the theoretical side of teaching entrepreneurship

8/14/2019 The Theoretical Side of Teaching Entrepreneurship

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THE THEORETICAL SIDEOF TEACHING

ENTREPRENEURSHIPJAMES O. FIET

Jonkoping International Business School, Jonkoping, Sweden

EXECUTIVESUMMARY

There is an on-going debate in the entrepreneurship academy about whether we can actually teach students to be entrepreneurs. Its resolution is inextrica-bly connected with our theoretical assumptions because they affect how andwhat we teach. This article is the rst in a set of two contained in this issuethat argues that we shoulddevelop more rened, cumulative theoryand teachit to students in a way that emphasizes learning by doing,which shouldaccel-

erate student mastery. This rst article treats the theoretical side of teaching entrepreneurship, whereasthe second addresses the pedagogical side of entrepreneurship theory.

Those who advocate that entrepreneurship can be understood and taught to students assume that researchers will eventually develop a more general theory of entrepreneurship. Theory is an essential part of what we teach because we do not know any other way to help students anticipate the future, whichis a key to entrepreneurial success, unless we counsel them to rely on luck or intuition. The limitationof luck and intuition is that we do not know how to teach either of them. If students could accuratelyanticipate the future, they could allocate their resources in the most productive manner, which wouldensure their survival, satisfaction and prosperity. Despite the current limitations of our theorizing, theory still offers the most promise as course content for students.

This article sides with Kuhn (1970) who argued that theory is the most practical thing that we canteach to students. Itspurpose is to comment on theprogress to date in developing entrepreneurship theory. It begins by analyzing the contents of 18 syllabi provided by participants at a retreat for entrepreneurship scholars. It notes a wide divergence in topics, and possible causes for this divergence, which seem to be

characteristic of a developing academic discipline. It appeals for more theory in our courses and suggestsquestions to which entrepreneurship scholars can provide distinctive answers when compared with thoseoffered by scholars from other disciplines.

One way to add more theoretical content to entrepreneurship courses is to teach students what theyought to do, which is coded language for theory. In addition, instructors should not merely describe what entrepreneurs do, particularly in light of the observation that most of them fail and accordingly havebeen described as ill-fated fools. Finally, assuming that scholars can offer a more general theory of entrepreneurship, they would be able to emphasize more deductive approaches as opposed to inductive ones.

Address correspondence to Dr. J. O. Fiet, Jonkoping International Business School, P.O. Box 1026,SE-551 11, Jonkoping, Sweden; Phone: 46 36 15 62 58; Fax: 46 36 16 10 69; E-mail: [email protected]

I acknowledge the helpful comments of Robert Baron, Lowell Busenitz, Donna Kelly, Patti Green,Moren Levesque,Murray Low, GideonMarkmam,StevenMichael,Atul Nerkar, Phil Phan, Mark Rice,DeanShepard, Page West, Andrew Zacharakis. In particular, I acknowledge the encouragement and advice of Michael Hitt and S. Venkatraman. Errors or omissions are my responsibility alone.

Journal of Business Venturing 16, 124 2000 Elsevier Science Inc. All rights reserved. 0883-9026/01/$see front matter655 Avenue of the Americas, New York, NY 10010 PII S0883-9026(99)00041-5


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These appeals for more theoretical content depend on several assumptions, which include: (1) theimprobability that students can encounter circumstances that would be similar to anecdotal lessonslearned in entrepreneurship school; (2) the existence of a process that can be explained theoretically; (3) studying ideal types can be discouraging to aspiring entrepreneurs if they do not t a special prole; (4)the high failure rate among entrepreneurs makes suggesting to students that they ought to pattern their activities after them seem illogical; (5) studying average proles, anecdotal recommendations, rules of thumb or war stories can only lead to average returns, given semi-strong information efciency; and (6)leveraging the motivational benets of studying successful entrepreneurs may have detrimental, unin-tended consequences, among others.

This article notes possible causesof non-cumulative theorybuilding andsuggests several opportuni-ties to build cumulative theory. Although it acknowledges that the eld of entrepreneurship currentlylacks cumulative theory, it offers a contingency approach for teaching entrepreneurship, which is actuallyvery similar to the scientic method used by scholars to develop hypotheses about the future. 2000Elsevier Science Inc.

INTRODUCTIONRecent efforts to develop entrepreneurship theory have tended to accumulate separaterather than cumulative theories. Researchers have developed separate theories insteadof building upon those that relate to each other and discarding those that are invalidor irrelevant (Camerer 1985; Fiet, Busenitz, Moesel, and Barney 1997). Sometimes, itappears that entrepreneurship research commences from the very beginning each timea project is begun, as if itwere the rst time that a phenomenon were studied,even thoughit has been studied many times before. In addition, entrepreneurship researchers mayhavefocused excessively on describing entrepreneurial phenomenon rather than on de-veloping theory to enable aspiring entrepreneurs to make predictions.This phenomeno-logical emphasis seems to predominate in textbooks and research, perhaps to the exclu-sion of developing theory (c.f., Phan 1998). The result of emphasizing entrepreneurialconduct in research is that much of it lacks a theoretical basis. Furthermore, the majorityof published research focuses on issues that are not interesting to aspiring entrepre-neurs, which has impeded further the development of a body of entrepreneurshiptheory.

These concerns and others were recently the subject a 3-day retreat of entrepre-neurship scholars, which was hosted by Rennselear Polytechnic Institute. Last year, S.Venkatraman provided the theme for the gathering, which dealt with the distinctivedomain of entrepreneurship research (c.f. Venkatraman 1997). This year, the retreatfocused more on the learning aspects of entrepreneurship. I presented a workshop onthe topic of what we teach and how we should teach it. The present article and the onethat follows it originate from the arguments that I presented at the last two Renssel-ear retreats.

This article mirrors the structure of my workshop. First, I review the results of asurvey of the entrepreneurship courses taught by the participants. This review identiesthree possible causes for concern. Second, I share the results of a theory building exer-cise. Third, I appeal to entrepreneurship scholars to emphasize theoretical content intheir courses. Fourth, I offer some suggestions concerning how scholars can developand teach cumulative, relevant theory that addresses the distinctive domain of entrepre-neurship, which also has implications for how to conduct entrepreneurship research.


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TEACHING ENTREPRENEURSHIP THEORY 3

SURVEY RESULTSRetreat participants shared 18 of their syllabi, which were analyzed topically. The analy-sis found that the 18 syllabi encompass 116different topics. More striking was the ndingthat they only overlapped on about one third of the topics. Although there were noclean categories, the 18 syllabi include enough different topics to create six and a half different courses. This nding does not indicate anything about the quality of individualcourses. It does suggest, however, that members of the group teach very dissimilarcourses, which could be a warning for the eld because of its implications for pedagogyand curriculum development. 1

These differences in course content were surprising considering that each respon-dent specializes in teaching entrepreneurship. As a group, either we did not agree ona paradigm for teaching entrepreneurship or perhaps we are searching for one. Thecontent of our courses varies so much that it was difcult to detect if they even havea common purpose. The next section describes the leading topical coverage areas.

