Entrepreneurial Resourcefulness : Competing with Constraints 9781781900192, 9781781900185

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ENTREPRENEURIAL RESOURCEFULNESS: COMPETING WITH CONSTRAINTS

ADVANCES IN ENTREPRENEURSHIP, FIRM EMERGENCE AND GROWTH Series Editors: Jerome A. Katz and Andrew C. Corbett Recent Volumes: Volumes 3–4:

Edited by Jerome A. Katz

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Edited by Jerome A. Katz and Theresa M. Welbourne

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Edited by Jerome A. Katz and Dean A. Shepherd

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Edited by Johan Wiklund, Dimo Dimov, Jerome A. Katz and Dean A. Shepherd

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Edited by Jerome A. Katz and G. Thomas Lumpkin

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Edited by Andrew C. Corbett and Jerome A. Katz

ADVANCES IN ENTREPRENEURSHIP, FIRM EMERGENCE AND GROWTH VOLUME 15

ENTREPRENEURIAL RESOURCEFULNESS: COMPETING WITH CONSTRAINTS EDITED BY

ANDREW C. CORBETT Babson College, Babson Park, MA, USA

JEROME A. KATZ Cook School of Business, Saint Louis University, Saint Louis, MO, USA

United Kingdom – North America – Japan India – Malaysia – China

Emerald Group Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2013 Copyright r 2013 Emerald Group Publishing Limited Reprints and permission service Contact: [email protected] No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters’ suitability and application and disclaims any warranties, express or implied, to their use. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-78190-018-5 ISSN: 1074-7540 (Series)

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CONTENTS LIST OF CONTRIBUTORS

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WINNING AN UNFAIR GAME: HOW A RESOURCE-CONSTRAINED PLAYER USES BRICOLAGE TO MANEUVER FOR ADVANTAGE IN A HIGHLY INSTITUTIONALIZED FIELD Ted Baker, Timothy G. Pollock and Harry J. Sapienza

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SELECTIVE OR PARALLEL? TOWARD MEASURING THE DOMAINS OF ENTREPRENEURIAL BRICOLAGE Mikko Ro¨nkko¨, Juhana Peltonen and Pia Arenius

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THE BLESSING OF NECESSITY AND ADVANTAGES OF NEWNESS Benson Honig, Tomas Karlsson and Gustav Ha¨gg

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SELF-DOUBT AND ENTREPRENEURIAL PERSISTENCE: HOW FOUNDERS OF HIGH-GROWTH VENTURES OVERCOME COGNITIVE CONSTRAINTS ON GROWTH AND PERSIST WITH THEIR VENTURES Howard Haines and David Townsend

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CONTENTS

ORGANIZATIONAL RESOURCEFULNESS: THE ROLE OF PURPOSEFUL RESOURCE FOCUS VACILLATION IN IMPLEMENTING CORPORATE ENTREPRENEURSHIP James M. Bloodgood, Jeffrey S. Hornsby and James C. Hayton REENACTING CONTEXTUAL BOUNDARIES – ENTREPRENEURIAL RESOURCEFULNESS IN CHALLENGING ENVIRONMENTS Friederike Welter and Mirela Xheneti KNOWLEDGE FLOWS AND CONSTRAINTS TO THE ENTREPRENEURIAL PROCESS Thomas D. Craig, Patrick G. Maggitti and Kevin D. Clark

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LIST OF CONTRIBUTORS Pia Arenius

Hanken School of Economics, Helsinki, Finland

Ted Baker

North Carolina State University, Raleigh, NC, USA

James M. Bloodgood

Kansas State University, Manhattan, KS, USA

Kevin D. Clark

School of Business, Villanova University, Villanova, PA, USA

Andrew C. Corbett

Babson College, Babson Park, MA, USA

Thomas D. Craig

Fox School of Business, Temple University, Philadelphia, PA, USA

Gustav Ha¨gg

Lund University, Ska˚ne La¨n, Sweden

Howard Haines

University of Oklahoma, Norman, OK, USA

James C. Hayton

University of Warwick, Coventry, UK

Benson Honig

McMaster University, Ontario, Canada

Jeffrey S. Hornsby

University of Missouri-Kansas City, Kansas City, MO, USA

Tomas Karlsson

Chalmers University of Technology, Gothenburg, Sweden

Jerome A. Katz

Cook School of Business, Saint Louis University, Saint Louis, MO, USA

Patrick G. Maggitti

School of Business, Villanova University, Villanova, PA, USA

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LIST OF CONTRIBUTORS

Juhana Peltonen

School of Science, Aalto University, Espoo, Finland

Timothy G. Pollock

The Pennsylvania State University, University Park, PA, USA

Mikko Ro¨nkko¨

School of Science, Aalto University, Espoo, Finland

Harry J. Sapienza

University of Minnesota, Minneapolis, MN, USA

David Townsend

North Carolina State University, Raleigh, NC USA

Friederike Welter

IFM Bonn & Universita¨t Siegen, Bonn, Germany

Mirela Xheneti

University of Sussex, Brighton, UK

ENTREPRENEURIAL RESOURCEFULNESS: COMPETING WITH CONSTRAINTS Researchers, practitioners, and lay people alike all know that entrepreneurs have to be resourceful in order to overcome the sometimes long odds and numerous hurdles that stand between their initial idea and the ultimate success of their venture. When the global economic downturn began in 2007, entrepreneurs and non-entrepreneurs alike faced the challenge of dramatically decreased resource availability, and people and institutions found themselves in need of new ways to make things work. Researchers could not help but notice how these changes in our economy and society would open up new opportunities for thought, action, and understanding. This volume’s call was intended to tap into those new thoughts and understandings. Our thinking was that entrepreneurship is a discipline that should be able to make a distinctive and compelling contribution to the larger understanding of resourcefulness and coping with resource constraints. We know from the history of the field of entrepreneurship that when faced with resource constraints in their environment, the entrepreneur can opt to do nothing and suffer the consequences, or take action to somehow make do. Economic theorists (Hebert & Link, 2006) and sociologists (Le´viStrauss, 1966) have contended that when faced with these environmental demands, many people will take action. The economist J. H. von Thu¨nen (1960 [1850]; cited in Hebert & Link, 2006) talked about how resource constraints can dictate that ‘‘Necessity is the Mother of Invention’’ and described how entrepreneurs become ‘‘inventors and explorers’’ in their lines of work, seeking ways to make do. This approach helps us understand the lengthy history of entrepreneurial adaptation (Austin, 1934; cited in Eckaus, 1966; Marris, 1972). But Kurt Lewin’s (1939) well-known equation B=f (P, E) reminds us that if we are considering the environment, we should also consider the individual person. That leads us to recognize that while the environmental demands of resource constraints can drive entrepreneurs to become more resourceful, ix

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there are also other entrepreneurs who are resourceful by nature, and will indeed approach most situations looking for new ways to do things. This suggests that where the resource constraint-driven approach looks to react to problems by adapting and changing the approach, the resourceful individual seeks proactively to innovate or create new approaches, what Cantillon (1755; cited in Hebert & Link, 2006) and Schumpeter (1934; cited in Hebert & Link, 2006) mean when they discuss entrepreneurs’ innovations (Nelson, 1959). The ultimate expression distinguishing the resourcefulness-driven approach to innovation (Misra & Kumar, 2000) would be the goal of doing or making something new ‘‘from nothing’’ (Baker & Nelson, 2005). So in this volume we examine the latest research on entrepreneurial constraints and resourcefulness to gain a better understanding of how entrepreneurs survive and thrive against sometimes daunting odds. Crossing all levels of analysis this volume examines the resourcefulness of entrepreneurs as they face hostile environments, deeply established and institutionalized industry settings, and their own personal cognitive constraints and doubts. Written by some of world’s leading entrepreneurship researchers, each chapter examines a different aspect of the constraints entrepreneurs face and moves the literature forward by exposing new insights and directions for future research. Below we provide a glimpse into each chapter. As if being resource constrained was not difficult enough, Baker, Pollock, and Sapienza, add to this difficulty in our first chapter by examining resource constrained firms in highly institutionalized contexts. In their chapter they demonstrate how firms that act entrepreneurially can successfully navigate in an environment where they cannot modify the regulatory or normative institutions that define the industry. Using Major League Baseball as their backdrop and design setting for an intensive case analysis, these authors reveal how one team – the Oakland Athletics – were able to consistently win over time despite possessing significantly less resources than competitors from more lucrative, larger geographical markets. While the Athletics baseball organization was unable to change the rules that governed regulatory or normative institutions they did challenge a number of deeply held cognitive institutions and made use of bricolage techniques (creating new resources by applying combinations of existing resources to new problems or opportunities) to succeed even when they were being imitated by other organizations. In drawing out these findings, Baker, Pollock, and Sapienza show that even in mature and deeply institutionalized settings, acting entrepreneurially through the use of bricolage and other related activities can lead to change and success for firms of any size or age.

