

they may play in opportunity identification.

The exploration of personal values is an important first step because most of

our decisions are based on them. A personally accepted and positive value is

one that produces behaviour that is beneficial both to the practitioner and to

those on whom it is practiced. The reverse is also true in that a value that is

negatively perceived by the individual may produce detrimental behaviour,

which could be damaging to those around them. It is quite self-evident then

that individuals will naturally move towards those values that they have a

positive affiliation with and try to move away from those they perceive as

damaging to their progress. Values are deep cognitive states that are based

on life experiences. So, for example, people will generally gravitate toward

values such as ‘success’, ‘happiness’, ‘security’, ‘adventure’, and so on.

Equally, they will move away from or try to avoid values such as

‘embarrassment’, ‘rejection’, ‘humiliation’, ‘anger’, ‘frustration’ or ‘resentment’.

There is a further distinction that needs mentioning in values. The four so

called ‘universal values deemed to be present in all entrepreneurs are

classified as ‘ends values’. ‘Means values’ on the other hand, are simply

vehicles or tools used to achieve ‘ends values’. For example, if an

entrepreneur claimed that one of their values was ‘money’ then this would be

classed as a ‘means value’. The entrepreneur clearly doesn’t behave the way

they do simply to gather up piles of paper with the Queen’s face on them!

Money is a ‘means’ to an ‘end’, i.e., the vehicle for a deeper seated value or

‘end value’, such as ‘success’. The key to understanding how an entrepreneur

recognizes opportunities then is to explore both ‘means’ and ‘ends values’ i.e.,

what value they are striving to experience and the tools they use in the

process.

Another concept closely associated with values is a belief. A belief is a

feeling of certainty about the meaning of something. Beliefs underpin values

and set out the conditions, rightly or wrongly, by which an entrepreneur can

experience whether they are ‘living’ (i.e., behaviourally expressing) their

values or not. So, for example, if one of an entrepreneur’s values is ‘success’

then the belief that underpins that value could be “If I have a million dollars in

the bank then I will be successful”. Beliefs are often constructed in this ‘if …

then’ format. Basically, the entrepreneur’s beliefs tell their sub-conscious

when it will be okay to feel ‘success’. It is important in this context to

acknowledge that beliefs can support or limit the achievement of what the

entrepreneur values.

What is the relevance of this to opportunity recognition? Just this, it is very

easy for an individual to set themselves up for failure from the outset if they do

not understand what it is they value most in pursuing opportunities and how

deeply they believe they are equipped to get there. What the entrepreneur

values in life and their beliefs, shape the decisions they make in business and

ultimately their long term success.

For example, assume that an entrepreneur’s top value in business is to be

successful, an ‘end value’, and that in order for that entrepreneur to feel that

successful, they need to be publicly acknowledged as being able to accurately

spot entrepreneurial opportunities frequently – they are acknowledged by their

peers and followers as creative, innovative, an absolute fund of new ideas -

the belief or condition component. Remember of course, that entrepreneurs

also have values that they will do anything to avoid or move away from. For

this scenario, let’s assume that our entrepreneur’s top avoidance value is

‘rejection’ and one of the beliefs that underpins this negative value is that

when they are no longer consulted about new ventures, products or services

or they are excluded from meetings discussing innovative ideas.

Our entrepreneur has been invited to participate in a product development

session with other influential business people and noted leaders in the

industry. Whilst our erudite entrepreneur is addressing the forum four of the

dozen people in the meeting get up and leave the room. Two of them are very

influential people that the entrepreneur has been trying to develop relations

with. The question is how is our entrepreneur likely to feel about that meeting

afterwards? Are they more likely to feel rejected or successful? Now, those

individuals may have left for very good reason, to catch a flight or due to

illness, their reasons do not matter – what matters is the cognitive

interpretation and meaning our entrepreneur attaches to their actions. It is

those ‘feelings’ at the end of the day which will enable an entrepreneur to

clearly identify whether an opportunity exists or not.

Following Hofstede’s (2001) claim that ‘values are feelings with arrows’ (pg.

6) and that they can be measured across two dimensions, namely, intensity

and direction it should be possible to explore in greater depth the impact

these universal values have in coming to a decision regarding the

identification of an entrepreneurial opportunity. As with all personally held

values, however, there are ‘rules’ that determine whether or not an individual

will behaviorally display what they value most. A cautionary factor to be

considered in any measurement of these values will be to ensure participants

to this study have a common understanding of each definition.

Independence – A dictionary definition of this value is ‘freedom from

dependence on or control by another person, organization, or state’

(Encarte UK dictionary). In the context of the entrepreneur identifying

opportunities it would mean freedom from influence or direction from

others in the identification of an opportunity. In other words, the individual

relies solely on their own perception of the possibilities and whether an

opportunity exists or not, they are not manipulated or influenced in any

way by others. The intensity of the feeling can be measured from ‘weak’ to

‘strong’. The direction of the value would range from ‘dependence’ to

‘independence’. One would expect the behavioral expression of this value

to identify an individual who is singularly focused on the pursuit or

development of an opportunity with little or no input from others.

Success – Success is a relative concept; it means different things to

different people. What may seem to constitute an enormous success to

one person may appear to be somewhat ordinary to another. As a

universally held value though, the measurement dimensions of intensity

and direction may not be reliable or valid. Following the individual’s

definition of what constitutes success, a more reliable approach would

seem to be an exploration of the underpinning rules (beliefs) that support

the pursuit of success. The behavioral expression of success is more

directly observable if there is a deeper understanding of the

limiting/supporting rules an individual has regarding their feeling success

and how these influence decisions regarding opportunities.

Achievement – the widely held belief that entrepreneurs have a distinctly

higher need for achievement was originally posited by McClelland (1965).

However, on its own and isolated from other variables this value is

insufficient as a sole predictor of an individual’s ability to recognize an

opportunity. Measuring the intensity of the need for achievement may yield

some interesting results however it would need to be done in the context

of other personally held values. Like success a closer examination of the

underlying beliefs that support a need for achievement would be more

appropriate than measuring intensity and direction. Such an examination

should also reveal the behavioral expressions of a high need for

achievement and support the cognitive drivers to uncover opportunities.

Ambition – "Great ambition is the passion of a great character.

Those endowed with it may perform very good or very bad acts.

All depends on the principals which direct them." Napoleon

Bonaparte Ambition combines a number of different concepts but those

most congruent with how we perceive entrepreneurs include motivation,

drive and aspiration. To have ambition means to be driven or motivated to

achieve a goal or aspiration. Ambition underpins the values expressed

above; without ambition the drive to be independent, achieve goals and

experience success become unattainable. In terms of measurement,

intensity is a relevant dimension because ambition can be ‘strong’ or

‘weak’. Direction also becomes relevant because ambition must be

directed toward something; a goal, objective or target. If there is no goal or

objective there can be no ambition to achieve. The behavioral expression

of ambition can be observed through the entrepreneur’s focus,

commitment to purpose, physical drive and determination to achieve.

Could these be the catalysts Shapero refers to which crystallize beliefs and

attitudes into a salient intention? A strong and supportive orientation in these

four value dimensions seems to underpin a personal propensity to act on

perceived entrepreneurial opportunities. The question then becomes to what

role universally recognized and personally held values play in entrepreneurial

opportunity identification?

What catalyst/s serve to crystallize beliefs and attitudes into a salient

intention? Shapero suggested the existence of some sort of personal

propensity to act. However, does this propensity help attitudes coalesce

into intentions or facilitate the realization of intentions?

Qualitative tests. This model merits a formal qualitative test. One

specific approach proposed is action research to identify whether

universal values do indeed influence opportunity perceptions (and thus

behavior). What dimensions of cognitive infrastructure influence which

dimensions of entrepreneurial orientation?

Conclusion

Perhaps the most critical antecedent of entrepreneurial action is the

categorization of strategic issues into opportunities and threats. As with

intentions, opportunities are constructed, not found (Mintzberg, 1994; Dutton

& Jackson, 1987; Dutton, 1993). An economy seeking to promote

entrepreneurial activity must establish conditions where entrepreneurs can

perceive the prospect of seeking new opportunities (and the uncertainties

associated with them), not threats.

Understanding what promotes and inhibits entrepreneurial activity requires

an understanding of how intentions toward a prospective course of action are

constructed. Mental schema of what we intend reflect why we intend an

action. Intentions-based models capture how individuals formulate these

mental schema. Based on well-developed theory and robust empirical

evidence about intentions, we can construct a social psychological model of

how entrepreneurial opportunities are identified, assessed and exploited.

Perceptions of desirability and perceptions of feasibility (both personal and

social) are critical to the construction of intentions toward important behaviors.

An individual’s personally held value and belief structure (cognitive

infrastructure) should enhance, not impede, these critical perceptions.

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