Leading Topical Coverage AreasBased on the analysis of the syllabi from retreat participants, there were six leadingtopical coverage areas. These areas are listed below in the order of their emphasis inthe 18 syllabi:

Strategy/competitive analysis

Managing growth

Discovery/idea generationRisk and rationality

Financing (mainly business angels)

Creativity

With the exception of discovery/idea generation, each of these topics comes from theestablished literature of other disciplines. Strategy/competitive analysis clearly comesfrom the strategy/industrial organization literature. Managing growth is not distinctiveto entrepreneurship, although it is emphasized often in courses in small business man-agement. The topic of managing growth isalso a common subject in organization theory,as well as many other areas in the management literature. Risk and rationality comefrom nance and economics. Financing (mainly business angels) is a stepchild of thenance literature. Moreover, creativity comes from the psychology literature.

Despite these commontopical themes, together they onlyrepresent a small propor-tion of the topics covered by the syllabi. The fact that most of these themes have theirroots in other disciplines indicates that thesyllabi do notemphasize a distinctive domain.Entrepreneurship scholars should incorporate truth into their discipline wherever theycan nd it. Eclecticism is especially appropriate for a new discipline. Nevertheless, after

1 The differences in course content could only be partially explained by individual differences incourse design.


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more than 25 years of studying entrepreneurs, it is time to begin to make our own contri-butions to what we know about what entrepreneurs should do to succeed.

There are clearlymany inuences on the diversity incontent of these courses. Threepossible inuences that should concern entrepreneurship scholars are academic autobi-

ography, lack of theoretical rigor and entrepreneurship textbooks. Each of these is ad-dressed in the following sections. Afterward, I defend an appeal for more theoreticalcontent in entrepreneurship courses. This defense will include an examination of theassumptions underlying what we should teach.

Academic AutobiographyOnepossible cause of coursedifferences is academic autobiography.This term describesa compulsion to view the world fromthe perspective ofones own training. It also suggestsan unwillingness or inability to view the world through other lenses.

The convenience sample of syllabi does notprove conclusively that academic auto-biography guided course design. However, it was interesting that many of the teachingchoices were highly correlated with the training and research streams of individual re-spondents. To theextent that academic autobiography dictates what we teach, we couldsubject our students to a narrow view of the entrepreneurship world. One way to ensurethat our views are notbiased by academic autobiography is to learn and teach paradigmsthat are outside of our personal training. This is not an argument for including all possi-ble paradigms in our courses. However, we should strive to be highly informed beforeconcluding that an approach used since graduate school is the best or only way to teacha particular concept.

Lack of Theoretical RigorThe diversity in our courses was not solely a reection of different ways of teachinga topic, which should be expected. Nor was it the natural result of pursuing academicfreedom. Instead, it may be an indication that the entrepreneurship discipline lacks suf-cient theoretical rigor to arrive at a consensus on fundamental questions. If lack of theoretical rigor is a problem, critics may be accurate that the entrepreneurship eldis not ready to be taken seriously as an academic discipline.

The level of theoretical rigor in entrepreneurship courses is strongly inuenced bythe level of theoretical rigor in entrepreneurship research. If researchers do not conducttheoretically rigorous research, the content of entrepreneurship courses will suffer. Thus,it is appropriate to consider the link between entrepreneurship research and teaching.

Whenever researchers perform similar, related or follow-up tests on variables,whether or not they are from the same sample, they have the opportunity to add tothe theoretical understanding of their ndings. Moreover, if research can be used toinform received theory, rather than newtheory, the probability is higher that it will havea strong inuence on the thinking of those who will study a phenomenon.

Less informative than introducing newtheory, though, is not imputing a theoreticalinterpretation to research ndings. This is not an argument against the generation of new theory. It is merely an observation that it takes a eld longer to assimilate newtheory and to use it to make progress than it does to build on existing theory. However,it is an argument to reconsider the usefulness of atheoretical research and teaching.

Most journal reviewers appropriately require an answer to the so what question


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TABLE 1 Rensselear Retreat Theory-Building Exercise

PANEL A: Assigned Questions and Theoretical Responses*

1. How do entrepreneurs discover economically lucrative opportunities that others miss?Alertness Search and discovery

Divergent thinking Options theoryGarbage can model General equilibrium theory (straw man)Information Persistence (hardly a theory, more of a philosophy)Communication theory LuckArbitrage Path dependenceCognition Network theoryBiases and heuristics Corridor principle

2. Why are some industries simply more attractive than others are?Dynamism Recency bias5 forces model (2 votes) Punctuated equilibriumCommitment theory (economic, psychological, Stakeholder theory

social)Industry structure (S-C-P) [Industry struc- Information asymmetry

ture rm conduct rm performance] (2 votes)Product life cycle (wrong level of analysis) Public choiceResource & suppliers sophistication IO economicsIndustry life cycle Fun-ness: Preference theoryResource-based

3. How should entrepreneurs marshal the resources to launch an entirely new business?Networking Alliance building4 Fs: friends, family, nance companies, and Agency theory

foolsResource-based theory Network theory and social capital

Capital markets Require fewer resourcesSocial capital/networking KnowledgeInstitutional theory Liability of newnessSocial skills Network theorySocial exchange theory Self-efcacy-enactment (Weickian)

4. How do entrepreneurs create a competitive advantage?Product leadership Barriers to entryIndustry standard Resource-based theory (2 votes)HRM theories Five forces modelNetwork externalities/standards LearningKnowledge (new) New combinationsHustle is strategy Tacit knowledge (specialized resources)Resource-based IO economicsContinuous innovation

(continued )

specify the research questions, if our purpose is to make progress toward building ageneral theory of entrepreneurship. Scholars mustfocus purposefully on building cumu-lative, relevant theory. Otherwise, progress is much less certain.

Panel B of Table 1 contains the questions that the retreat participants viewed asbeing important.Notice that there was no consensus view. If we assume that the answersto the suggested questions were included in an entrepreneurship course, they wouldprobably not be very interesting for students. If we assume that the answers to the sug-gested questions were not included in an entrepreneurship course, have we not lost a


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TABLE 1 Continued

PANEL B: Group-Volunteered Questions and Responses

Why do some people engage and persevere in entrepreneurship pursuitsHeuristics, biases Cognitive psychology

Financial theories How do we get out of an entrepreneurial venture and when do we get out?Financial theories Escalation of commitmentSuccession What functions are inside the entrepreneurial rm?Agency theory Social network theoryPersonality, traits and attiduesHow do entrepreneurs recover from failure?Transaction cost economics LearningChange theory How to turn current failures into future success?Learn Adapt

Decisiveness What is the process of entrepreneurial emergence?Behavioral theory Person-tFour Ps of Marketing Why do some choose to become entrepreneurs whereas others do not?Birth order Career theoryNeed for achievement Locus of controlSelf-action

* The only purpose of the columns in Table 1 is to facilitate the presentation of the responses. They do not representseparate categories or have any other meaning.

major audience for the dissemination of research results? The lack of consensus regard-ing course content may result from often failing to develop cumulative, relevant theorywithin the distinctive domain of entrepreneurship. The next section is a concerned ap-peal to reconsider what we teach. 2

AN APPEAL FOR THEORETICAL CONTENTThe theoretical concerns posed by the respondent information can be resolved if entre-preneurship teachers will take the following steps to evaluate what they teach . First,

they should ensure that they teach students what they ought to do, which is coded language for theory. In addition, they should not merely emphasize descriptions of what entrepre-neurs do. Finally, theirteachingshould emphasize moredeductiveapproaches as opposedto inductive ones. These suggestions presuppose that scholars should be focusing on de-veloping cumulative, relevant theory.