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In a complementary chapter Ro¨nkko¨, Peltonen, and Arenius fill a gaping hole in the entrepreneurship literature by developing a measurement scale that examines different domains of bricolage. Prior research shows that bricolage is used across three domains: inputs, customers/market, and institutional and regulatory environments (Baker & Nelson, 2005) but the field is lacking a quantitative tool to study the phenomenon. The one tool that does exist measures only the broad level of bricolage within a firm but does not investigate its different domains and forms. Starting from an initial item pool of 19 questions designed to capture all of the domains of bricolage, Ro¨nkko¨, Peltonen, and Arenius execute an extensive pilot study of hundreds of firms and follow this with a modified test of their instrument in a second study. This second study was augmented by confirmatory factor analysis that led to a final instrument of nine questions that measure each of the domains of bricolage. The outcome of their effort is a tight scale that captures the physical, labor, skills, customers, markets, and institutional and regulatory aspect of bricolage: a tool that researchers can use to study the antecedents and outcomes of bricolage in entrepreneurial firms. These first two chapters overcome the problem of resources deficiency within the entrepreneurial phenomenon by emphasizing the need for individuals to use bricolage to overcome the constraints emanating from institutional, environmental, and competitive causes. In the next chapter Honig, Karlsson, and Ha¨gg augment this view by making the case for a fundamentally different view of resource-constrained entrepreneurial firms. Espousing a perspective contrary to the mainstream and dour views of economics, institutional theory, population ecology, and strategy (Aldrich & Ruef, 2006; Hannan & Freeman, 1977), these authors examine the advantages firms may have when they are new and resource constrained. Using multiple case studies Honig and his colleagues investigate process aspects of entrepreneurial emergence and find that entrepreneurs can leverage their constraints and use their newness as an advantage. The authors tease out numerous practical and theoretical implications showing that nascent entrepreneurs can target opportunities in unique ways by addressing resource gaps through novel means not available to more mature and resource munificent competitors. The resource constraints that challenge entrepreneurs are many but most often the literature is focused on a lack of finance. Haines and Townsend move the discussion in an interesting and different direction in our next chapter as they deliver a model that explains how entrepreneurs overcome self-doubt and other cognitive constraints in order to persist, rebuild

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confidence levels, and move their venture back on track. Moving beyond simple causal models between entrepreneur overconfidence and firm persistence, these authors find that by leveraging intentionality, forethought, and self-reactiveness, entrepreneurs can rise above their negative mental states to find renewed purpose and reasons for acting in the face of these personal uncertainties. Their work suggests that self-efficacy may play a more nuanced role in the entrepreneurial process than prior theory would suggest as these entrepreneurs attempt to overcome cognitive constraints and continue to build their ventures even when they doubt their own abilities to do so. In sum the results of Haines and Townsend’s work provides researchers with an exciting new line of thinking for examining cognitive constraints and other social factors that entrepreneurs have to overcome to move their ventures forward. Our next chapter again challenges customary thinking about resourcefulness and entrepreneurial constraints when Bloodgood, Hornsby, and Hayton examine resourcefulness in the corporate context. Most might not expect a chapter on corporate entrepreneurs in volume examining constraints and resourcefulness as the prevailing thought tends to be that these larger existing organizations have munificent resources. While this may or may not be true, these authors take the discussion down a new path as they remind us that how corporate entrepreneurs utilize their resources – not merely having access or control over – is what eventually leads to performance gains. In this chapter Bloodgood and his colleagues developed the concept of ‘‘purposeful vacillation’’ as a capability that allows organizations to move between knowledge acquisition and knowledge integration. Throughout the chapter the authors distinguish vacillation from ambidexterity, exploration and exploitation, and other corporate innovation capabilities and show how it affects organizational learning and knowledge. Bloodgood and his coauthors provide an opportunity for future research by building testable propositions and theorizing about how vacillation may enhance an organization’s corporate entrepreneurship posture and lead to increased performance. We change the context again in our chapter by Welter and Xheneti and examine the need for entrepreneurial resourcefulness in challenging and turbulent environments. The chapter draws on prior research and new evidence from several projects in post-socialist countries in Central Asia and both Central and Eastern Europe. Many individuals in transitioning environments such as these strive to make a better living through entrepreneurial activities by trying to overcome continuously changing cultural, political, and economic conditions. Welter and Xheneti contribute

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to the growing literature on resourcefulness by emphasizing the importance of context and highlight how challenging environments are differentiated due to where entrepreneurs were located in socialist times and where they are located today, spatially, economically, and culturally. Their work highlights opportunity exploitation of price differentials and market demands across borders in transitioning economies and highlights some interesting, and potentially controversial, aspects of resourcefulness. The actions taken by some entrepreneurs in their case studies beg the question of whether being resourceful across borders and in some instances skirting the law is an acceptable practice. Regardless, the authors bring forward novel insights into entrepreneurial action and resourcefulness by examining previous research and looking at it through the lens of a hostile environment. In our final chapter, Craig, Maggitti, and Clark analyze and draw out the relationships between knowledge flows, the entrepreneurial process, and the constraints to the process. The authors examine four types of constraints that are prevalent in the literature – human capital, financial capital, legitimacy, and appropriability – and then explore how they are differentially affected by knowledge flows. Craig and his colleagues then organize knowledge flows into four dimensions, develop testable propositions, and build an integrative model that unites the process, constraints, and knowledge flows together. The framework developed in this chapter offers a new logic to viewing the knowledge system of an organization, and by integrating a fine-grained conceptualization of knowledge flows with existing work on entrepreneurial constraints, the resulting model provides a solid underpinning for future theory development, testing, and debate. This volume is an invaluable resource for academics examining the constructs of resourcefulness and constraints. Individually each chapter provides depth on a different aspect of phenomenon providing scholars with new avenues of research. In sum, the book provides scholars with the latest thinking on how entrepreneurs act in constrained environments. Andrew C. Corbett Jerome A. Katz Volume Editors

REFERENCES Aldrich, H., & Ruef, M. (2006). Organizations evolving. Thousand Oaks, CA: Sage. Baker, T., & Nelson, R. E. (2005). Creating something from nothing: Resource construction through entrepreneurial bricolage. Administrative science quarterly, 50(3), 329–366.

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Cantillon, R. (1931 [1755]). In H. Higgs (Ed. & Trans.), Essai sur la nature du commerce en general. London: Macmillan. Eckaus, R. S. (1966). Notes on invention and innovation in less developed countries. The American Economic Review, 56(1/2), 98–109. Hannan, M., & Freeman, J. (1977). The population ecology of organizations. American Journal of Sociology, 82(5), 929–964. Hebert, R. F., & Link, A. N. (2006). The entrepreneur as innovator. The Journal of Technology Transfer, 31(5), 589–597. Le´vi-Strauss, C. (1966). Levi-Strauss/Weightman: Savage mind. Chicago, IL: University of Chicago Press. Lewin, K. (1939). Field theory and experiment in social psychology: Concepts and methods. American Journal of Sociology, 44(6), 868–896. Marris, R. (1972). Why economics needs a theory of the firm. The Economic Journal, 82(325), 321–352. doi: 10.2307/2229941 Misra, S., & Kumar, E. S. (2000). Resourcefulness: A proximal conceptualisation of entrepreneurial behaviour. Journal of Entrepreneurship, 9(2), 135–154. doi: 10.1177/ 097135570000900201 Nelson, R. R. (1959). The economics of invention: A survey of the literature. The Journal of Business, 32(2), 101–127. doi: 10.2307/2350628 Schumpeter, J. A. (1934). In R. Opie (Trans.), The theory of economic development (translated from the 2nd German edition [1926]). Cambridge: Harvard University Press. von Thu¨nen, J. H. (1960 [1850]). In B. W. Dempsey (Trans.), The isolated state in relation to agriculture and political economy (Vol. 2). [The Frontier Wage.] Chicago, IL: Loyola University Press.

WINNING AN UNFAIR GAME: HOW A RESOURCE-CONSTRAINED PLAYER USES BRICOLAGE TO MANEUVER FOR ADVANTAGE IN A HIGHLY INSTITUTIONALIZED FIELD Ted Baker, Timothy G. Pollock and Harry J. Sapienza ABSTRACT In this study we examine how resource-constrained organizations can maneuver for competitive advantage in highly institutionalized fields. Unlike studies of institutional entrepreneurship, we investigate competitive maneuvering by an organization that is unable to alter either the regulative or normative institutions that characterize its field. Using the ‘‘Moneyball’’ phenomenon and recent changes in Major League Baseball as the basis for an intensive case study of entrepreneurial actions taken by the Oakland A’s, we found that the A’s were able to maneuver for advantage by using bricolage and refusing to enact baseball’s cognitive institutions, and that they continued succeeding despite ongoing resource

Entrepreneurial Resourcefulness: Competing with Constraints Advances in Entrepreneurship, Firm Emergence and Growth, Volume 15, 1–41 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1074-7540/doi:10.1108/S1074-7540(2013)0000015004

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constraints and rapid copying of their actions by other teams. These results contribute to our understanding of competitive maneuvering and change in institutionalized fields. Our findings expand the positioning of bricolage beyond its prior characterization as a tool used primarily by peripheral organizations in less institutionalized fields; our study suggests that bricolage may aid resource constrained participants (including the majority of entrepreneurial firms) to survive in a wider range of circumstances than previously believed. Keywords: Bricolage; Major League Baseball; institutionalized fields; resource-constraints; competitive advantage

Images of institutionalized organizational fields evoke expectations of stability and behavioral constraint structured by rules, accepted ways of doing things, and common ways of looking at the world. These three ‘‘pillars’’ of institutionalization – which Scott (2001) labeled regulative, normative, and cognitive institutions – help explain a great deal of the observed regularity in organizational behavior. Against this backdrop, however, institutional research has increasingly identified processes through which organizations in highly institutionalized environments may find ways to maneuver for their own advantage, sometimes creating organization-level innovations that drive interorganizational responses and field-level adaptation. At least two circumstances increase the likelihood that organizations will be able to maneuver for advantage. First, the resource advantages enjoyed by elite organizations and by groups of organizations adopting a common cause may allow them to alter the rules of competition in ways that redefine what it means to compete at the core of a field (Scott, 2001, p. 27). Well-documented cases of ‘‘institutional entrepreneurship’’ (DiMaggio, 1988; Maguire, Hardy, & Lawrence, 2004) involve actors envisioning and enacting the regulatory and normative changes they desire. Second, resourceconstrained organizations may reject field-level normative pressures and respond instead to local competitive pressures, in effect moving their activities away from the competitive core by competing in a somewhat different game (Kraatz & Moore, 2002; Kraatz & Zajac, 1996). Such maneuvers are not attempts by institutional entrepreneurs to change the field, but rather the attempts of disadvantaged organizations to find alternative ways to thrive. These findings also suggest that in highly institutionalized fields, organizations that are neither resource-advantaged nor able to define and play

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a different game will face tremendous restrictions on their ability to maneuver for competitive advantage at the core of the field. Current theorizing suggests that such organizations – which are quite commonplace (Hannan & Freeman, 1989) – are likely to be cultural or institutional ‘‘dopes’’ (Delmestri, 2006; Garfinkel, 1967; Giddens, 1984), enacting institutionalized rules and processes, reproducing their own disadvantages, and, hence, underperforming regularly (Bourdieu & Passeron, 1990). In other words, resource-disadvantaged organizations forced to compete directly against richer players are in effect constrained to play an unfair game. But organizations sometimes surprise us by finding ways to maneuver competitively despite facing combinations of institutional and resource constraints. Even though the rules of the games in which they must compete remain largely unchanged, they find ways to increase the usefulness of the limited resources available to them (Penrose, 1959). In this chapter, we focus on two primary questions: First, how can resource-disadvantaged actors (i.e., ones that are not free to retreat to the periphery of their highly institutionalized field) compete over time, especially when their innovations generate adaptive responses by resource-rich competitors? Second, what does the creative maneuvering of resource-constrained participants tell us about the nature of organizational resources and resource constraints? We argue that resource-constrained actors may compete by engaging in bricolage, and through this process resist and sometimes change the cognitive institutions, or ‘‘industry recipes’’ (Spender, 1989), that determine what constitutes a resource and how resources are deployed, even while the regulative and normative institutions remain largely unchallenged and unchanged. This approach stands in contrast to the practices of institutional entrepreneurs, who focus their efforts on the larger and more difficult tasks of also changing the regulative and normative institutions governing a field (Garud, Hardy, & McGuire, 2007; Kraatz & Block, 2008). Our analysis of how firms challenge cognitive institutions departs from prior work in that we focus only on changes in this institution, and we do so at the organizational, rather than field level of analysis. Further, we study the behaviors of actors whose motivations are to find alternative ways of competing despite their chronically low levels of resources – a condition typical of most entrepreneurial firms – not to revolutionize the field. We pursue these questions by reexamining some recent changes in Major League Baseball (MLB), and especially the remarkable success of the Oakland A’s, who entered the popular imagination in the United States through Michael Lewis’s (2004) bestselling book Moneyball. Baseball is a particularly good setting for our study, because MLB is extraordinarily

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mature and highly institutionalized. The game itself is composed of a constraining and stable set of rules that closely define how it is to be played, both on and off the field. Individual teams can neither change the rules of play nor choose to play a different game. At the same time, the wealth of information about specific teams, and the transparency and outcomes of their strategic actions make baseball a useful context to explore the questions before us at the organizational level of analysis (Kraatz & Block, 2008). Thus, rather than constraining our view of what constitutes an ‘‘entrepreneurial’’ firm to only those who are young and/or small, we focus on entrepreneurial behaviors, and how even larger and older firms can be useful for generating insights valuable to all types of entrepreneurial firms. Our approach harkens back to research on entrepreneurial behavior by individuals working within organizations, such as that by McClelland (1961). Prior theorizing about bricolage has suggested that constructivist notions of resource environments are useful for our understanding of entrepreneurship and of the creation of resource-based advantages (Baker & Nelson, 2005; Garud & Karnoe, 2003). This view holds that resources are what organizations make of them, and that their potential value is often entirely hidden to observers until after someone makes use of them in a novel way. Whereas earlier research on organizational bricolage has focused mainly on its use by peripheral participants or those in immature and less institutionalized organizational fields (Baker & Nelson, 2005; Garud & Karnoe, 2003), our study uncovers the role of bricolage in the survival and success of resource constrained participants at the center of a mature and economically and culturally important field. Our study thus repositions notions of bricolage toward the core of competition, while also providing insights into processes of change in highly institutionalized environments. In the next section we discuss why the Oakland A’s are a useful example of successful bricoleurs at the core of a highly institutionalized environment.

SUCCESSFUL BRICOLEURS: THE OAKLAND A’S The Oakland A’s are a tightly resource-constrained MLB team that managed over the 1996–2006 decade to win many more games than would be expected given their inability to pay the salaries required to compete for and retain star players (Hall, Szymanski, & Zimbalist, 2002; Lewis, Sexton, & Lock, 2007). Through the early 1990s, the A’s were a resourcerich team with one of the highest payrolls in MLB. However, the 1995 sale

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of the A’s to new owners, and their desire to increase profitability led to a drastically reduced payroll budget – from approximately $33.4 million in 1995 to $22.5 million in 1996 and only $12.9 million in 1997 (Mondout, 2007). Such cuts severely restricted the availability of the main resource presumed necessary to achieve success (i.e., highly talented major league players) and created a natural quasi-experiment for our study (Cook & Campbell, 1979). In each of the five years before a new management team led by General Manager Billy Beane was put in charge (1993–1997), the A’s won less than 50% of their games, compiling 329 wins and 415 losses (a 44.2% won–loss record, overall). However, during the first five years of Beane’s tenure (1998–2002), the resource-constrained A’s won 457 of 809 (56.5%) games, winning 63% or more of their games in two different years. Winning 63% of the games in a season typically means having the best or second best record among all 30 MLB teams, and is highly unusual for a low payroll team. For example, in 2002, the New York Yankees, number one in payroll in MLB ($126 million) and the Oakland A’s, number 27 in payroll ($40 million), tied at 103 wins for the best record in all of MLB. Table 1 summarizes the A’s relative performance during the period 1996– 2006. For example, the row for 2002 shows that the A’s paid only 44% as much per win as the median team in the league, ranked by payroll dollars per regular season win. No team paid less per win than the A’s, and only one team had a lower total payroll. The A’s made the playoffs by winning 63.6% of their games. Across the 11-year period, the A’s paid less than the median payroll dollar per win every year and less than half the median in six of the years. Despite being in the bottom quartile in total payroll every year, the A’s won more than half of their games in 8 of 11 seasons. This earned the A’s five appearances in the playoffs, which put them in the top quartile of the league for this period. However, the A’s failed to sustain this superior performance after 2007, as other MLB teams emulated their approach. Between 2007 and 2011 the A’s only won 47.1% of their games on average, and did not return to the playoffs (Jaffe, 2012), illustrating the difficulties in successfully competing with resource constraints once competitors adapt to your innovations. Their performance during this five-year period was commensurate with expectations based on their payroll level. Table 2 provides data on winning percentage, attendance, and payroll for the 2007–2011 period. It is notable that in the 16 years of Billy Beane’s reign that the Oakland A’s ranked 6 out of 30 in winning percentage, and 25th out of 30 in both payroll and attendance. As other small market and large market teams caught on to

401,841 477,849 517,026 600,449 704,683 815,537 896,528 882,856 841,116 875,469 950,257

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

425,001 509,964 540,147 599,672 724,572 792,944 867,691 883,911 816,218 855,264 963,137

Median Team’s $/Win

288,770 198,152 251,150 289,757 351,333 331,478 385,240 523,550 657,419 629,838 669,280

A’s $/Win

68 39 46 48 48 42 44 59 81 74 69

A’s $/Win as % of Median $/Wina 5 1 2 4 4 1 0 2 12 6 4

No. of Teams Paying Less Per Win than A’sb 6 0 2 6 5 1 1 7 14 8 9

No. of Teams with Lower Payroll than A’sb 20 20 22 22 22 22 22 22 22 22 22

No. of Teams Not Making Playoffsb No No No No Yes Yes Yes Yes No No Yes

A’s Made Playoffs?c

78 65 74 87 91 102 103 96 91 88 93

A’s Winsd

All data from MLB.com, calculations by authors. a The ordering for this measure is dollars per win measured for each team. Anything less than 100% means that the A’s are paying less per win than the median team in this ranking. b For 1996–1997, there were 28 MLB teams, since 1998, there have been 30. c During the 11 years listed, eight teams were in the playoffs each year. The 88 appearances were distributed such that 23 teams had four or fewer appearances (9 had zero appearances), and only six teams besides the A’s had five or more appearances. d MLB teams generally play 162 regular season games, thus, a team winning 82 games is doing ‘‘better than average’’ overall for the league.

Average Team’s $/Win

Year

Table 1. A’s’ Relative Performance.

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Table 2.

2006–2011 Winning Percentage, Attendance, and Payrolla.

Team New York Yankees Boston Red Sox Atlanta Braves St. Louis Cardinals Anaheim Angels San Francisco Giants Oakland Athletics Philadelphia Phillies Los Angeles Dodgers Chicago White Sox Houston Astros New York Mets Minnesota Twins Cleveland Indians Texas Rangers Toronto Blue Jays Arizona Diamondbacks Seattle Mariners Chicago Cubs San Diego Padres Cincinnati Reds Florida Marlins Colorado Rockies Milwaukee Brewers Detroit Tigers Tampa Bay Rays Montreal Expos Baltimore Orioles Pittsburgh Pirates Kansas City Royals a

W

L

Pct

Attendance

Payroll

1369 1285 1281 1247 1221 1208 1206 1201 1184 1179 1163 1156 1153 1151 1145 1143 1129 1120 1110 1102 1094 1081 1074 1062 1039 1013 993 990 957 946

895 982 985 1019 1047 1058 1060 1066 1083 1089 1104 1111 1114 1117 1123 1124 1139 1147 1157 1167 1175 1185 1195 1204 1228 1252 1273 1276 1307 1320

0.605 0.567 0.565 0.550 0.538 0.533 0.532 0.530 0.522 0.520 0.513 0.510 0.509 0.507 0.505 0.504 0.498 0.494 0.490 0.486 0.482 0.477 0.473 0.469 0.458 0.447 0.438 0.437 0.423 0.417

51,322,316 39,145,041 37,642,146 45,507,278 40,753,998 42,094,720 24,968,705 37,021,149 47,049,011 28,955,888 37,731,351 39,943,233 28,660,536 33,185,050 34,900,419 27,843,667 36,109,901 38,128,018 41,857,571 34,018,968 29,027,251 19,650,689 38,641,011 32,999,563 31,125,219 21,195,863 20,579,468 35,679,071 24,583,214 21,943,846

$2,250,097,312 $1,612,223,731 $1,235,520,754 $1,146,887,994 $1,223,135,021 $1,096,661,143 $691,682,891 $1,178,338,229 $1,329,229,120 $1,073,519,832 $1,038,700,351 $1,465,690,348 $765,234,204 $897,281,014 $1,038,996,922 $900,066,297 $948,176,895 $1,164,266,790 $1,290,494,258 $724,830,642 $790,854,221 $530,838,679 $893,893,457 $773,368,076 $1,052,904,735 $579,093,003 $616,918,761 $1,040,841,965 $559,327,156 $647,640,543

Source: http://www.hardballtimes.com/main/content/article/50th-birthday-billy-beane/

Beane’s methods, which were primarily aimed at evaluating run production, Beane and others began to turn their attention to innovating on run prevention, focusing on new statistics developed for pitching and defense. In 2012, the A’s returned to the playoffs, while again placing in the bottom 10 in attendance and payroll. The behaviors that allowed the A’s to maneuver successfully despite tight resource constraints between 1998 and 2006 match patterns of bricolage that have been previously described (Garud & Karnoe, 2003; Hmieleski & Corbett, 2006; Levi-Strauss, 1967). Bricolage is defined as making do by

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applying combinations of the resources at hand, including those available cheaply or for free, to new challenges (Baker & Nelson, 2005). As Phillips and Tracey (2007) observed, bricolage offers a useful lens for understanding entrepreneurial behavior in institutionalized environments (Rao, Monin, & Durand, 2005; Stark, 1996). The crux of our preliminary answer to the two questions we posed above thus involves how the Oakland A’s ‘‘made do’’ by applying combinations of the resources at hand to the challenges they faced (Baker & Nelson, 2005). First, the A’s have been able to find room to maneuver and compete effectively at the core of a highly institutionalized field by engaging repeatedly in bricolage. Their success has challenged long-held institutional beliefs and practices. Their initial use of bricolage in the late 1990s – which was informed by a longstanding but marginalized approach to analyzing baseball statistics known as ‘‘Sabermetrics’’1 – resulted in competitor responses in the early to mid-2000s that made resources previously available cheaply too expensive for the A’s.2 In a subsequent use of bricolage beginning around the publication of Moneyball – in which the A’s seem to be contradicting both some Sabermetric ‘‘truths’’ and their own prior espoused beliefs – they found new ways to make do with resources now undervalued by other competitors, making it to the playoffs in both 2003 and 2006. These observations provide the basis for our answer to the second question, which asked what could be learned from the creative behavior of resource-constrained players about the nature of resources.

INSTITUTIONAL THEORY AND MANEUVERING FOR ADVANTAGE For many years, the central pursuit of neo-institutional theory was confirming and explaining the existence of constraining stability and order in mature institutional fields (Scott, 2001; Tolbert & Zucker, 1996). The possibility of change was seen primarily in the form of organizational and industry responses to exogenous social, technological, and legal shocks (Clemens & Cook, 1999; Hinings & Greenwood, 1988; Meyer, 1982). More recent scholarship, often investigating endogenous sources of change, has identified agents and processes of competitive maneuvering under constraints, interests that are at the intersection of neo-institutional concerns with constraint and ‘‘old’’ institutionalism’s concerns with human agency and change (Hirsch & Lounsbury, 1997; Stinchcombe, 1997). Organizations

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at the core of mature, deeply institutionalized fields exhibit the ‘‘paradox of embedded agency’’ (Seo & Creed, 2002, p. 226). When organizations are embedded within and benefit from the status quo, they become less likely to imagine or attempt institutional changes (Greenwood & Suddaby, 2006). Nonetheless, competitors at the core of such fields do sometimes envision and mobilize their resources in attempts to change the nature of the field and of competition at its core. For example, Greenwood and Suddaby (2006) developed a model of ‘‘elite institutional entrepreneurship’’ by studying how major international accounting firms overcame their embeddedness in the institutional status quo to ‘‘envision and impose’’ institutional changes in the form of multidisciplinary practices encompassing a broad range of consulting and legal services. These practices represented a substantial change and an increase in competitive heterogeneity at the core of competition among central players in public accounting, and they challenged other central players still trying to compete in a narrow, traditional span of services. Firms disadvantaged by the status quo (e.g., most small or new firms) may be likely to envision ways to maneuver for advantage, but because of resource constraints they may be unable to enact their visions. During early processes of field development and institutionalization, maneuvering by peripheral players sometimes results in substantial but unforeseen field-level change. For example, in Leblebici and colleagues’ (Leblebici, Salancik, Copay, & King, 1991) study of the early development of the radio broadcast industry in the United States, core actors such as RCA, GE, AT&T, and Westinghouse negotiated, partnered, and competed with one another to shape industry practices, rules, and standards to their own advantage. At the same time, resource-disadvantaged ‘‘fringe’’ organizations (Leblebici et al., 1991) opened new competitive fronts and activities in their attempts to deal with local problems and resource deficits. Though their focus was local, the success of their work eventually altered many of the primary activities at the core of competition in the radio broadcast industry, including such basic features as who would determine broadcast content, who would create it, and who would pay for it. However, the fringe actors responsible for generating these innovations remained on the periphery of the industry, even as their innovations migrated to the core and became institutionalized as the industry matured. Even in highly institutionalized fields, resource-constrained organizations sometimes respond to local competitive pressures by pursuing changes that move them away from the core of the field. For example, Kraatz and his colleagues’ studies of changes among American liberal arts colleges (Kraatz & Moore, 2002; Kraatz & Zajac, 1996) found that despite strong normative

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pressures against bringing ‘‘professional’’ programs such as business and computer science into liberal arts curricula, many colleges added professional programs in response to local market demands. Such changes – which moved these liberal arts colleges into competition with other colleges and universities offering professional programs – were particularly common among lower-status, resource-constrained liberal arts colleges. Together, such studies of competitive maneuvering in institutional fields suggest that (1) well-organized institutional entrepreneurs may sometimes impose change directly and alter the nature of competition even in very mature fields by reshaping regulatory and normative institutions; (2) organizations may reject strong institutional norms and find advantage by escaping the traditional core of competition in favor of serving different local demands; and (3) resource disadvantaged-organizations seeking local solutions in emerging industries may in the process shape the core of a developing field to their advantage. Because MLB is a mature institutional field with stable and largely inescapable rules governing competition, however, resource-constrained baseball teams have none of these options available to them. Every team is forced to engage in the same structured set of competitions. Because of these regulative and normative constraints, the primary arena in which resourcedisadvantaged teams are able to maneuver for advantage is largely limited to how they think about and mobilize their resources, that is, by the extent to which they adhere to or reject the cognitive institutions of MLB. Are resource-constrained enterprises in such settings doomed to failure? In the following sections we describe the intensive case study methodology applied in this study and then explore how the Oakland A’s bricolage allowed them to compete by challenging the cognitive institutions of MLB.

METHODS Setting and Data This chapter reports on an embedded case study (Yin, 1984) of MLB, focusing on innovative behaviors by one team, the Oakland Athletics (‘‘A’s’’), and responses by other teams to these innovations. Careful observers of baseball could point to other cases in which teams, leagues, and various stakeholders have engaged in bricolage, even forms of bricolage very similar on some dimensions to the behaviors we analyze in this study. However, the natural quasi-experiment that ensued when the A’s were sold to

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new owners who drastically cut the team payroll makes this a ‘‘revelatory’’ case (Yin, 2003, p. 42) for examining an organization’s responses to tight resource constraints under conditions in which very little else has changed. The so-called ‘‘Moneyball phenomenon’’ has drawn close attention from analysts, journalists, other teams, and even other professional sports, and the resulting close documentation of the focal behaviors and responses by stakeholders with varied perspectives makes the case highly accessible for our analysis. Events in the case were outlined by journalist Michael Lewis and reported in his bestselling book, Moneyball. During 2002, Lewis spent extensive time with the A’s, conducting dozens of interviews and gaining unprecedented access to team players and staff, and observing what are usually secretive meetings and decision-making processes. He was also permitted to report on what he found without interference from the team or its executives (Lewis, 2004, p. 304). Lewis’s work provided important insights and facts about the case that would otherwise be unavailable, and helped point us toward multiple other sources of data, including some severe critics of the A’s approach to baseball. For example, in 2006, John Schuerholz, the highly successful General Manager of the Atlanta Braves, wrote (along with Larry Guest) his own book about how baseball teams were to be built and how players were to be scouted. In it, Schuerholz was highly critical of the ‘‘Moneyball hype’’ and its attack on traditional scouting and player evaluation. Some have challenged whether Lewis’s focus on Billy Beane was biased in the service of telling a more compelling narrative. Arguably, other participants such as Sandy Alderson (the A’s prior general manager who brought Beane into the A’s front office) should perhaps have received more credit for individual decisions or the introduction of Sabermetric approaches to analyzing players. Nevertheless, the basic events are not in dispute, and the narrative’s focus does not materially affect the theoretical arguments we make or the conclusions we draw from this case. Further, we have corroborated Lewis’s main facts and our central arguments with research conducted by other baseball experts. Unsurprisingly, baseball has generated hundreds of scholarly studies. We drew on historical and cultural studies of MLB (e.g., Barzun, 1954; Tygiel, 2000) to understand the degree and dimensions along which baseball is institutionalized in the United States. We also drew on studies of more specialized subjects, such as the role and history of ‘‘scouting’’ (Kerrane, 1999; Perry, 2006; Shanks, 2005). The statistical analysis of baseball has a long history, and the more recent history of ‘‘Sabermetric’’ analysis – which is a primary focus of Lewis’s account – has generated a large number of

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historical and biographical (e.g., Gould, 2004; James, 1994) studies, as well as a spate of studies applying increasingly detailed and sometimes even exotic statistical modeling to baseball phenomena (e.g., Hall et al., 2002; Keri, 2006a; Schmidt & Berri, 2001). We drew heavily on these studies for two purposes: first, to understand how it was that Sabermetric analyses and insights could be so freely available and for so long before anyone made use of them in MLB; and second, to understand the context and outcomes of strategic maneuvering by the A’s and other teams. Overall, an astounding variety and detail of statistics and statistical analyses about baseball are widely available, and we made use of some of these in the work reported here. The professional baseball press, various pundits, and thousands of bloggers have continued to respond in various ways to Moneyball. In particular, many took exception to Lewis’s attack on the value of ‘‘traditional scouting’’ techniques, practices, and assumptions in MLB. A ‘‘Google alert’’ for search results containing the terms ‘‘Moneyball’’ and ‘‘wrong’’ continued generating new hits virtually every day between 2005 and 2007. The controversy over the implications of Moneyball for traditional scouting, in particular, generated a great deal of impassioned discussion, ranging from profound and well-researched arguments (Perry, 2006) to pure silliness. Particularly useful have been books such as Built to Win (Schuerholz & Guest, 2006) by former Atlanta Braves general manager John Schuerholz, as well as books detailing how the Boston Red Sox combined Sabermetric principles with very large amounts of money to build a successful team (Goldman, 2005; Mnookin, 2006). The controversy caused Lewis to add a chapter to the second edition of his book labeled, ‘‘Inside Baseball’s Religious War.’’ Largely because we suspect that fan pressures play an important role in MLB, we also read broadly across baseball media and blogs.3 Finally, we had discussions with several MLB general managers and executives to whom we promised anonymity.

Analysis The A’s responded to the imposition of tight resource constraints by finding ways to create useful combinations of resources, that is, baseball players that were available to them cheaply because other teams failed to see the same value in these players. At first blush, this pattern seemed to resonate with current ideas about bricolage in the organizations literature (Baker & Nelson, 2005; Garud & Karnoe, 2003; Baker, Miner, & Eesley, 2003). While

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bricolage can theoretically occur in any type of organizational context, prior research on bricolage has focused on marginal businesses in degraded environments (e.g., Baker & Nelson, 2005), young industries in technological flux (e.g., Garud & Karnoe, 2003), and firms avoiding the core of competition (e.g., Kraatz & Zajac, 1996). In contrast, the bricolage we consider was accomplished by a resource-constrained organization at the core of what is an extraordinarily institutionalized field. The structure of our analysis therefore focused initially on two factors. First, we examined the A’s behavior through the lens of bricolage, attempting to understand how well their behavioral patterns fit with current conceptions of bricolage and whether the patterns challenge or extend current conceptions. This task involved iteration between the data we continued to gather and prior notions of bricolage in a process that required a great deal of ‘‘muddling through’’ and tolerance of slow progress (Denzin & Lincoln, 2000; Miles & Huberman, 1994). Second, we examined the A’s actions in the context of trying to understand the institutional environment in which MLB teams were embedded and how this environment enabled the A’s to successfully redefine and revalue resources. In the next section we demonstrate the highly institutionalized nature of baseball in the United States, the taken-for-granted nature of the industry recipe for success in this environment, and what counts as a resource. We then examine the A’s response to resource constraints in terms of their behaviors’ fit with prior conceptions of bricolage. We then discuss the implications of this study for institutional theory and for our understanding of bricolage as a means for organizing and competing with other firms, and particularly as a means for resource-constrained entrepreneurs to find new ways to compete.

THE INSTITUTIONALIZATION OF BASEBALL A primary reason baseball interests us as the context for this study is that baseball generally, and MLB in particular, are highly ‘‘institutionalized’’ in all theoretically significant senses of the concept, whether one adopts the theoretical perspectives of the old (Hirsch & Lounsbury, 1997; Selznick, 1966) or the new (DiMaggio & Powell, 1983; Meyer & Rowan, 1977) institutionalism. Borrowing Scott’s (2001) typology, all three pillars of institutionalization – the regulatory, the normative, and the cognitive – are well developed and complementary in baseball. Below, we first touch briefly on the regulatory and normative context of baseball in the United States.

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We then describe the cognitive institutionalization of baseball – in terms of the MLB ‘‘industry recipe’’ – which is central to our argument.

The Regulatory and Normative Institutions of Major League Baseball Baseball is embedded within and protected by a remarkable legal structure that supports the concepts and practices of the baseball ‘‘draft’’ and ‘‘free agency,’’ which plays an important part in how resources are valued and distributed in baseball. MLB is protected by the strongest exemptions from antitrust legislation provided to any American sport, and has been so protected through a variety of interpretations and challenges since before 1922, when Justice Oliver Wendell Holmes wrote a decision favoring the exemptions. In 1978, the US Congress anointed ‘‘USA Baseball’’ as the governing body for the sport, including representing baseball on the US Olympic Committee and the International Baseball Federation. With very strong ties to MLB (which acquired all commercial assets of USA Baseball in July 2006) USA Baseball governs the baseball activities of over 12 million US amateur players (mlb.com/NASApp/mlb/usa_baseball; espn.go.com/ mlb/s/2001/1205/1290707.html). Baseball fans follow over 300 minor league teams, more than 1,000 intercollegiate teams, and over 30,000 high school baseball and softball teams, while also watching millions of pre-high school children play in games administered by the Little League and similar organizations. In the major leagues, attendance has grown recently to about 75 million people annually (MLB.com), a figure that far surpasses the annual attendance of American professional football, basketball, and hockey combined. Baseball prides itself on consistency and comparability across time. Deeply socialized fan expectations about what is authentic in baseball strongly delimit the ‘‘acceptable’’ changes MLB can consider (Barzun, 1954; Trilling, 1972). A simple rule change such as the 1972 creation of the ‘‘designated hitter’’ in the American League (one of two divisions in MLB) still invokes heated debate 40 years after its introduction. Since the same baseball statistics have been collected on players for over 100 years, fans can compare and debate the feats of players in different eras.4 MLB’s 122 mostly multipart rules (supported by a formal lexicon) demonstrate a high degree of stability and fine-tuning. Indeed, as evolutionary paleontologist and baseball scholar Steven J. Gould (2004, p. 183) notes, ‘‘Baseball has been a bastion of constancy in a tumultuously changing world, a contest waged to the same purpose and with the same basic rules for one hundred years.’’

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Complementing all of this, MLB’s stability, traditionalism, and institutional values and practices are encouraged by its incestuous recruitment practices. In the early days of national baseball leagues, successful players could and sometimes did become successful baseball ‘‘magnates,’’ as owners then referred to themselves (Tygiel, 2000). Those days are probably past, but once we get beyond the owners, many of the roles in baseball – coaches, managers, scouts, some executive positions – are typically dominated by explayers. As analyst Voros McCracken (quoted in Lewis, 2004, p. 241) notes, ‘‘The problem with major league baseball is that it’s a self-populating institution. Knowledge is institutionalized. The people involved with baseball who aren’t players are ex-players.’’ As the president of one major league team pointed out to us, individual teams also develop cultures of ‘‘the way we do things around here’’ that sometimes persist across many years and through multiple changes of leadership. For example, Thomas Yawkey became the owner of the Boston Red Sox in 1932 (Goldman, 2005). A wellknown segregationist and racist, Yawkey’s Red Sox was the last team in professional baseball to become integrated, 12 years after Jackie Robinson broke the color barrier with the Brooklyn Dodgers.

Cognitive Inertia and Enactment: The Baseball Recipe Spender (1989, p. 6) defined industry recipes as ‘‘what everyone who knows this industry understands,’’ and as an element of ‘‘what experienced managers take uncritically as professional common sense.’’ Industry recipes tend to become more coherent and closed over time, and this closure reduces the likelihood that those who have been socialized into an industry will mindfully consider alternatives (Fiol & O’Connor, 2003; MacKay, Masrani, & McKiernan, 2006; Matthyssens, Vandenbempt, & Berghman, 2006). Recipes are thus an important component of the paradox of embedded agency (Seo & Creed, 2002). In mature, highly institutionalized industries, recipes shape behavior and how day-to-day events are experienced (Berger & Luckmann, 1967; Schutz, 1944). Those who have been socialized into these recipes and are engaged in enacting the patterns of behavior the recipes prescribe as normal and appropriate become more likely to simply reject or not even notice surprising information or new causal inferences about how to conduct their business (Giddens, 1984; Weick, 1979). The maturity and institutionalization of the industry recipe are reflected and supported by decision-makers’ simplified mental models of the competitive resource environments in which

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they operate (Geletkanycz & Hambrick, 1997; Huff, 1982; Porac & Thomas, 1990). At the individual level recipes function as cognitive heuristics or shortcuts (Thaler & Sunstein, 2004). Spender’s fieldwork showed that recipes indicate the ‘‘appropriate resources’’ for constructing a business, including ‘‘models of the individuals the firm must employ’’ (1989, p. 177). Recipes thus represent the core aspects of institutionalization that define what are and are not resources, as well as how those resources are to be combined. The MLB recipe defines what resources – in the form of player skills and attributes – are valued and describes how they are combined and deployed. The power of the recipe is such that, despite some notable exceptions to the contrary, by the late 1990s both informed observers and participants, including the formal leadership of MLB, had largely accepted as ‘‘fact’’ a financially deterministic model of competitive outcomes. Overall, the richest baseball teams who can afford to acquire the best players – as defined by the recipe – are expected to contend for championships, while resourceconstrained teams are expected to fare poorly (Hall et al., 2002). This financial determinism has been widely considered a serious threat to MLB’s overall appeal to consumers, who, even though biased in favor of their home teams, are presumed to be interested in watching relatively fair contests with uncertain outcomes (Levin, Mitchell, Volcker, & Will, 2000; Schmidt & Berri, 2001). In the case of MLB, it was against the backdrop of this highly institutionalized industry recipe that the possibilities for bricolage emerged.

Defining Player Value Many primary components of the MLB recipe are straightforward; we will describe these in order to provide a flavor for the recipe and a backdrop for understanding how the A’s’ bricolage violated and changed these highly legitimated beliefs. Perhaps most importantly, the recipe calls for the identification of potential players through the ‘‘scouting’’ process in which a group of baseball insiders – often former baseball players whose careers stopped short of MLB success – observe and get to know players on high school, college, and minor league baseball teams (Kerrane, 1999). The institution of scouting is important because scouts have traditionally played a dominant role in determining the set of players that MLB teams will attempt to acquire, and they are a primary mechanism through which the details of the baseball recipe are enacted and sustained year-to-year.

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It is widely accepted that there are five ‘‘tools’’ that a baseball player can possess: the ability to run, throw, field, hit, and hit with power. A ‘‘five-tool player’’ is the standard baseball jargon for someone skilled in all of the fundamental abilities important to success as a ‘‘position’’ player, that is, the eight players with a designated fielding position on defense other than the pitcher (Kerrane, 1999; Lewis, 2004). It is axiomatic among baseball scouts that the fewer the tools, the less likely the individual is to succeed and the less valuable a player is considered to be. Part of the reason why the tools are considered so important is that scouts are required to make judgments about players long before they have developed their full potential, or, in the case of high school players, before they have even developed physical maturity. Young players are judged by the apparent presence or absence of the tools, rather than by sole reliance on their performance in games. In turn, the practice of assessing potential early is driven by the regulated structure of the baseball labor market. Under its congressional exemptions from antitrust law, MLB is able to sustain a system through which a team that successfully ‘‘drafts’’ and signs an amateur player becomes, de facto, the only team able to bid on his services for up to 13 years (Carfagna, Farrell, & Hazen, 2006). The five tools serve as fundamental indicators of what a young player has the potential to become, and thereby shape MLB teams’ efforts to draft and sign particular amateur players. Because players develop and mature in the years leading up to any opportunity they have to play in MLB, and because MLB is considered to be qualitatively different from lower levels of baseball, scouts have long considered the available objective statistics describing players’ pre-MLB play to be poor indicators of MLB potential. Instead, assessments of the five tools, together with scouts’ intuitive assessments of player physiology and other factors, have long held sway as the primary way to assess potential, one that shapes which players baseball clubs target and attempt to acquire. Perhaps the most peculiar and striking indicator of the mixture of knowledge, ideology, and ‘‘superstition’’ underlying scouting assessments is the notion of ‘‘the good face’’ (Kerrane, 1999). Some scouts believe so deeply in their own intuitive ability to detect undeveloped potential that they have claimed they ‘‘could tell by the structure of a young man’s face not only his character but his future in pro ball’’ (Lewis, 2004, p. 7, emphasis added). In contrast to the good face, a variety of negative attributes, for example, a ‘‘bad body,’’ are used to devalue potential, also in largely intuitive ways (Kerrane, 1999; Lewis, 2003).5 Taken together, the need to assess potential early, the dominance of the scouting ranks by baseball insiders such as ex-players, and the influence of

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a strong traditional ideology regarding player potential and value resulted in what Jim McGlaughin, an MLB scouting director in the 1970s, called scouting’s ‘‘dearly held reliance on subjectivity and superstition’’ (Kerrane, 1999). Scouting largely determined who gained entry to the pool of young men considered candidates for MLB careers. Then, once a player gained entry to professional baseball through the minor leagues, some of the same heuristics held sway over the evaluation of players throughout their professional careers. The five tools and traditional statistical measures were thought by most to be the tried and true way to judge talent (Schuerholz & Guest, 2006).6

SABERMETRICS Many observers and commentators on what has become known as the ‘‘Moneyball phenomenon’’ – considered to include not only the A’s’ maneuvers but also those of teams that copied Oakland, such as the Toronto Blue Jays, the Tampa Bay Rays, and the Boston Red Sox – have viewed it more or less as the straightforward application of the statistical analysis tools of Sabermetrics to acquiring and deploying a team of baseball players (e.g., Hakes & Sauer, 2006; Schuerholz & Guest, 2006; Thaler & Sunstein, 2004; Wolfe, Wright, & Smart, 2006). Even Lewis’s narrative is in large part a story in which ‘‘science’’ and ‘‘analysis’’ supplant myth with truth. Sabermetric analyses suggested that some skills – such as defense, base running, and hitting with power – were overrated in their contributions to winning games, and the A’s’ experiments showed that these skills were overpriced in the market for baseball players. In some analyses, Sabermetrics was seen to overcome heuristics and biases (Thaler & Sunstein, 2004), and in others it was seen to overcome market failures and to cause a better alignment between true player productivity and pay, as price theory predicts (Hakes & Sauer, 2006). There are at least two problems with such facile interpretations. The first problem is that the application of Sabermetrics to the construction and management of a real baseball team was not straightforward. It required a great deal of fairly messy experimentation and the adaptation and extension of the cool analytic insights of statistical analysis in the hot context of emotional debates and politics around the accepted wisdom of baseball insiders. Second, most of the basic ‘‘truths’’ of Sabermetrics had been around for a long time and were well-known long before the Moneyball

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saga began. The primary statistics (which focus largely on offensive output) to which fans and teams alike have paid the most attention have generated controversy since the late 1860s, when British cricket fan Henry Chadwick invented, defended, and proselytized them (Cramer, 1988; Tygiel, 2000). Table 3 provides examples and explanations of some traditional and Sabermetric measures of player offensive output, with comments on their differences. Some of the improvements to baseball statistics suggested by Bill James, the godfather of Sabermetrics, and by others were available for more than two decades before the A’s began experimenting with Sabermetrics. James’s 1982 Baseball Abstract (James, 1982) was well known within the baseball community. By the early 1980s Sabermetric insights were well-enough accepted among baseball aficionados that in 1984 Pete Palmer was finally able to publish his statistically nuanced The Hidden Game of Baseball (Thorn et al., 1984). He had written the book in the 1960s, but little interest was generated until Sabermetric analysis was popularized by James’s work (Lewis, 2004). Not only were these statistical truths there for the asking, entrepreneurs had even attempted to provide customized Sabermetric analyses to MLB teams and had been soundly rebuffed. In 1980, an organization called STATS Inc., founded by two Sabermetricians, began a five-year saga of trying to sell MLB teams on the idea of gathering and using better statistics and analyses. Although they had few takers, their activities ensured that Sabermetric insights were far from secret among MLB insiders. It is also the case that there were other individuals at different teams with an interest in Sabermetrics, but none of them influenced the dominant industry recipe. Craig Wright of the Texas Rangers was the first front-office executive to hold the title of ‘‘Sabermetrician’’ in the 1980s (www.baseballamerica.com), and Oakland’s Paul DePodesta filled a similar position for the Cleveland Indians before Billy Beane hired him away. Indeed, John Henry, then owner of the Florida Marlins and more recently the owner of the Boston Red Sox, read Bill James’s work and used Sabermetrics to compete with his fantasy league baseball team, but he apparently never even considered applying the same tools in managing the Marlins until after Oakland’s success employing these techniques (Lewis, 2004). Generally forgotten in most analyses of the Moneyball phenomenon is that the focus of Sabermetrics is on uncovering the patterns of activities and skills that lead to success at winning baseball games, not on providing tools to reshape how resource-constrained teams compete.7 Its tools are at least as available and perhaps even more valuable to the already

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Table 3. Some Traditional and Sabermetrics-Influenced Player Offensive Statistics: From Most to Least Traditional. Statistic

Comments

Batting Average (AVGa): Hits divided by atbats. Note: for all calculations, at-bats is an adjusted number that ignores, for example, walks, ‘‘sacrifice’’ hits, and getting hit by a pitch.

Developed and promoted by Henry Chadwick in the late 19th century, it’s appropriateness was debated for several decades before it became the defacto standard measure of individual batting prowess (Thorn, Palmer, & Reuther, 1984; Tygiel, 2000, p. 115). Since the 1970s has been demonstrated repeatedly to predict contribution to team offensive performance less well than OBS (below) or its components. It nevertheless is still the most likely statistic to be reported, and is still the basis for the MLB ‘‘Batting Champion’’ title.

Stolen Bases (SBa): A simple count of the number of bases a player has ‘‘stolen,’’ often divided by the number of times the player attempted to steal.

Traditionally, stealing bases is considered both valuable and exciting. In Sabermetrics, base stealing attempts are more likely to be discouraged because of analyses showing that they generally ‘‘cost’’ more in the likelihood of generating outs than the benefits they bring in terms of gaining a base (Thorn et al., 1984). A Sabermetric analysis of the entire 2004 season suggests that ‘‘no player in all of MLB added so much as a single win through base stealing alone’’ (Click, 2006, p. 115).

On-base percentage (OBPa): Number of times got on base through a hit, walk, or hit by pitch divided by times at-bat, walks, and sacrifice flies. Slugging percentage (SLGa): Like batting average, but rather than adding ‘‘1’’ in the numerator for any hit, scores ‘‘2’’ for a double, ‘‘3’’ for a triple, and ‘‘4’’ for a homerun; thus, the weighted sum of these hits divided by plate appearances excluding walks and hit-by-pitch.

Forms of these measures were debated as early as the late 1800s (Tygiel, 2000), and were unsuccessfully promoted by baseball innovator Branch Rickey in the 1950s (Rickey, 1954; Schwartz, 2004). Versions were introduced as prime Sabermetrics measures by Bill James starting in the late 1970s. OBS is a superior measure, compared to batting average, of a player’s history of actually getting on base, and of keeping a team’s offense alive by avoiding an out. SLG measures power to generate extra-base hits, which AVG ignores (Keri, 2006c).

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Table 3. (Continued ) Statistic

Comments

On-base plus slugging (OBS): OBP+SLG. (Note that this involves adding together two numbers calculated with different denominators).

Developed by Sabermetricians Pete Palmer and Dick Cramer (Thorn et al., 1984). OPS ‘‘combines’’ the advantages relative to AVG of both OBP and SLG (Hample, 2007). Because of Sabermetric analyses OBP is often overweighted relative to SLG in the formula. Paul Podesta drastically increased this weighting due to a belief in the critical value of not making an out, which OBP measures more directly than does SLG (Lewis, 2004).

Equivalent Average (EqA): Complex calculations combining a large number of factors that affect a player’s offensive output.

Nominally similar to AVG, but makes adjustments for the characteristics of the park and the league in which a player plays, the player’s baserunning and the quality of pitching faced (Keri, 2006c). Creates greater comparability between players who work in different contexts.

Value Over Replacement Player (VORP): Complex calculation.

Estimates the number of runs a player generates over the number of runs a player in the same position just barely good enough to be playing in the major leagues would generate (Keri, 2006c).

a

An official Major League Baseball statistic as of 2007.

resource-advantaged teams, as later adoption of Sabermetrics by rich teams such as the Red Sox would demonstrate. What needs explanation is not how the application of Sabermetrics improves the matching of player price and productivity; rather, what requires explication is how, after years of industry blindness and resistance to Sabermetric principles, the A’s challenged the firmly institutionalized baseball recipe in a manner that changed the recipe in fundamental ways. The newly important theoretical ‘‘truths’’ had been out there for a long time. What did it take for the Oakland A’s to make them real? Our analysis suggests that the Moneyball phenomenon can be better understood as driven by bricolage than as a straightforward application of statistical analysis to generate arbitrage benefits in inefficient markets.

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BRICOLAGE AND THE INDUSTRY RECIPE Baker and Nelson’s (2005) survey of the development of bricolage across many fields identified three primary aspects: making do, relying on the resources at hand, and combining resources to meet new challenges. In this section, we examine the A’s’ initial responses to their new resource constraints against these core aspects of bricolage and suggest that their behavior closely fit the general pattern of bricolage.

Making Do Baker and Nelson (2005) characterized ‘‘making do’’ in terms of a bias for action and the refusal to enact accepted limitations regarding what is considered a resource. Both of these criteria are reflected time and again in Oakland’s behavior. Bias for Action As highlighted by Lewis (2004), the A’s management, led by Billy Beane, was both willing and apparently eager to make substantial changes to the team on the fly. For example, they structured major moves around opportunities that occurred near mid-season trading deadlines, frequently jettisoning current players for new ones even if they only expected the new players to stay with the A’s for the remainder of that season. Indeed, one of Billy Beane’s rules was, ‘‘No matter how successful you are, change is always good. There can never be a status quo. When you have no money, you can’t afford long-term solutions, only short-term ones. You have to always be upgrading’’ (Lewis, 2004, p. 193). The A’s bias for action encompassed a willingness to engage in nearconstant experimentation. Such tinkering is consistent with other studies of bricolage, which suggests that because solutions rendered through bricolage are usually imperfect, they tend to be temporary (Ciborra, 1996; Ciborra & Lanzara, 1990).8 Dorado (2006) also suggested that bricolage is always a ‘‘work in progress.’’ Oakland’s experimentation and active testing of ‘‘institutionalized definitions of orthodox practice’’ (Baker & Nelson, 2005, p. 335) frequently uncovered useful insights unforeseen by outside analysts. For example, Beane moved players into positions for which they had no prior experience. Although an excellent hitter, catcher Mark Hatteberg sustained an injury that inhibited his ability to make the essential throw

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from home to second base, effectively ending his career as a catcher. However, recognizing that Hatteberg could still be a useful addition to his team, Beane salvaged Hatteberg’s career by reassigning him to play first base (Lewis, 2004, pp. 162–187). Hatteberg had never played first base before, but he learned to do so by practicing with his wife on rain-soaked tennis courts near their Seattle home during the off season. Hatteberg became a competent first baseman and his hitting prowess continued to improve. In 2007, the 37-year-old provided the Cincinnati Reds with the best offensive performance of his career, generating an On Base Plus Slugging (see Table 3 for definitions) percentage of .868 (vs. a career average .776) and a batting average of .310 (vs. a career average of .274). Another experiment involved the acquisition of aging slugger David Justice, who, like Hatteberg, ‘‘most teams didn’t want to have anything to do with’’ (Lewis, 2004, p. 142). