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2         Literature review

Much of the literature on entrepreneurship can be divided into two broad camps focusing on individuals and structure respectively (e.g. Martinelli 1994, Thornton 1999). The first seeks to explain the prevalence of entrepreneurs in terms of innate psychological traits or how special characteristics are formed in certain social groups. The second highlights how social and cultural structures call forth entrepreneurs by providing opportunities for entrepreneurship. The goal is not always to explain entrepreneurial action on the micro level, but rather the amount of entrepreneurial activity in a certain place or time (Reynolds 1991).

An early and important contribution to the study of entrepreneurial individuals was David McClelland’s ‘The Achieving Society’ (1961). McClelland argued that some societies have cultural attitudes which translate into primary socialization practices that foster entrepreneurial individuals. Kets de Vries (1977) similarly argued that the entrepreneurial personality was the result of a particularly painful upbringing. Other researchers have sought the entrepreneurial personality in risk-taking propensity, internal locus of control, tolerance for ambiguity, over-optimism and need for autonomy (cf. Delmar 2000).

The structural tradition on the other hand seeks to understand how social, cultural and institutional factors induce entrepreneurship. Some argue that deviance and marginality encourage entrepreneurship, but most authors instead emphasize that cultural and institutional support, including good access to resources, is what encourages entrepreneurship (Martinelli 1994). Busenitz, Gomez and Spencer (2000) break this down into regulatory factors (e.g. institutions and policies), cognitive factors (e.g. knowledge of how to start ventures and obtain financial support), and normative factors (e.g. the perception of entrepreneurship as a career) which are used to explain both types and levels of entrepreneurship in different countries. Management researchers often emphasize the special influence of organizations and especially prior employment in established firms (Freeman 1986). Organizations are said to serve three critical functions: they provide opportunities to build confidence especially in the ability to create new organizations; provide general industry knowledge and specific information about entrepreneurial opportunities; and provide social networks and access to critical resources (Audia and Rider 2005).

As mentioned, these approaches typically seek to explain the amount of entrepreneurial activity. Both traditions have also been criticized for failing to account for entrepreneurial action on the micro level: the individual approach for its single-cause logic, insensitivity to temporal dynamics and failure to account for contextual factors, and the situational approach for its focus on adaptation and consequent failure to account for human agency (e.g. Gartner 1988, Shaver and Scott 1991, Thornton 1999). The current trend is instead to regard heterogeneity in terms of knowledge, preferences, abilities, behaviors etc. as a fundamental assumption for theory-building (Gartner et al. 1992, Venkataraman 1997, Davidsson 2003). The increased focus on heterogeneity naturally downplays interest in stable personality traits and broad contextual pressures in favor of more detailed investigations and explanations of entrepreneurial action.

In Chapter 1.1, action was defined as behavior that carries subjective meaning to the agent. It was also mentioned that entrepreneurship researchers tend to interpret this differently. In the following review these efforts are organized in three themes which reflect broad research programs in entrepreneurship studies and also correspond to generic views of human action, viz. the empiricism of behavioral approaches, the rationalism of cognitive approaches, and the interpretivism of discursive approaches (cf. Packer 1985, Tsoukas 2005). Behavioral approaches tend to downplay the issue of meaning in favor of direct examinations of specific actions, decisions and events. Cognitive approaches address intentionality and meaning by examining entrepreneurial thought styles and knowledge structures as important causes of action. Discursive approaches also probe the notion of meaning but investigate how entrepreneurial actions are motivated through more or less public stories and discourses. Naturally these approaches contain numerous internal differences and also overlap to some degree. Still I use this division as the best and most practical way of organizing the literature.

Before reviewing these approaches, the notion of entrepreneurial action will be examined from a number of economic perspectives. Interest in social, political and cultural entrepreneurship is currently flourishing. But whether we like it or not, both public and scholarly understandings of entrepreneurial action are inspired by economic theory. This is true in terms of both defining the phenomenon and guiding empirical research, and also as a source of legitimacy in theory development (e.g. Ogbor 2000, Steyaert and Katz 2004). The focus on individual traits has been linked to both neoclassical assumptions about complete information (Shane 2000) and Schumpeter’s elite entrepreneur (Gick 2002). The current tendency towards heterogeneity is also inspired and legitimized by economic theories, especially Austrian economics (e.g. Venkataraman 1997, Shane 2003). Other economic perspectives also dovetail, more or less, with contemporary efforts to empirically examine and conceptualize entrepreneurial action. Schumpeter’s focus on entrepreneurship as ‘getting things done’, for instance, is a source of inspiration for empirical research on entrepreneurial behaviors (Ripsas 1998, Aldrich 2005). Given this pervasive influence, the review of contemporary research is preceded by a brief stocktaking of economic perspectives on entrepreneurial action.

2.1      Economic perspectives on entrepreneurial action

Schumpeter is arguably the most influential economist of entrepreneurship. In Schumpeter’s writings the individual entrepreneur embodies the innovation function in society and stands out as a leader in an otherwise equilibrating world of habitual actors. [IV] Contrary to the rest of the population, entrepreneurs are creative actors who are defined by their non-rational and extraordinary qualities. Schumpeter saw information as more or less available to everyone and did not regard entrepreneurs as having any unique knowledge or capabilities compared to non-entrepreneurs. Schumpeter rather emphasized the non-utilitarian qualities of entrepreneurs and speculated about their unique psychological make-up. The Schumpeterian entrepreneur is an aristocratic character, part of a creative elite in capitalist society that is driven by a dream of founding a “private kingdom”, an intrinsic desire to “succeed for the sake … of success itself”, who feels “the joy of creating” and “delights in ventures” (Schumpeter 1961: 93-94). Schumpeter also stressed the practical side of entrepreneurship, arguing that entrepreneurs are the individuals that ‘get things done’ in society (Schumpeter 1975). By introducing new innovations, the entrepreneurs shock and destroy prevailing equilibria, thereby disrupting existing goals and changing the direction of the economy. To Schumpeter, entrepreneurial action thus starts with a unique individual’s creative flash of insight that, combined with assertive actions, also provides charismatic leadership which inspires others both within firms (Witt 1998) and on markets (Langlois 1998a).

In neoclassical economics individuals are assumed to act rationally and maximize their expected utility within an equilibrium framework. Both preferences and action alternatives are therefore seen as given. Action thus becomes choice and choice merely calculation. It has therefore been argued that neoclassical economics has no real place for entrepreneurs (Baumol 1968, Bianchi and Henrekson 2005). Entrepreneurial action will only occur when the economic system is at a disequilibrium. This typically happens as a result of exogenous forces such as public R&D (Schultz 1980). The result is a novel framework in which individuals may optimize their utility. Since all individuals have access to the same information, entrepreneurs are often characterized as extraordinarily capable or fast at optimizing given problem frameworks (e.g. Demsetz 1983, Caplan 1999) or extreme in terms of risk-taking propensity (e.g. Kihlstrom and Laffont 1979). Others use the opportunity cost of time to differentiate individuals in terms of human capital (Schultz 1980, Becker 1965). The argument is that the way people have historically allocated their time (i.e. built up entrepreneurial ‘human capital’) will affect the opportunity cost and hence value of entrepreneurship. This affects both the decision to pursue existing opportunities (Schultz 1980) and the decision to search for yet unknown opportunities (Fiet 1996, Gifford 2003). Entrepreneurs are still completely rational but make different choices based on extraordinary capacities or acquired human capital.

Neoclassical economists typically start with a situation of perfect information and rational agents driven by subjective preferences. As seen above, this subjectivity is typically captured in a stylized fashion as human capital or other forms of ‘representative agents’ (cf. Langlois 1998b). Austrian economists on the other hand are strict methodological individualists and take subjectivism to mean that action is guided by highly private beliefs and desires. Contemporary entrepreneurship research often draws on Kirzner who sought to merge Mises’ assertion that the market process is driven by entrepreneurial speculation with Hayek’s notion of increased market coordination. Mises was an ardent subjectivist “Ultimate ends are ultimately given, they are purely subjective, they differ with various people and with the same people at various moments in their lives … The notions of abnormality and perversity therefore have no place in economics.” (Mises 1996: 95). Hayek too started from the subjectivity of human intentions but emphasized spontaneous social coordination of knowledge through markets (Hayek 1945). Since knowledge is highly dispersed and typically incomplete, it is socially dispersed and exists only in the minds and preferences of individual actors. Nevertheless Hayek argued that the “tendency toward equilibrium is clearly an empirical proposition, that is, an assertion about what happens in the real world” (Hayek 1937: 44). In Kirzner’s framework, Mises’ subjectivism is reified into an ideal type, the alert entrepreneur, who embodies Hayek’s coordinating function in society. Entrepreneurial alertness is thus no longer based on a wide range of subjective beliefs but constitutes a more general ability to spot coordination opportunities “a gift individuals enjoy in quite different degrees” (Kirzner 1979: 148).

Radical subjectivists are often included in the Austrian camp. Still, they differ by extending the subjective basis for action from personal beliefs to imaginative speculations about the future (Lachmann 1976). This shift means that entrepreneurial action is not merely an automatic fit between personal beliefs or alertness and existing coordination opportunities. Instead, entrepreneurship entails a measure of genuine creativity. Nothing absolute can be known about the future because it is envisioned in individual imaginations. As a result the future is created in action as “the imagined, deemed possible” (Shackle 1979: 26). In the neoclassical as well as Austrian frameworks, true knowledge of the future exists albeit in dispersed and tacit forms. This allows, in theory, for an omniscient agent who may predict the consequences of his or her actions (Buchanan and Vanberg 1991). In the radical subjectivist tradition, such an omniscient agent is inconceivable because true knowledge of the future is not only dispersed, it is unknowable (Shackle 1979). This does not mean that the future it is beyond conjecture. Quite to the contrary, entrepreneurs speculate all the time as to what will happen but do so within the confines of what they deem possible, which is in turn influenced by cultural and institutional arrangements (Boettke et al. 2004). This cultural embeddedness of individual imagination suggests that subjectivism should not be interpreted as strict individualism or cognitivism but rather as socially embedded interpretivism (Lavoie 1991b, Lewis 2005). This confusion about the notion of subjectivism has prompted some researchers to emphasize the hermeneutic heritage of the Austrian tradition and the influence of Max Weber and especially Alfred Schütz (e.g. Pendergast 1986, Lachmann 1990, Augier 1999). Schütz is often referred to as one of the ‘master subjectivists’ of the Austrian school and while his analyses emphasized individual experiences a major goal was to understand the social embeddedness of individual action. Like the economists with whom he collaborated, Schütz argued that an imagined act is grounded in personal expectations (Schütz 1953). However, Schütz went on to show how the individual’s imagination is always couched against a set of more or less shared stereotypes and procedures. All people are born and socialized into a culture that is partly shared by family members, neighbors, colleagues and so on. Actions are therefore guided by a range of subjective drives and more shared typifications that span from the very private to the highly general.

2.2      Entrepreneurship studies and entrepreneurial action

2.2.1      Behavioral approaches

“The focus of research on entrepreneurial behavior is about exploring ‘how’ various activities undertaken by individuals emerge into organizations.” (Gartner and Carter 2003: 195).

Focus

Entrepreneurial behavior research is mainly concerned with what entrepreneurs do, in what order and to what extent, and how these activities help create, discover and develop new organizations (Van de Ven 1980, Gartner 1988) or new economic activity (Shane and Venkataraman, 2000, Davidsson, 2003). As such, the behavioral tradition typically emphasizes entrepreneurship as an emergent process. This approach does not imply a radical behaviorism in the Skinnerian sense of seeing mental explanations as unscientific or regarding consciousness as nonexistent. Instead it should be understood as part of the organizational behavior tradition, and in terms of methodology it often follows Mintzberg (1973) and others in the tradition of managerial work (cf. Gartner et al. 1992).

Antecedents

The focus on entrepreneurial behaviors is a development away from both the contextual and especially the traits traditions. During the 1980s, researchers from the contextual tradition used models of aggregate population dynamics that downplayed the micro level, i.e. the behaviors of individual entrepreneurs (Aldrich 1990, Reynolds 1991). At about the same time, the traits approach was criticized both conceptually and for lack of results. The argument was that just as general management (Mintzberg 1973) and leadership research (Van de Ven 1980) had benefited from investigating behaviors, so would entrepreneurship. Entrepreneurship is about what people do rather than who they are. This means that entrepreneurship can and should be exercised systematically (Drucker 1985). Entrepreneurial behaviors should consequently be studied and systematized without “trying to pin down … inner qualities and intentions” (Gartner 1988: 26).

This line of research finds legitimacy in the work of Schumpeter and his statement that “everyone is an entrepreneur only when he actually ‘carries out new combinations,’ and loses that character as soon as he has built up his business” (Schumpeter 1961: 78). So even if individual characteristics and contextual influences are important (as Schumpeter also thought), it is the actual observable behaviors that matter and should be the main focus of investigation. This position is reaffirmed in a recent review that explicitly pits the behavioral approach against both personality factors and contextual pressures, by first stating that “organizations are not created by their context”, and later that differences in individual characteristics and intentions are of interest only because ”they are likely to be associated with differences in individual behaviors. But, it is the behaviors, themselves, that produce organizations” (Gartner and Carter, 2003: 197).

Method

Research on entrepreneurial behaviors has traditionally been dominated by cross-sectional surveys and retrospective methods. Such approaches make it hard to establish causal relationships and more generally to appreciate the emergent nature of the entrepreneurial process (Davidsson 2004: 61ff.). In recent years more and more researchers have therefore begun to employ longitudinal methods. These studies typically identify emerging ventures and then track their development by measuring startup behaviors, events, strategic decisions, and typical activities (e.g. Van de Ven et al. 1999, Reynolds 2000). In the Panel Study of Entrepreneurial Dynamics (PSED) and related large-scale studies, behaviors are often predefined and then measured on a number of occasions (e.g. Gartner et al. 2004). Others use more open-ended measures that allow for more qualitative interpretations of the emerging processes (Van de Ven 1992). [V]

Findings

Many early theories of entrepreneurial behavior suggested that the entrepreneurial process consists in an ordered sequence of activities such as: Discover a problem, Develop a solution, Accumulate resources, Market the product, Create an organization, Produce, Sell (e.g. Block and MacMillan 1985).

A number of empirical comparisons suggest that there is no particular sequence of behaviors associated with entrepreneurial success (Gartner and Carter 2003). Based on longitudinal in-depth case studies of high-tech innovation projects, Van de Ven et al. (1999) similarly found that entrepreneurial actions were neither sequentially ordered nor completely random, but followed a chaotic pattern during early phases only to become more ordered as the venture matured.

Others maintain that even if the specific sequences may vary between cases, there exists a set of behaviors that are common for all successful entrepreneurs. Variation in the sequence is caused by differences in initial resource endowments, but once this is factored in there exists a fairly general recipe for success (Newbert 2005). Delmar and Shane (2003b) similarly argue that expert entrepreneurs prefer a specific sequence of events and in an empirical test also found that “following the correct sequence of organizing activities is beneficial to firm founders” and increasingly so as venture complexity increases.

Some of the earliest investigations of entrepreneurial behaviors found that high levels of entrepreneurial activity among nascent entrepreneurs were positively related to success, i.e. establishing a firm (Carter et al. 1996). However, the results also indicated that those who started a firm and those who failed had similar activity patterns. Both groups expended a lot of energy and effort, i.e. undertook many activities, early on in the start-up process. Those who neither failed nor succeeded but kept on trying were found to undertake substantially fewer start-up activities. This indicates that entrepreneurs should generally speed up the venture process so that the value of an identified opportunity may be evaluated as soon as possible (Carter et al. 1996).

Others reach different conclusions. Alsos and Kolvereid (1999) investigated how novice, serial, and portfolio entrepreneurs differed in their start-up behaviors. Drawing on real options reasoning, their conclusion was that what looks like procrastination may sometimes be explained as a strategic choice to defer certain decisions. Experienced founders and especially portfolio entrepreneurs were found to be especially well suited to benefit from a prolonged start-up period.

In another early study Gatewood et al. (1995) classified 29 start-up behaviors into five categories: gathering market information, estimating potential profits, finishing the groundwork for the business, developing the company structure, and setting up operations. Perhaps unsurprisingly they found that setting up operations (i.e. purchasing supplies, hiring employees, producing, distributing and marketing products) was the only category of behaviors that correlated with venture creation. Carter et al. (1996) similarly found that tangible activities that made the venture appear ‘real’ to others were common among successful entrepreneurs. These findings support the idea that entrepreneurs who undertake tangible and highly visible activities, and ‘act as if’ they are in business, will increase their chances of survival by signaling legitimacy and credibility to customers, investors, potential employees and other stakeholders (Gartner et al. 1992, Carter and Gartner 2003).

In a similar vein Delmar and Shane (2004) use institutional theory and evolutionary arguments to make the case that entrepreneurs who signal legitimacy will be selected for survival in an evolutionary framework. Such organizing activities also allow entrepreneurs to establish important social ties and enable the establishment of routines for resource transfer. It can however be argued that the use of survival as the measure of success may have introduced biases in the findings. Delmar and Shane in a brief comment noticed that beginning marketing ‘oddly’ increased the hazard of venture disbanding by 84% (Delmar and Shane 2004: 402). Talking to customers similarly increased the hazard by 17%. A tentative conclusion seems to be that the variables that drive survival are different from those that drive success in the marketplace. This would qualify Carter et al.’s (1996) finding that intense activity up-front is associated with both survival and disbanding. Signaling legitimacy may perhaps increase survival only up to a certain point, the point perhaps being the litmus test of real customer interaction.

Planning is a contested notion in entrepreneurship studies. Delmar and Shane (2003a) argue that business planning has been neglected in the literature. They argue that activities such as gathering and analyzing information, identifying risks and establishing a business strategy are highly valuable especially under conditions of high uncertainty.

This goes against the thrust of much of the entrepreneurship literature, which often promotes fast action and opportunistic adaptation rather than careful planning as ways to reduce risk and increase development speed (e.g. Bhidé 2000). This is especially true in uncertain industries with mobile customers and where specialized assets are no reliable source of sustainable competitive advantage (Bhidé 1986). Honig et al. (2005) use data similar to that of Delmar and Shane (2003a) but reach an almost opposite conclusion. They found that incremental and adaptive learning strategies were beneficial in developing new ventures whereas systematic and more formal planning activities were found not to impact venture progress at all. Here venture progress was measured as an increase in the number of entrepreneurial behaviors in the subsequent period.

Trends and suggestions

Just as with the literature on managerial work, investigations of entrepreneurial behaviors are mainly descriptive and typically do not draw on specific theoretical perspectives. This means that conclusions will tend to rely on what theoretical perspectives, e.g. institutional theory, evolutionary frameworks, and Weickian enactment, are used to interpret the data (Aldrich 2001). Typical outcome measures such as success, survival and growth are the result of numerous dynamically interacting factors, whose relative weights and interdependencies are very difficult to determine. This means that it is inherently difficult to draw solid conclusions (cf. Manicas 1997). These limitations are often acknowledged and, to complement large-scale investigations, researchers in this tradition repeatedly press for more qualitative investigations. Van de Ven has explicitly criticized efforts to understand and explain entrepreneurial processes and actions by using only variance theories and deterministic causation (Van de Ven and Engleman 2004). Case studies and other investigations of so-called ‘micro-behaviors’ are needed to complement the behavioral data, and researchers are therefore called on to spend “more time with entrepreneurs as part of the theory-building process” (Gartner et al. 1992: 22; cf. also Carter et al. 1996, Gartner and Carter 2003).

2.2.2      Cognitive approaches

“Entrepreneurial cognitions are the knowledge structures people use to make assessments, judgments or decisions involving opportunity evaluation, venture creation and growth” (Mitchell et al. 2002: 97).

Focus

Cognitive approaches focus explicitly on thinking as a cause of action. Findings from the study of human cognition indicate that people have limited information-processing capacities and consequently do not always think in accord with postulates of rational choice. People therefore rely on mental scripts and heuristics to make sense of the world. Researchers thus seek to uncover the specific ways in which entrepreneurs process information and store knowledge as means to understand entrepreneurial action. In the following review, research on entrepreneurial cognition is structured along two broad streams. Both build on the notion of bounded rationality but interpret this concept quite differently. In the first, the external world is seen as given and the focus is on different biases that obstruct entrepreneurs’ ability to fully comprehend this reality, e.g. evaluating risks and opportunities. The second stream tries to identify useful entrepreneurial cognitions and pays only limited attention to classical notions of decision rationality.

Antecedents

In management and organization studies, cognitive approaches emerged mostly as a response to theories emphasizing the situation, including population ecology, transaction cost economics and resource dependency approaches (cf. Walsh 1995). This is also true in entrepreneurship studies, but here researchers more often position themselves against the tradition of personality traits (e.g. Baron 1998, Mitchell et al. 2002). Empirical studies show that traits do not single out entrepreneurs (Brockhaus 1980). Coupled with the theoretical argument that traits are causally too far from micro-level actions, this has led researchers to focus on more proximate factors that compare entrepreneurs and others along specific cognitive dimensions and in relation to certain situations (e.g. Shaver and Scott 1991).

Method

As mentioned, the review of entrepreneurial cognition is divided into two broad sections. In the first tradition researchers typically review existing psychological research and identify cognitive biases that may be used to comprehend typical entrepreneurial activities such as evaluating risky opportunities. These cognitive biases constitute logical flaws which researchers then use to elaborate entrepreneurial action. The second tradition is more inductive and tries to identify specific entrepreneurial cognitions via more direct examinations of how entrepreneurs think. These researchers often do not bother with the rules of probability but try to identify positive heuristics that are functional in specific situations.

Findings

General Biases

Drawing on the findings of psychologists like Tversky and Kahneman (e.g. 1974) a number of authors have found that entrepreneurs exhibit greater than normal reliance on a range of cognitive biases (cf. Baron 2004).

Palich and Bagby (1995) measured both general risk-taking propensity of a group of entrepreneurs and the way this group framed a venture scenario. Consistent with traits research (e.g. Brockhaus 1980) they found that entrepreneurs are not generally more risk-prone than others. The entrepreneurs were, however, more optimistic about the future developments of the venture. They also consistently framed both the internal and external situation of the venture as less risky compared to non-entrepreneurs. Sarasvathy et al. (1998) found similar results in a comparison between entrepreneurs and bankers. In their study entrepreneurs did not merely perceive less risk but instead used more personal values to frame venture risks. They were also more confident in their ability to influence the development of the venture in the future. Simon et al. (2000) similarly found that entrepreneurs ‘suffer’ from an illusion of control, which means they believe their skill will affect performance positively even in situations where it realistically cannot, or where it is evident that outcomes are highly dependent on chance.

Busenitz and Barney (1997) propose that entrepreneurs are more overconfident and more likely to generalize from small random samples than managers. Overconfidence exists when decision-makers are overly optimistic in their initial assessments of a situation and as a result are also slow to improve these assessments by incorporating additional information. It is argued that a high level of overconfidence can be positive in that it generally makes entrepreneurs more likely to act on opportunities. This is because overconfident entrepreneurs take action without necessarily having gathered all relevant information. The overconfidence breeds enthusiasm which in turn makes these entrepreneurs better at ‘selling’ their perceived opportunity in contacts with investors, suppliers, customers and other stakeholders. Entrepreneurs were also found to be more willing to generalize from small, nonrandom samples. This also has positive effects on the pursuit of opportunities since entrepreneurs often make key decisions based on personal interaction with only a very limited number of stakeholders, e.g. positive feedback from one or two potential customers. It also enables entrepreneurs to act swiftly on potential opportunities with a minimal risk of revealing key information, something that may happen as a result of research. These findings were partly confirmed by Simon et al. (2000) who found that overconfidence and belief in the law of small numbers reduced people’s risk perception and increased the likelihood of starting a venture.

Baron (1998) argues that entrepreneurs often act in highly stressful environments and therefore make a number of cognitive errors that they would not make in less pressing situations. The proposed cognitive errors are based on the cognitive psychology literature but are not empirically tested on entrepreneurs. Among the biases proposed is affect infusion, which means that thoughts and decisions are more strongly impacted by emotions when situations are novel and demand reflection, something that is common with entrepreneurs. Another is self-serving bias, which means that entrepreneurs tend to attribute successful outcomes to themselves and negative outcomes to external factors. The planning fallacy makes entrepreneurs underestimate the time things will take to complete, since previous time-overruns are seldom taken into account. The final bias is escalating commitment, which means that initial investments of time, effort and resources, as well as a deep personal engagement, often make it hard for an entrepreneur to pull out of a venture that does poorly. The major point is that entrepreneurs’ cognition suffers from serious biases because they operate under extreme conditions and that these biases lead the entrepreneurs to take risks and act on opportunities that they would not consider under more normal conditions.

Attribution theory deals with how individuals account for what happens in the world, including the behaviors of themselves and others. The self-serving bias mentioned by Baron is an example of an attribution style. Shaver et al. (2001) discussed the causes attributed to entrepreneurial outcomes along the two general dimensions internal/external and stable/variable. These two dimensions yield four general attribution styles, namely internal-stable (ability), internal-variable (effort or motivation), external-stable (difficulty), external-variable (luck). Attribution can for instance be used to explain why some individuals persist and others quit after having experienced a venture setback. If a person attributes a setback to external and variable causes, there is no reason not to try again, whereas attributing the failure to lack of personal ability might discourage future attempts.

Biases are often seen as negative, and a common implication is that techniques should be devised to teach entrepreneurs to take more appropriate actions (e.g. Baron 1998). Others emphasize the advantages and even necessity of certain cognitive biases to induce action in pursuit of risky opportunities. Busenitz and Barney (1997) for instance argue that overconfidence may be needed to become an entrepreneur “without some unsubstantiated enthusiasm, many ventures would never be started or would quickly die following their start-up” (Busenitz and Barney 1997: 14). It may also be that certain biases such as over-optimism, affect infusion, and illusion of control help explain the decision to become an entrepreneur, whereas quite different mechanisms affect entrepreneurial success (Baron 2004).

Specific Heuristics

Biases are often bundled together with heuristics in denoting some form of deviance from ideal rationality (Tversky and Kahneman 1974). However, some researchers separate the two and reserve the term heuristic to denote any form of simplified thought process that people actually use to cope in everyday life. Investigating such positive heuristics may be especially relevant for understanding entrepreneurial action since “In the production of novelty, everything one does is a heuristic, and nothing is a bias” (Sarasvathy 2004a: 523). Such an interpretation of heuristics builds on a view of bounded rationality that sees real-life action as not even theoretically susceptible to substantively rational optimization (Todd and Gigerenzer 2003, Gigerenzer 2004). Instead, entrepreneurial cognitions evolve as more or less appropriate responses to limited information-processing capacities, resource constraints and the characteristics of specific situations.

In this vein Mitchell and his colleagues (Mitchell 1996, Mitchell et al. 2000, Mitchell et al. 2002) seek to identify a specific expert venturing script that is thought to trigger and guide entrepreneurial actions. Expert entrepreneurs are thought to possess specific knowledge structures that allow them to process and act on information that novices often miss. The basic premise is that entrepreneurial expertise is captured and organized in scripts or ‘chunks’ of typically tacit experiential knowledge. When individuals possessing such a script are exposed to only a little bit of appropriate situational context, a so-called script cue, they will have available to them a number of likely inferences of what will happen next (Mitchell and Chesteen 1995). Based on literature surveys and extensive empirical testing, the expert venturing script has been found to consist of three distinct parts: arrangement, willingness and ability scripts (Mitchell et al. 2000). Arrangement scripts contain mental maps of resources and relationships that are necessary to perform well as an entrepreneur. Two specific arrangement sub-scripts concern idea protection and resource acquisition. Willingness scripts include cognitions that push the entrepreneur to seek out and pursue opportunities, thus providing the commitment and drive necessary to undertake a venture. Ability scripts consist of knowledge and skills in areas like opportunity assessment, including the ability to match opportunities with personal ability. In much the same vein Baron (2004) suggests that, through experience, entrepreneurs have constructed cognitive prototypes of entrepreneurial opportunities. These prototypes capture the ‘essential nature’ of opportunities, including “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” (Baron 2004: 228). Entrepreneurial action is then triggered by real-life opportunities to the extent that these match the mental prototype.

Intention-based models seek to explain specific entrepreneurial events or actions such as searching for opportunities, deciding to start or exit a venture, or pushing for continued growth. Entrepreneurial intentionality has been described as “a conscious state of mind that directs attention (and therefore experience and action) toward a specific object (goal) or pathway to achieve it (means)” (Bird 1989: 8). Researchers typically trace entrepreneurial intentions to three general factors (Krueger et al. 2000). [VI] First, the individual’s attitude toward the behavior. This is seen as the weighted sum of perceived consequences and the likelihood of different outcomes of the behavior, including intrinsic rewards. Here Krueger et al. (2000) found that perceived desirability and expected utility were significantly correlated with intentions to become an entrepreneur. The second factor is perceived social norms. This means that the beliefs of relevant groups and actors such as family, friends, colleagues and customers, will affect the intentions of the entrepreneur. Krueger et al. (2000) found that perceived social norms of family and friends did not affect intentions to start a business, whereas Davidsson (1991) found that Swedish entrepreneurs were affected by social norms. This has prompted researchers to examine the influence of national culture and also whether perhaps business networks are a more relevant social group. Finally, perceived behavioral control affects intentions. This means that the entrepreneur’s self-efficacy will influence intentions. Efficacy beliefs have been found to greatly influence entrepreneurial behavior, and improving the perceived feasibility of certain courses of action is therefore seen as vital to encourage specific results (Krueger 2003).

Since entrepreneurial intentions do not always lead to entrepreneurial actions, some form of triggering event (Krueger 2003), displacement (Shapero 1984), or moment of inspiration (Bird 1989) is often included in intentions-based entrepreneurship theories. These can be both negative, such as getting a divorce or losing one’s job, and positive, such as inheriting money.

One of the central assumptions of intention-based models is that a change in objective circumstances is interesting mainly in terms of how it is perceived and consequently how it affects attitudes and intentions (cf. Shaver et al. 2001). This means that a lot can be done by educators, managers and policy-makers to encourage entrepreneurial action. Krueger (2000) suggests a series of interventions to build a ‘cognitive infrastructure’ that is more conducive to entrepreneurship. These include increasing the perceived feasibility of entrepreneurship as a career, providing minor positive experiences to gradually increase self-efficacy, dispelling beliefs that entrepreneurship is extremely difficult and designing reward systems that are sensitive to intrinsic rewards and informal forms of punishment.

Saras Sarasvathy views entrepreneurial action as rooted in a form of creative expertise called effectuation (Sarasvathy 2001). The theory of effectuation builds on Herbert Simon’s investigations of human behavior and assumes that entrepreneurship studies is a quintessential science of the artificial (Simon 1996) in that it focuses not primarily on decision-making among given ends, but on creation and enactive design under conditions of uncertainty (Sarasvathy 2004a). One of the most salient characteristics of the realm of the artificial is its focus on interfaces between inner and outer systems (Simon 1996). Entrepreneurial action is consequently described as a form of design activity that creatively bridges the bounded capacities of the entrepreneur and the complexities of the surrounding environment. To understand entrepreneurial action therefore requires a focus on the cognitive processes whereby entrepreneurs use their highly personal resources to adapt to and enact the external environment.

The effectuation logic of entrepreneurial action can be summarized in two taxonomies (Sarasvathy 2001). First, entrepreneurial action starts from three internal ‘resources’ or ‘means’ that are available to all entrepreneurs. They know who they are, what they know and whom they know. This translates into an awareness of what they are willing, able and happy to do, the know-how and competencies they possess, and what social networks they are part of. The entrepreneurs are then guided by these three resources as they enact their uncertain future. This perspective is aligned with the radical subjectivist position of regarding opportunities as created. The underlying logic is that the uncertainty of the future is never allowed to paralyze action since the future is created as a result of entrepreneurial actions.

This logic is explicated in the second taxonomy where three general design principles are said to be prevalent in the reasoning of expert entrepreneurs. First, these entrepreneurs focus on affordable losses rather than expected returns. This means that experts do not bet all their resources on what seems to be the best option. Instead they take small affordable steps that, if they should fail, do not ruin the venture. Second, they focus on enlisting partners rather than on conducting competitive analyses. This implies that entrepreneurs have an inviting attitude and focus on creating and expanding their own set of options, rather than avoiding relations that do not attain preconceived goals. Finally, expert entrepreneurs seek to use rather than avoid contingencies. Since the future is seen as open to negotiation and creation, serendipitous events are seen as possibilities to enact a different and perhaps more profitable future rather than as an obstruction to a given path.

Trends and Suggestions

Entrepreneurial cognition research seeks to identify how and when entrepreneurs think and subsequently act differently than others. Cognitions are described as information-processing biases (e.g. Baron 1998), as complex expert-knowledge structures (e.g. Mitchell et al. 2000), or as heuristics that contribute to the design of entrepreneurial opportunities and markets (Sarasvathy 2001). While internally diverse, these explanations share a view of entrepreneurial action as essentially caused by different cognitions. Compared to the behavioral tradition, cognitively oriented researchers are not content with observing overt behavior; they take intentionality seriously. However, since intentionality and meaning are conceptualized as schemas and scripts, the role of the entrepreneurial subject is typically given a marginal role. Instead, cognitions operate on a sub-conscious level where they, in a sense, maneuver the entrepreneur about with little left over to the entrepreneur as an engaged subject.

This review has distinguished between two streams of research, one focusing on deviations from traditional probabilistic reasoning and the other on more positive forms of entrepreneurial expertise. In the latter stream there is a tendency to more explicitly incorporate the subject into the models. This may be done directly by reconstructing the entrepreneur’s intentions through attitudes, perceived norms and efficacy beliefs (Krueger et al. 2000). Alternatively the subject is black-boxed and treated as an original source of energy which is channeled through more general principles of action (Sarasvathy 2001).

2.2.3      Discursive approaches

“Rather than to see entrepreneurs as masters of their own creation, entrepreneurial identities are formed in the webs of actualized discourses” (Steyaert 2004a).

Focus

In the discursive tradition, individuals, events and actions are not treated in isolation. Investigations instead focus on the individually held and socially shared stories and discourses that tie events, actions and phenomena together. This ability to reflect back and think forward in terms of sensible stories and to see actions as part of a greater storyline is what allows people to make sense of specific phenomena, events and actions (Weick 1995). [VII] Entrepreneurs thus draw on different discourses to make sense both of situations and their own part in these situations, and then proceed to act out their perceived roles (Downing 2005). An important goal is therefore to highlight alternative and marginalized ways of comprehending entrepreneurial action and entrepreneurship writ large (Hjorth and Steyaert 2004).

Antecedents

The discursive or linguistic turn has had a great impact on management and organization studies generally (cf. Weick 1995, Czarniawska 1997) and is also beginning to create waves in entrepreneurship studies (e.g. Hjorth and Steyaert 2004, Jennings et al. 2005). Speaking of the behavioral tradition and especially longitudinal investigations, Van de Ven and Engleman (2004) argue that meaningful and coherent narratives are necessary if researchers wish to move beyond describing sequences of behaviors to actually explain entrepreneurial processes. They argue that most existing investigations of entrepreneurial processes use a variance approach that pays scant attention to issues of meaning and purpose. Steyaert (2004a) similarly complains that psychologically inspired entrepreneurship researchers have been preoccupied with first traits and later cognitive mechanisms. He suggests that asking ‘who is an entrepreneur’ is not a bad question but that, following recent developments in psychology, researchers should reconstruct the entrepreneurial subject in terms of different public discourses. Discursively oriented entrepreneurship researchers thus reject anthropocentric and decontextualized knowledge in the form of both behavioral sequences (Van de Ven and Engleman 2004) and cognitive mechanisms (Steyaert 2004a). Instead, stories and storytelling are proposed as means of understanding entrepreneurial identities, how entrepreneurs legitimate their actions to themselves and to others, and as a general way of imposing order on uncertain situations. The discursive approach can also be seen as a more reflexive extension of traditional research on the influence of culture and institutional pressures (Lounsbury and Glynn 2001).

Method

Some economists and sociologists point out the importance of understanding entrepreneurial actions against the backdrop of prevailing institutional frameworks and the general culture (e.g. Lavoie and Chamlee-Wright 2001). This tradition is related to research on contextual pressures mentioned in the introduction of Chapter 2. Others take a more micro-level approach and try to describe locally valid narratives that capture specific entrepreneurial processes. Drawing on Burke (1945), such stories often include a plot that describes what is taking place, the contextual backdrop, the purpose or moral that the story seeks to convey, a set of more or less salient actors, and a sequence of events taking place over time (e.g. O’Conner 2004, Van de Ven and Engleman 2004, Downing 2005). By bringing these different parts together in detailed and coherent narratives, entrepreneurial actions and events can be given meaningful interpretations that go beyond mere event sequences. The underlying logic is that “the story provides the reason for a particular action, thus giving it meaning” (Steyaert and Bouwen 1997: 54). [VIII]

Findings

Since most economists equate action with choice (Lane et al. 1996), entrepreneurial action has often been reduced to an optimizing exercise where culture and the specific situation are reduced to variables in the decision framework. In the discursive tradition, issues of culture and embeddedness are instead brought to the forefront. What counts as entrepreneurial or what is an efficient entrepreneurial strategy differs depending on specific cultural and social structures. Successful entrepreneurial actions are therefore influenced by the culture in which they take place; entrepreneurs who succeed are those who are attuned to prevailing cultural norms and trends, and who manage to align their venture activities with these (Lavoie and Chamlee-Wright 2001). There are numerous examples of this phenomenon, especially in writings on economic sociology. In her investigation of the direct-selling industry, Biggart (1989) for instance found that Taiwanese women succeeded by recruiting relatives to increase their standing in the organization. Given the negative attitude toward nepotism, this practice was less common in the US.

Entrepreneurship is often associated with profit. However, the focus on entrepreneurship as culturally embedded, in combination with the inherent uncertainty of the future, suggests that the actions that turn out to be profitable are not always economically motivated. Since all forms of socially embedded action may potentially lead to profitable opportunities, all actions should be considered as potentially ‘entrepreneurial’ actions. The results of networking and building up social capital may identify potential risks and disclose new opportunities. However, this is typically not why such activities are undertaken. Social networks are often built up for reasons other than their potential economic value (Arrow 2000). Jack and Anderson (2002) illustrate this in an investigation of entrepreneurs in the Scottish highlands. The authors conclude that being embedded in local social structures provides resources and opportunities that crucially support venture development. The authors specifically emphasize non-economic networks and family ties in this process (cf. Johannisson and Mönsted 1997). Entrepreneurs should consequently not be viewed solely in terms of received ‘entrepreneurial’ qualities, behaviors or relationships. Instead it may be useful to see entrepreneurs as “complete human beings” (Johannisson 1989: 105) since it is almost impossible to know beforehand what will prove to be relevant input for creative syntheses and actions (Koestler 1964).

This suggests that the traditional management vocabulary which borrows heavily from sports, warfare, computers and machines may fail to describe important aspects of entrepreneurial action. Many researchers have noticed that the meaning systems and vocabularies which entrepreneurs (and researchers) use to make sense of events and situations will affect what actions are taken (and what questions are asked) (Gartner 1993, Steyaert and Bouwen 1997). Cardon et al. (2005) suggest that parenting may provide a new and fruitful metaphor for entrepreneurship. The relation between parent and child contains irrational emotions, passion, identification and unconditional support. In such a relational and emotional idiom, risks and opportunities that may otherwise have seemed paradoxical and irrational can instead make perfect sense (Poolton and Ismail 2000). Hjorth (2003) similarly argues that the entrepreneurship discourse is preoccupied with a managerial vocabulary that tends to crowd out play, creativity and passion.

Such alternative metaphors imply a less heroic understanding of entrepreneurship and a focus on more mundane qualities of entrepreneurial action. Everyday actions and feelings are seen as important, especially during early phases, because it is in everyday life that entrepreneurs can pick up the hints that may lead to the development of profitable entrepreneurial ventures. Sarasvathy urges researchers to begin “in the mud of common human experience” (Sarasvathy 2004b: 289) and Steyaert argues that “the everyday is the scene where social change and individual creativity take place as a slow result of constant activity” (Steyaert 2004b: 10).

Researchers in the discursive tradition often emphasize the tension between universal theories and specific cases. The goal is often to challenge taken-for-granted truths and theories by developing detailed narratives that emphasize alternative viewpoints and purposes (Hjorth and Steyaert 2004). The focus on mundane and context-specific actions can also yield more functional strategies for how entrepreneurs can survive and succeed by interacting and aligning their ambitions with different stakeholders. As mentioned above, entrepreneurs need to align their actions with prevailing cultural norms in order to gain legitimacy (Lavoie and Chamlee-Wright 2001). However, at the same time entrepreneurs must break with prevailing norms and stand out as unique in some respect. This requires a reflexive use of discourse such as when entrepreneurs construct stories of themselves that balance the need to stand out as different and unique with the projection of legitimacy and appropriateness (Lounsbury and Glynn 2001). Lane and Maxfield (1996) similarly describe a number of general lessons for constructing new stories that extend into the future. Specifically they argue that entrepreneurs need to foster generative relationships that produce new and unforeseeable sources of value in the face of short planning horizons. First entrepreneurs should continuously interrogate their understanding of themselves, other agents and the artifacts around which the venture is organized. Based on such understanding the entrepreneur should identify and nurture key relationships. It is important that partners in such relationships share some general goals but also differ in some respects. In such generative relationships and conversations with others, entrepreneurs are thus able to reevaluate the identity and meaning of the venture and its future prospects. This allows the entrepreneur to construct a coherent storyline that extends into the future, thus enabling confident actions even in the face of great uncertainty (Lane and Maxfield 2005).

It is clear that the emergent identities of the venture and the entrepreneur constitute important parts of understanding action in the discursive tradition. Entrepreneurs in different ways try to make sense of their situation including their own identity and perceived role in these situations. This in turn determines which actions stand out as legitimate and appropriate. Also the decision to become an entrepreneur has been explained as a result of identity change, where the relative salience of the entrepreneurial self-identity becomes more central as the result of certain experiences (Hoang and Gimeno 2005).

The importance of identity and local interpretations means that a given activity or event observed by an outsider, e.g. making a sale, may mean radically different things at different times to the entrepreneur performing it (Van de Ven and Engleman 2004). This is nicely illustrated in a study by Ellen O’Connor (2004) who followed a Silicon Valley Internet start-up, partly as an employee, over the course of its lifetime. Her story details how the actions undertaken were in fundamental ways shaped by the evolving identity or storyline through which the people in the venture understood themselves and consequently sought to legitimize themselves and their product to external stakeholders. Originally the business idea was described in terms of radicalizing democracy and perhaps even overthrowing capitalism. This was to be accomplished by using Internet technology to harness individual opinions about firm misbehavior and social problems, thereby affording common but dispersed opinions a loud and focused voice. With time the organization was forced to redefine itself and its goals in order to gain access to resources and customers. As a first step the founders complemented their original vision with a traditional profit-seeking product line. The ambition was that the commercial profits would be a side activity that could financially and technologically support the original vision. Over time and with the entry of new team members, conflicts emerged and the commercial story became more and more dominant as the firm saw itself forced to comply with traditional product definitions and accepted behavior. In the end the firm found itself developing a sub-system for a customer relations management tool. Over the course of the firm’s development, the nature of relevant risks and legitimacy of opportunities changed. This means that the same kind of activity, such as developing a product or approaching a partner, implied radically different things depending on what storyline it was part of. Ultimately the entrepreneurs found themselves forced to gain necessary legitimacy through a step by step “grafting of the storyline of the new company onto existing relevant, generally accepted, and taken for granted storylines” (O’Conner 2004: 106).

Trends and Suggestions

The discursive approach to entrepreneurial action gives meaning and interpretation a central position. The idea is that entrepreneurs are contextually embedded and have to develop their ventures against a backdrop of publicly available and locally constructed discourses. Considering these discourses is therefore seen as necessary to understand both the goals and workings of entrepreneurial action.

By describing entrepreneurial action as essentially dependent on discourses, for instance as acting out a role in a perceived storyline, this tradition runs the risk of downplaying creativity and individual agency. Discursive approaches may therefore stand to benefit from studies that emphasize the reflexive and skilled use of stories and discursive resources (Lounsbury and Glynn 2001, Downing 2005). This is what Lane and Maxfield describe in their discussion of community-building and nurturing generative relationships as means to overcome uncertainty (Lane and Maxfield 1996).

Researchers in the discursive tradition often highlight marginalized stories and conceptualizations of entrepreneurship as a way to enrich theoretical understanding. One outcome of such studies is the development of new metaphors for entrepreneurship. Such enriched discourse may expand our interpretive toolbox and influence the way we view entrepreneurial action. Some examples are notions such as enactment (Gartner 1993), emergence (Steyaert and Bouwen 1997) and the emotional idiom of parenting (Cardon et al. 2005), which all provide alternative interpretive lenses compared with the traditional functionalist vocabulary.

2.3      Summary

The present review of research on entrepreneurial action is organized under the three broad headings of behavioral, cognitive and discursive approaches. This division is admittedly rather crude as the different approaches overlap each other and also contain a lot of internal variation. Still, these three themes broadly describe how entrepreneurial action has been conceived and researched to date. In the same sketching manner they indicate in what ways current research may be complemented. Table 1 summarizes some relevant aspects of these approaches.

Table 1. Summary of research approaches in entrepreneurship studies.

All three approaches seek to describe and explain how entrepreneurs take action, i.e. take risks to pursue opportunities in the face of uncertainty. Each approach also brings important contributions to our understanding of entrepreneurial action, not least the critical issue of how actions are motivated under conditions of great uncertainty. The behavioral approach emphasizes the heterogeneous and open-ended nature of the entrepreneurial process and suggests that undertaking many and publicly visible actions may be good strategies. The cognitive approach targets individual thinking and suggests that different biases and heuristics make action feasible in the face of great uncertainty. The discursive approach embeds actions and thoughts in a greater context and makes uncertainty manageable by invoking or creating new realities that are viewed as legitimate by relevant stakeholders.

This thesis seeks to complement these findings by exploring how entrepreneurs experience risk, opportunity and the role of self as part of the venture creation and development process. The goal is to investigate these aspects of the entrepreneurial life world in some detail and then use the findings to further elaborate the notion of entrepreneurial action.

Such investigations seem to be in line with trends in the existing literature. In the behavioral tradition the methodology used typically yields rather coarse-grained results, and repeated calls have been made for micro-level investigations (Gartner and Carter 2003). In the cognitive tradition, interesting efforts are made to identify positive heuristics that capture the thoughts and strategies of entrepreneurs (Sarasvathy 2001). Similar tenets are also elaborated in the discursive tradition where researchers investigate the skilled and reflexive use of discursive resources (e.g. Lounsbury and Glynn 2001).

The present investigations take a cue from these suggestions, and focus explicitly on entrepreneurs’ reflexive and contextually embedded thoughts and strategies. The goal is thus not to identify either cognitive mechanisms or relevant discourses in isolation. Instead the ambition is to explore the entrepreneurs’ life worlds, especially how they make sense of their situation and find meaning and structure in the venture development process. By changing the point of departure, from a view of individuals and situations as separate to a focus on lived experience, it should be possible to reach new insights about entrepreneurial action.

Methodologically this suggests a phenomenological approach, i.e. one that captures how entrepreneurs experience and enact phenomena like risk and opportunities in everyday life (van Manen 1990, Berglund 2005). The phenomenological methodology also resonates with the radical subjectivist tradition (Boettke et al. 2004). Early writers in this tradition were also strongly influenced by phenomenology, especially via Alfred Schütz (cf. Pendergast 1986) who insisted that subjects’ common-sense understandings should be used when developing theories about their conduct:

“The answer to the question ‘what does this social world mean for me the observer?’ requires as a prerequisite the answering of the quite other questions ‘what does this social world mean for the observed actor within this world, and what did he mean by his acting within it?’” (Schütz 1940: 48)

In the following section the research methodology is described in some detail before the specific studies are summarized. Thereafter the results are revisited and discussed in relation to the more general topic of entrepreneurial action.

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