Many who favor descriptive approaches use them for inductive purposes, suppos-ing that there is an optimal mindset that can be instilled in students. Some of these sameinstructors believe that entrepreneurship cannot be taught, but it can be learned by stu-dents by studying thesuccessesof others. In addition, these descriptive approachesseemto be favored by those who perceive a need to deliver entertaining content. However,

teaching theory that will help students tounderstand theconsequences of their decisions

2 The issue of how to teach entrepreneurship will be considered primarily in the next article.


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will be highly important to them in the future. We should teach students how to applytheory deductively to their special circumstances.

Why would students want to know about what entrepreneurs do, if ordinarily theyfail to survive ve years? If students study how entrepreneurs fail, they may be alerted

to pitfalls that they should avoid, which may improve their chances for success. How-ever, even the avoiding pitfalls argument is a theory that we should test. If such atest were to nd support, we could then teach the theory of avoiding pitfalls.

Assumptions Underlying the Teaching of TheoryThis article will now review some assumptions that should hold if teaching theory tostudents is better than merely exposing them to what entrepreneurs do. It is importantthat these be made explicit to understand the rationale underlying the appeal, as wellas its implications.

Studying only the conduct of successful entrepreneurs depends on the assumptionthat students will encounter a similar set of circumstances in the future for which they will be betterprepared. This approach focuses excessively on the particulars of their action tobe generalized for the benet of students. This is because the variance in what they dois a function of the many contingencies and resources bases that constrain them. Thus,studying a single entrepreneur cannot explain the differences in contingencies and re-sources that they must manage. There is no general recipe for successful entrepre-neuring. However, entrepreneurs, with help from scholars, should be able to developcontingency frameworks in which they examine facts and make predictions based oninsights gained from divergent theoretical perspectives.

In addition, the appeal depends on the assumption that there is an ideal processthat can be explained theoretically. It must be simple enough to be taught to students.The appeal does not suggest that we must have the theory now. Nor does it suggestthere must be agreement on what the theory should be. Nor must the theory be provenvalid at this point. In fact, there is value in teaching students imperfect theory, if wecaution them about possible shortcomings. Students can use imperfect theory to exam-inenecessary assumptions, practice thinking critically, and in fact, improve theory them-selves. Finally, no apology is necessary for having imperfect theory if the eld is movingforward to improve it. However, we cannot substitute anecdotal accounts, coverage of functional responsibilities and skill development for theory.

Studying ideal entrepreneurial behavior can be demoralizing to aspiring student-entrepreneurs. For example, one of the presenters at the retreat joked that 90% of entrepreneurs are the rst born sons of emigrant parents. The chances are minimalthat very many students would actually match such a prole. The risk is that we couldconvince unknowing students that the odds are against them if they do not match acertain ideal prole.

There is a high failure rate among nascent entrepreneurs, so teaching students to pat-tern their efforts after this populationseems illogical. Although estimatesvary, weassumethat about 20% of nascent entrepreneurs fail each year for the rst ve years of theirventures. Thus, after 5 years, about 33% of those who begin a new venture are still inbusiness. Although this is better than the 80% failure rate commonly used for manyyears, it is difcult to conclude that a typical nascent entrepreneur has learned enoughto generalize his or her experiences to other situations. It is also difcult to conclude


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that we can learn much from studying those who survive because of mediating factorssuch as luck and bias.

This analysis suggests caution in using entrepreneurs as guest speakers if our pur-pose is to teach students what they should do to be successful. Guest speakers can work

exceedingly well if we use them to illustrate theory, which means that we should thor-oughly brief them in advance so that they understand the specic purpose of their partic-ipation.Students who are notprepared inadvance with theorymay be inuenced undulyby personal success stories. Students could unknowingly pattern their careers after anentrepreneur who is about to fail or whose circumstances are quite different from whatthe students will encounter. Thus, the entrepreneurs formula may (will) not work forthe students.

Students must learn theory in order to understand the future consequences of theirentrepreneurial decisions. Thus, it seems improbable that adjuncts can effectively teachthe course. Teaching theory is rarely a strength of adjuncts. However, adjunct or clinical

faculty (as they are sometimes called) have proven to be very effective in team teachingwith tenure-track faculty who have theoretical training. The tenure-track faculty mem-ber teaches theory. Afterwards, it is illustrated by the mature adjunct from his or herentrepreneurial experiences. Third, the tenure-track faculty member summarizes whatthe students should have learned about theory. Finally, the tenure-track faculty shouldhelp the students to interpret the adjuncts experiences using the theory introduced inthe session.

Studying average entrepreneurial proles, anecdotal recommendations, rules of thumb or war stories can only lead to average returns , given semi-strong informationalefciency,which assumesthateconomic actors respondto historical and public informa-

tion (Fama 1980). Although information efciency varies across markets (Fiet 1996),and the actual level in a particular market is an empirical question, there is supportfor this level of efciency in public equity markets. Entrepreneurial proles, anecdotal recommendations, rules of thumb and war stories consist of general information thatis readily available to others because it can be transferred ata very low cost. In the short-run, rst movers who formulate their strategy using general information will divide anyprots that they could make with others who have similar ambitions and information.This occurs because others enter the market. Entry continuesuntil all entrants are earn-ing average returns. Under this scenario, no aspiring entrepreneur would take a riskto earn the same as anyone else.

It follows that to earn above average prots, economic opportunities that are un-known to others must be discovered. Thus, entrepreneurial success is typically an indi-vidual accomplishment. If it could be fully described, it would be imitated, which wouldresult in average returns. Books that attempt to describe how to get rich quickly byfollowing a particular formula will in the long-run only lead to average prots. Theseconclusions are based on the theory of market efciency and rational expectations(Copeland and Weston 1988).

Inductive or cross-sectional research cannot detect opportunities for wealth creation.Each of these is limited in its effectiveness if we assume that wealth creation is the resultof unique, costly to imitate discoveries. This is one reason students often nd it boringand irrelevant when we teach the results of such research. Even case study research maynotbe valuable becausediscoveries areoften dependent uponarbitraging intertemporaldifferences that may be ephemeral and path dependent. The pedagogical value of re-


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TABLE 2 Assumptions of the Appeal for Theoretical Content

1. Studying only the conduct of successful entrepreneurs depends upon the assumption that students inthe future will encounter a similar set of circumstances for which they will be better prepared.

2. Studying ideal entrepreneurial behavior can actually be demoralizing to aspiring student-entrepreneurs.3. There is a high failure rate among nascent entrepreneurs, so teaching students to pattern their efforts

after this population seems logical.4. Studying average entrepreneurial proles, anecdotal recommendations, rules of thumb or listening to

war stories can lead to average returns, given semi-strong informational efciency.5. Most of our research cannot detect opportunities for wealth creation.6. There is no apparent reason to study irrational behavior if our purpose is to teach students how to succeed.7. Leveraging the motivational benets of studying successful entrepreneurs may have detrimental, unin-

tended consequences.

search about how entrepreneurs succeed is that it may provide illustrations for teach-

ing theory.There is no apparent reason to study irrational behavior if our purpose is to teach students how to succeed. Even if entrepreneurs do not act rationally when they launcha business, we will not suggest to students that the way to be successful is to act irration-ally. Such observations as, the only reason that they succeeded is because they did notknow what they were getting into when they started, otherwise they never would havedone it, concede the argument that we do not have much to ameliorate the problem.

Leveraging the motivational benets of studying successful entrepreneurs may havedetrimental, unintended consequences. Clearly, there are motivational benets to study-ing successful entrepreneurs. The danger in leveraging them is that they may beguilestudents with uninformed zeal. Uninformed zeal could lead to the destruction of entre-preneurial wealth over time. Students rarely lack the motivation to be entrepreneurs.What they need is direction, a code word for theory.

Table 2 summarizes the assumptions of the appeal communicated herein, whichis based on the need to teach theory if we expect to deliver the content demanded byincreasing numbers of newstudents. The next section discusses the value of using theoryas a guide for students.

USING THEORY TO GUIDE STUDENTSWe weaken our teaching effectiveness when we try to teach the answers to questions thathave not been addressed in the literature of a theoretical stream of research. Atheoreti-cal teaching has limited usefulness as a guide for instructing aspiring entrepreneursabout their prospects for future success. According to Alfred North Whitehead (1917):

The importance, even in practice of the theoretical side of . . . [entrepreneurship]arises from the fact that action must be immediate, and takes place under circum-stances that areexcessively complicated. If we wait for thenecessities of actionbeforewe commence to arrange our ideas, in peace, we shall have lost our trade, and inwar, we shall have lost the battle. Success in practice depends upon theorists wholed by other motives of exploration, have been there before, and by some goodchance have hit upon the relevant ideas. By a theorist, I do not mean a man whois up in the clouds, but a man whose motive for thought is to formulate the rules ac-cording to which events occur. A successful theorist should be excessively interested


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in immediate events, otherwise he is not at all likely to formulate correctly anythingabout them (p. 15).

The objective of entrepreneurship theory is to help entrepreneurs to understand theconsequences of their decisions. Why else should students study entrepreneurship? If we do not move toward the development of a general theory of entrepreneurship, in theend, our courses will have little more than motivational value. 3 According to ProfessorWhitehead (1917):

My contention is that this world is a world of ideas, and that its internal relations arerelations between abstract concepts and that elucidation of the precise connectionbetween this world and the feelings of actual experience is the fundamental questionof scientic philosophy (p. 16).

Like Professor Whitehead, my contention is that our classrooms should be a world of ideas in which we elucidate the relations between abstract concepts and how they can

help our students to succeed. Standing in the way of this goal is the development of relevant, cumulative theory within the distinctive domain of entrepreneurship.After considering possible causes of separate, noncumulative research ndings, this

article identies opportunities for theaggregation of related ndings into a more generaltheory. Next, it outlines an approach for building theory so that it can be more easilytaught in our courses. This article will argue that there can be both appropriate 4 andinappropriate theoretical syntheses 5 from the incautious application of such a process,which can lead to conicting and fallacious conclusions, as well as additional confusionabout course content. Finally, it argues that it is important for us as researchers notonly to conduct theory-based research, but also to emphasize its importance in bothour teaching and research.

POSSIBLE CAUSES FOR NON-CUMULATIVE THEORYA possible cause fornon-cumulative theory maybe theperformance of testsof statisticalsignicance on the inuence of theoretically uninteresting variables. In contrast, vari-ables are especially interesting when they provide concomitant support for competingtheoretical perspectives. Research that pits perspectives against each other is useful forevaluating the underlying assumptions of each perspective, which eventually may leadto more valid and reliable theory. In addition, pitting theories against each other may beuseful for identifying the domains within which each of them provides predictive power.

Another possible cause of the accumulation of unrelated results is that they aregenerated by the persistent appearance of descriptive research, which often makes noeffort to contribute to our understanding of the variance in dependent variables. Thispersistence is understandable because it is much easier to describe observations than

3 However, like trade schools, we could claim that we are training students in skill development suchas, incorporating a new business, patenting a product, or running an ad in the newspaper. If we opt for thatargument to support what we teach, our students will not be able to utilize what we teach them to earn abovenormal returns because it is easily codiable and transferred to others. Thus, students with trade school-likeknowledge can only earn average returns by using it, unless they are lucky.

4 Agency theory and procedural justice will be set forth as highly complementary in their approachesand candidates for theoretical synthesis.5 Agencytheoryand transaction cost economicswillbediscussedassimilar but less appropriateas candi-

dates for a theoretical synthesis.


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TABLE 3 Theories that Address Similar Questions about Entrepreneurship

Theories Addressing RepresentativeResearch Question Research Question Researchers

How should entrepreneurs discover economi- Informational Economics Hayek; Arrow; Fiet

cally lucrative opportunities that others Decision Making Theory Busenitz & Barneymiss?How should entrepreneurs identify the most Industrial Organization Porter

attractive industries? EconomicsAustrian Economics JacobsonGame Theory Nielson

How should entrepreneurs marshal the re- Agency theory Fama & Jensensources to launch an entirely new business? Procedural Justice Greenberg

Social Embeddedness GranovetterTransaction Cost Economics Williamson

How should entrepreneurs create a competi- Resource-Based Theory Barneytive advantage? Hypercompetition DAveni

it is to predict outcomes using theory. One way to justify the prevalence of descriptiveresearch is to label it as exploratory.

The underlying justication for exploratory research is that not enough is knownto formulate testable hypotheses. If we substitute the word hunch for hypothesis,there are very few instances when we do not have a hunch about the results of eventhe most preliminary research. Often our hunches are based on our understanding of theories that have generated satisfactory research outcomes for us in the past. If noknown theory can assist us to develop insight about a hunch, we are free to propose

a new one. Proposing a new theory when we cannot interpret a research question withan existing one is better than conducting atheoretical research. All that we do whenwe propound a new theory is tell a story. Theory building is no more than story telling(Daft 1987).

OPPORTUNITIES FOR THE AGGREGATION OFRELATED THEORIESAll theories in the social sciences, including those that examine entrepreneurs, are insome ways inaccurate, contradictory, or incomplete. Consequently, it is not surprising

that many of these separate theories do not easily cumulate, especially because most of them do not have their origin in entrepreneurship research. Nevertheless, they providepenetrating insights on many aspects of entrepreneurial conduct and wealth creation.

The purpose of this section is to identify groups of theories that address the ques-tions posed in the Rensselear theory building exercise. 6,7 Ideally, it would have beenpossible to demonstrate how most of the Rensselear submissions could be incorporatedinto a general theory of entrepreneurship that could be easily taught to students. How-ever, such a task may be impossible and beyond the scope of this article. Table 3 summa-

6 Space limitations prevent providing an extensive analysis and comparison of each of the theories re-

viewed in this section. Those wishing more information about particular theories than is provided in thissection or in Table 1 should consult the references in this section.7 Some minor changes were made in the actual questions to make them editorially consistent in

this article.


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rizes possible groupings of theory. The discussion that follows illustrates how divergentperspectives provide insights into different aspects of each question.

Question One: How should entrepreneurs discover economically lucrativeopportunities that others miss?Serial entrepreneurs seem to have a special knack for repeatedly discovering hiddenvalue. Are they simply luckier than the rest of us? If their discoveries depend upon luck,it follows that the rest of us should resist the urge to be entrepreneurial, unless of course,we feel especially lucky. Two perspectives provide insights into this conundrum.

Informational Economics

It is the study of how entrepreneurial discoveries should be made, not necessarily howthey are made. It assumes that not all information is equal in value when it comes tomaking entrepreneurial discoveries. Information that is related to the time, place, orspecial circumstances of a potential deal is more valuable in making an entrepreneurialdiscovery than general information (Fiet 1996, in press; Gifford 1992, in press; Hayek1945). It suggests that information, like any other commodity, can be purchased at aprice,however, ex ante , its acquisition is partially a gamble on its unknown value. Never-theless, entrepreneurial discovery is viewed as a rational investment process that canbe understood and mastered.

Decision-Making TheoryBusenitz and Barney(1997) argue that entrepreneurs often substitute biases and heuris-tics for well-reasoned analysis and investments in specic, risk-reducing informationabout a deal. They do this to economize on decision-making effort in the face of themany choices that they encounter when launching a new business (c.f. , Kahneman andTversky 1984; Tversky and Kahneman 1981).

We would know much more about how to discover lucrative opportunities if theinsights from informationaleconomics anddecision-making theorywere integrated. For

example, when is it optimal to invest systematically in the acquisition of risk-reducinginformation and when is it acceptable to circumvent this rational process by using shortcuts, such as biases and heuristics?

Question Two: How should entrepreneurs identify the mostattractive industries?The pharmaceutical, medical devices and semiconductor industries have been histori-cally much more protable than inter-city buses, steel, and corn farming. If we knewthe causes for these differences in industry attractiveness, we could coach entrepreneursto avoid competing in certain industries or alternatively, to attempt to restructure themthrough cooperative strategies, regulation, and government lobbying. This section ex-amines three approaches for understanding industry attractiveness.


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Industrial Organization EconomicsMichael Porter (1980) summarized 40 years of research on the structure of industries.He argued that thecritical competitive factors were buyers, suppliers, substitutes, poten-tial entrants, and rivals. The important dimension connecting these factors is interde-pendence, which prevents one competitor from earning above normal returns withoutit lowering the prots of other rms in the industry. The greater the competitive interde-pendence among rms, the less attractive are the prospects of the average entrepreneurto earn above normal prots (Copeland and Weston 1988). The way to prosper in Por-ters ve forces world is [colluding] behind strategically erected entry barriers . . . (Ja-cobson 1992, p. 783; c.f., Rumelt 1988). The problem for entrepreneurs is that withouterecting barriers to entry, there is no incentive to incur the risk of possible losses associ-ated with discovery and innovation.

Austrian EconomicsIt assumes that entrepreneurs possess heterogeneous resources from which they canearn Ricardian rents (Rumelt 1987). In addition, they can earn quasi-rents throughcapi-talizing on innovation and then utilizing isolating mechanisms to forestall competitiveimitation (Rumelt 1987). Entrepreneurs also have a high level of uncertainty becauseof incomplete or inaccurate information. Finally, entrepreneurs may not know how toduplicate each others strategies without suffering from a cost disadvantage. The as-sumptions of Austrian economics are actually the opposite of the equilibrium assump-tions of such neoclassical economists as Walras (in 1874) and Marshall (in 1890). Indus-trial organizational economics is actually derived later from the least stringentassumptions of Neoclassical Economics ( c.f., Kirchhoff 1997).

Game TheoryThis theory identies different games that areplayed by competitors (Grimm andSmith1997). These games are zero-sum, positive-sum/growth, negative-sum/decline, andchange to positive-sum/growth, among others (Nielsen 1988). The rules of a game spec-ify the ways in which competitors are allowed to compete in a given industry. Competi-tors have little power to change the rules of a game in which they compete. Positive-sum/growth games enable competitors to increase their sales while merely maintainingmarketshare, whereas fora negative-sum/declinegame, competitors must increase theirmarket share to hold on to their existing sales. The most promising way for rivals toimprove the outcomes from their game is to cooperate with each other to stimulateprimary demand. Unless competitors cooperate to change the rules of their game, theymay be consigned to a competitive equilibrium inwhich none of themwill really prosper.

Deciding which of these industry descriptions (theories) is the most appropriateindicator of industry attractiveness is an empirical question. It seems apparent that Aus-trian economics describes most industries. However, the other two are also plausible,as are others that are not reviewed here. Ideally, each of these could be integrated inone theory that could provide contingent insights.


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Question Three: How should entrepreneurs marshal the resources to launchan entirely new business?Aspiring entrepreneurs and public policy makers have lamented the capital gap thatpurportedly exists, which may prevent those with deserving ideas from being funded.Several theories contribute to understanding how this capital gap can be overcome.

Agency TheoryIt assumes that resource suppliers and entrepreneurs may have divergent self-interests(c.f., Eisenhardt 1989; Fama and Jensen 1983; Jensen 1994; Jensen and Meckling 1976).If entrepreneurs are to succeed in acquiring needed resources, they must provide re-source suppliers with incentives to compensate for their different interests. Agency the-ory contributes greatly to our understanding of incentive alignment problems, such asthose associated with venture funding. It suggests that entrepreneurs can substitutemonitoring for bonding, if they lack necessary capital, and vice versa, if they do notwish to be monitored (Barney, Fiet, Busenitz, and Moesel 1996).

Procedural Justice TheoryIt suggests that preserving an effective ongoing relationship between the entrepreneurand venture capitalists requires that the parties be able to maintain the perception thattheir exchange partner is acting fairly in compensating them for contributed work (Fiet,Busenitz, Moesel, and Barney 1997; Greenberg 1987, 1990; Korsgaard, Schweiger, andSapienza 1995; Sapienza and Korsgaard 1994).

Whereas agency theory emphasizes possibly different interests, procedural justicesuggests how these differences may be overcome.

Transaction Cost EconomicsIt also contributes to our understanding of the availability of nancing for new busi-nesses. Although agency theory relies upon the assumption of market efciency, trans-actioncost economics presupposes that rmsactually come into existencewhen marketsfail to be informationally or allocationally efcient. Williamson (1975, 1985) notes thatmany factors may contribute to market inefciency, particularly those mentioned inTable 2 under human and environmental assumptions. Transaction cost economicsshares with agency theory the observation that one way to overcome any opportunistictendencies of providers and users of capital is to monitor the capital user.

Social Embeddedness TheoryEntrepreneurs acquire needed resources through exchange relationships. Over time,these relationships may socialize the exchangers so that they become trustworthy (Fiet1995; Granovetter 1985), which lowers acquisition costs. In contrast, infrequent ex-changers have higher acquisition costs due to possible malfeasance. The network of ex-change relationships serves as an implicit monitoring device to forestall opportunism.Granovetter (1985) would argue that opportunism is unlikely when exchange relations


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16 J.O. FIET

become socially embedded because repeated reciprocal exchanges supplant opportun-ism with trust. To the extent thatentrepreneurs can increase the frequency of exchanges,trust increases and decreases acquisition costs.

Clearly, improvingourunderstanding of marketefciency, incentivealignment and

trust, as suggested by these approaches, would greatly add to our understanding howto advise aspiring entrepreneurs to launch their ventures.

Question Four: How should entrepreneurs create a competitive advantage?Michael Porter (1985) heightened our awareness of the desirability of a competitiveadvantage in his second book. He suggested that rms that possessed a competitive ad-vantage would be positioned to earn higher prots. The following theories address thisissue of competitive advantage.

Resource-Based TheoryThis approach attends to a rms heterogeneous collection of resources, which arehoused internally (Penrose 1959; Wernerfelt 1984; Barney 1986; 1997). These resourcebundles (or capabilities) enable a rm to generate quasi-rents, which are an attributeof the resources. Barney (1997) suggests that there are four major criteria that theseresources must satisfy to serve as potential sources of sustainable competitive advan-tage. These criteria are (1) valuable, (2) rare, (3) imperfectly imitable, which includesboth non-duplicatability and non-substitutability, and (4) the degree to which a rmis organized to exploit a resource. The implication of this approach is that entrepreneurs

can chose strategies, which are consistent with their resources, to gain a sustainable com-petitive advantage for their rms.

HypercompetitionThis reframing of Austrian Economics by DAveni (1994) argues that all competitiveadvantages are temporary because of increased and increasing competitive rivalry.Therefore, rather than attempting to protect their competitive advantage, entrepre-neurs should continually strive to obsolete them before they are used by a competitoras a platform forcreating thenext innovation. Alternatively, a competitorcould attempt

to destroy a competitors advantage, which would also serve to protect the distance be-tween competitive products or services. The correct approach, according to DAveni,depends upon the perceived stage of competitive rivalry.

Resource-based theory and the theory of hypercompetition use differing assump-tions about the viability of a strategy intended to generate a sustainable competitiveadvantage. In fact, they do not even agree that the generation of such an advantageis possible or even advantageous. Should a rm continually innovate to obsolete its ownadvantages and those of its competitors or should it invest in protecting what it alreadypossesses? These are the questions posed by these two theories of sustainability.

All of the theories summarized in Table 1 provide plausible premises that instruc-tors can use to teach entrepreneurship theory. 8 Entrepreneurship students can utilize

8 There is some disagreement about whether each of these theories is in fact a theory. Because theyoriginate from differentdisciplines, it is quite difcult to arriveat a consensusabout what constitutes a theory.


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them also in certain circumstances if they are careful to follow the recommendationsin the next section. Problems develop when students assume that these theories can beapplied generally without taking into account various contingencies. Moreover, theseare only some of the theoretical platforms that we can use.

A CONTINGENCY APPROACH FOR TEACHINGENTREPRENEURSHIP THEORYUntil we have a general theory of entrepreneurship, as mentioned earlier, all currenttheories of how entrepreneurs succeed are in some ways inaccurate, contradictory, orincomplete. This contention should be noteworthy to both instructors and aspiring en-trepreneurs. However, as indicated by the preceding reviewof attempts toaddress ques-tions about entrepreneurs, we have made impressive progress in our too frequently,separate, but parallel research efforts. 9 Several of the theories in the preceding review

address the same research questions, although they do so using different assumptionsor contingencies.The purpose of this section is to suggest a contingency approach for examining the

differing assumptions of theories that address similar entrepreneurial questions. Thisapproach, consisting of three questions, should assist entrepreneurs to understand bet-ter the consequences of their decisions. These are the three questions: (1) Upon whatassumption(s) does this conclusion depend? (2) What evidence is there for this assump-tion? (3) What alternative assumption(s) could explain this conclusion? Each of theseis reviewed below:

1. Upon what assumption(s) does this conclusion depend?This question recognizes that in order for theories to be distinct, they must rely upondifferent assumptions. If they did not rely upon different assumptions, they would notbe internally consistent because they reach different conclusions. Table 4 summarizesve different categories of theoretical assumptions. These assumptions are (1) primarydomain, (2) key idea, (3) unit of analysis, (4) level of analysis, and (5) human and/orenvironmental constraints. Table 4 also provides illustrations of each of these assump-tions for six theories that have been recently applied in entrepreneurship research. 10

The illustrations in Table 4 indicate that some approaches turn upon their degree

of presumed market efciency, notably transaction cost economics and agency theory,whereas power theory assumes that those who possess power can decide for others.Transaction cost economics also assumes that humans may act opportunistically,whereas the social embeddedness view predicts that embedded social relations will pre-vent it from occurring. A long-term view of the negative consequences in the relation-

Some mayfeelmore comfortablereferringtothem asperspectives.For thepurposesof this article, synthesisis more important than denitional precision.

9 All that is needed to substantiate this contention is to compare how entrepreneurship was taughttwenty years ago with howit is taught today. Twenty years ago, entrepreneurship education consistedof drillsin the fundamentalsof running a business,anecdotes, successful entrepreneur guest speakers, andwarstories.Today, we have several publication outlets for theory-based research and forums where we can debate what

and how we teach.10 The selection of these illustrations is not intended to elevate particular theories above others thatwere omitted, or to suggest that those that were omitted offer less insight. They are provided for illustrativepurposes only.


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18 J.O. FIET

T A B L E 4

A s s u m p t i o n s o f S e l e c t e d T h e o r i e s U t i l i z e d i n E n t r e p r e n e u r s h i p R e s e a r c h

H u m a n a n d / o r

T h e o r y

P r i m a r y D o m a i n

K e y I d e a

U n i t o f A n a l y s i s

L e v e l o f A n a l y s i s

E n v i r o n m e n t a l C o n s t r a i n t s

A g e n c y

R e l a t i o n s h i p s i n w h i c h

p r i n -

P r i n c i p a l - a g e n t r e l a -

C o n t r a c t b e t w e e n

U s u a l l y

i n d i v i d u a l b u t

S e l f - i n t e r e s t

c i p a l a n d a g e n c y m a y

t i o n s s h o u l d r e e c t

p r i n c i p a l a n d a g e n t

r e l a t i o n s h i p s c a n c h r i s -

B o u n d e d r a t i o n a l i t y

h a v e p a r t i a l l y d i f f e r i n g

e f c i e n t o r g a n i z a -

c r o s s t h e e n t i r e e c o n o m y

R i s k a v e r s i o n

g o a l s a n d r i s k p r e f e r -

t i o n o f i n f o r m a t i o n

e n c e s

a n d r i s k - b e a r i n g

c o s t s

P r o c e d u r a l

T h e r e w a r d p r o c e s s i n

R e w a r d s w i l l b e m e t e d

W i d e v a r i e t y o f e x c h a n g e r e -

U s u a l l y

i n d i v i d u a l , b

u t l i k e

H u m a n s w a n t t o b e t r e a t e d

J u s t i c e

e x c h a n g e r e l a t i o n s h i p s

o u t o n t h e b a s i s o f

l a t i o n s h i p s

a g e n c y t h e o r y , r

e r l a -

f a i r l y

t h e p e r c e i v e d f a i r -

t i o n s h i p s c a n c h r i s - c r o s s

S e l f - i n t e r e s t

n e s s o f t h e e x c h a n g e

t h e e n t i r e e c o n o m y


T r a n s a c t i o n C o s t

M a r k e t s

, h i e r a r c h i e s , a n d

P r o m o t e s e f c i e n t

T r a n s a c t i o n s , b

o t h i n s i d e a n d

F u n c t i o n a l , b u s i n e s s o r c o r -


v e r t i c a l i n t e g r a t i o n

t r a n s a c t i o n s a s a b a -

o u t s i d e t h e r m

p o r a t e

O p p o r t u n i s m

s i s o f o r g a n i z i n g

I n f o r m a t i o n

i m p a c t e d n e s s

A s s e t S p e c i c i t y

U n c e r t a i n t y / c o m p l e x i t y

S m a l l n u m b e r s

P o w e r

T h e s o u r c e s o f p o w e r

F o c u s e s o n t h e e f -

S o u r c e s o f p o w e r

C a n o c c u r a t p e r s o n a l , f

u n c - S e l f i n t e r e s t

c i e n c i e s t h a t c a n b e

t i o n a l , b u s i n e s s a n d c o r p o - O p p o r t u n i s m

a c h i e v e d b a s e d o n

r a t e .

p o w e r t h a t c a n b e e x -

e r c i s e d .

R e s o u r c e - b a s e d

F i r m s

F i r m s a r e c o m p o s e d o f T h e r e s o u r c e o r c a p a b i l i t y

R e s o u r c e s a r e a t t h e f u n c -

S o m e o f e a c h

p e r s o n s

h e t e r o g e n e o u s r e -

t i o n a l l e v e l a n d c a p a b i l i -

k n o w l e d g e a b o u t h i s / h e r

s o u r c e s , w h i c h i n

t i e s a r e a t t h e b u s i n e s s

r e s o u r c e s r e m a i n s p r i v a t e ,

p r o p e r c o m b i n a t i o n ,

l e v e l

w h i c h c o u l d s e r v e a s a b a -

i f e x p l o i t e d , c o u l d b e

s i s f o r a s u s t a i n a b l e c o m -

a s o u r c e o f s u s t a i n -

p e t i t i v e a d v a n t a g e

a b l e c o m p e t i t i v e a d -

v a n t a g e

S o c i a l E m b e d d e d n e s s

E x c h a n g e r e l a t i o n s h i p s

R e p e a t e d e x c h a n g e s s o - R e p e t i t i o n i n e x c h a n g e r e l a -

U s u a l l y

i n d i v i d u a l , b

u t l i k e

H u m a n s c a n b e t r u s t e d

c i a l i z i n g t h e e x -

t i o n s h i p s

a g e n c y t h e o r y a n d p r o c e -

W e l l - f o u n d e d

t r u s t i s e c o -

c h a n g e r s i n t o b e i n g

d u r a l j u s t i c e , r e l a t i o n s h i p s

n o m i c a l

t r u s t w o r t h y

c a n c h r i s - c r o s s t h e e n t i r e

e c o n o m y


19/24


ship among exchangers can also prevent opportunism, as is explained by the procedural justice perspective.

It is important notto attempt to integrate theories by combining ones with differentunderlying assumptions unless these assumptions are modied to make them compati-

ble. For example, trying to combine agency theory with transaction cost economics isnot appropriate without modifying some of the basic assumptions of each. Because oneapproach assumes market efciencyand the other market failure, although their humanand environmental constraints appear very similar, these subtle efciency differencesgenerate markedly differentpredictions.According to transaction cost economics,rmsare launched when markets fail. In contrast, agency theory suggests that rms arelaunched in part to resolve the problem of shirking during team production (Alchianand Demsetz 1972). Because some markets are inefcient and fail, 11 agency theoristshave occupied most of the last 20 years identifying conditions that explain observedmarket inefciency.

It may be appropriate to integrate separate theories when their assumptions arecomplementary. Forexample, Fiet et al. (1997)found that agency theory andprocedural justice theory could be used jointly to understand venture capitalist-initiated dismissalsof members of a new venture team because their separate insights were complementary.They found that clearly signaling the consequences of an undesirable behavior couldreduce the incidenceof dismissals, according to agency theory.Procedural justice entailsmore than signaling the negative consequences of an undesirable behavior. To act ina way that is perceived as procedurally just, exchangers must be concerned about thecapacity of survivors to be productive. Procedural justice does not foreclose negativeincentives, as long as they are perceived as being meted out fairly.

Table 5 compares the decision-making criteria used by entrepreneurs, given theassumptions of the six different theories in Table 4. If an entrepreneur is interested inevaluating the sustainability of a competitive advantage that could be generated by de-veloping a strategy based on proprietary resources or capabilities, he or she should con-sider the resource-based theory of the rm. If an entrepreneur is interested in under-standing those factors that will affect the birth and survivability of his or her rm,transaction cost economics should be consulted. If an entrepreneur is interested inknowing whether he or she should be concerned about possible opportunistic behavior,he or she should consider the assumptions of both transaction cost economics and thesocial embeddedness view. The question of which of these approaches should be usedto determine the probability of opportunistic behavior depends upon the next question.

2. What evidence is there for this assumption?This question asks us to consider the validity of a theorys assumptions. It is impossibleto evaluatethecomparative validity of twointernallyconsistent theories withoutconsid-ering the supportive evidence for the assumptions of each one.

Fiet (1995b) pitted transaction cost economics against the social embeddednessview to predict the degree to which business angels and venture capital rm investorsrely upon information from informants, information that could be changed to favor the

11 The informal market for venture capital is an example of one that fails because its business angelinvestors constantly complain about not having enough deals to review. Interestingly, angels are part of thisproblem because they have a desire for privacy and wish to preserve their anonymity (Fiet 1995a).


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TABLE 5 Important Decision Criteria of Select Theories Utilized in EntrepreneurshipResearch

Theory Key Decision Criteria

Agency Agents have separate and possibly divergent interests from those of the principles.

Monitoring may be utilized to detect agent behavior that is harmful to principals.It may be further reduced through incentive alignment, being careful to notshift excessive risk for loss of compensation for work performed to the agent.Risk of loss is more efciently borne by principals who can diversify their riskof loss.

Procedural Justice Because a fair distribution of rewards can not always be determined, it may bepossible to substitute the installment of a fair reward system and then to ensurethat the procedures themselves are scrupulously followed. In this way, theprocedures become a proxy for fair distribution.

Transaction Cost Firms exist when the cost of doing business, including transaction costs, is lesswithin the hierarchical structure of the rm than it would be in the market.The process of shifting transaction within the boundaries of a rm is referred

to as vertical integration.Power Dependency, nancial resources, centrality, nonsubstitutability, and the ability tocope with uncertainty are potential sources of power.

Resource-based If a resource (or capability) is valuable, rare, imperfectly imitable (including, non-duplicable, and non-substitutable) and if a rm is organized to exploit it, it maygenerate a sustainable competitive advantage and above normal returns.

Social Embeddedness An exchange relationship becomes embedded in a larger network of exchangerelationships after repeated, and preferably frequent exchanges. The result isthat participants become socialized to a networks norms of reciprocity andfairplay. Once socialization takes place, the embedded relationship serves as agovernance mechanism to ensure against opportunistic, end-game power plays.

informant. He found that when exchanges of information among informants were fre-quent, as in the case among venture capital rm investors, trust was high. In fact, trustamong venture capital rm investors was higher than among business angels, who com-plained about inadequate requests for funding, as well as less frequent contacts withinformants, which could have developed greater trust. Fiets (1995b)results suggest thateach theory is valid, depending on the number and frequency of exchanges that occuramong the informants.

A more recent study by Fiet et al. (1997) compared the validity of predictions madeabout the dismissal of new venture team members (NVT) by venture capitalists. It com-pared predictions made by agency theory, procedural justice and power theory. Theyreport the following results:

Poor performance is associated with NVT dismissals, as predicted by agency theory.However, the actual occurrence of dismissals seems to be moderated by the powerof the board of directors (i.e., the smaller the size of the board and the greater thenumberof VC-controlledseats)and thenecessity to act in a procedurally justmannerso NVT survivors will not feel threatened (p. 363).

Thisstudyfound that each of these theoriesprovided an incomplete explanation of NVTdismissal. However, when their interpretive insights were integrated, it found them tobe complementary and synergistic.

These studies by Fiet andhis colleagues suggest that each of the competing theoriestested by them is at least partially valid. 12 However, their individual validity was contin-

12 Busenitz, Fiet, and Moesel (1998) studied the effects of strategic intervention by venture capital rmson the performance of their investee rms. In their longitudinal study, they contrasted the predictions of


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gent upon the circumstances of the encounter. Given the partial and contingent natureof only these conclusions, it is important to be willing to accept other explanations forphenomenon. If we are willing to be open to other explanations, we will probably besurprised and delighted by unexpected outcomes. Until we arrive at a general theory

of entrepreneurship, entrepreneurs may obtain valuable insights from considering thepredictions of multiple theories, which will be useful for ensuring that they are askingpertinent questions about the future effects of their decisions.

3. What alternative assumption(s) could explain this conclusion?Considering possible alternative assumptions underlying our conclusions is importantfor several reasons. First, it is important to consider that our judgmentsabout the conse-quences of our decisions can often be inuenced by the views of others, as in the caseof groupthink (Janis 1982). It is safe to argue that when everyone agrees with the correct-

ness of a particular argument, there is some aspect of the argument that is being over-looked. These are complex matters and reasonable researchers ought to disagree untilthey understand a phenomenon very well.

Second,a psychological process that sometimesobscures our judgment is escalationof commitment (Staw 1981). Students of this process have observed that personal com-mitment to the correctness of former judgments may increase with the passage of timeand investment. Reaching an early consensus may indicate that it is appropriate to re-consider implicit assumptions.

Third, Fiet et al. (1997) describe an impatient discussion about the relative value of organizational economics and traditional management theory between Lex Donaldson

(1990a, 1990b) and Jay Barney (1990) in which the latter cited Clay Alderfer:Professor Alderfer argued that many of the conicts between academic disciplines[read, entrepreneurship theory] could be analyzed using models of intergroup con-ict (Barney 1990, pp. 389 & 390). According to Barney (1990), these debates oftendevolve into turf battles with the combatants erecting intellectual barriers to entrypresumably by inuencing gatekeepers who guard the most inuential publicationoutlets. These turf wars, Barney (1990) argued, inhibit intellectual inquiry and stiedebate, which ultimately eviscerates the most potentially interesting and productiveinquiry (p. 363).

Two requirements for building a general theory are that its assumptions be both inter-nally consistent and valid. It would be quite rare that a theory could survive the peerreview process and yet still have internal inconsistencies in its assumptions. Thus, if wewish to understand theoretically generated predictions, our primary concern should beto check for contradictory evidence that could invalidate a theory. For researchers, con-tradictory evidence means that we must ask ourselves the following question: Can thistheorys assumptions be modied to correct for contradictory evidence? In addition,entrepreneurs can modify a theorys assumptions to correct for biased and inaccuratepredictions. The process is similar for both groups because in reality, all that entrepre-neurs are trying to do is construct a theory about the consequences of their decisions.

Can we teach aspiring entrepreneurs to predict the future using research-generated

learning assistance theory, agency theory, and procedural justice theory. Learning assistance theory was notsupported, agency theory predictions were actually found to be negatively related to actual performance,and procedural justice theory was supported. This study is important because it not only pits three theoriesagainst each other, but it does so using 6 years of longitudinal data.


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22 J.O. FIET

theory? Probably not yet, but we can at least teach them to be systematic as they gothrough the same assumption-checking process as researchers. In addition, if they at-tempt to do it without the assistance of theoreticians who have already done most of the pioneering work, it will be a much more difcult and time-consuming.

Should researchers conduct atheoretical research? They can but they still need toensure that their work does not contradict received assumptions so that it contributesto the eventual development of a general theory of entrepreneurship.

As scholars, we have the responsibility to teach aspiring entrepreneurs the valueof theory. We also have a larger institutional responsibility to the eld to move it towarda general theory of entrepreneurship. Meanwhile, we can teach aspiring entrepreneursto use what is known on a contingent basis. We do not have to promise more than ourtheory-building efforts can presently deliver. We should be able to admit theoreticallimitations without becoming apologists that current entrepreneurship theory repre-sents unnished business. In this sense, we have a great deal in common with entrepre-

neurs. The business of our separate endeavors is to construct a more accurate, generaltheory about the future.

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the theoretical side of teaching entrepreneurship

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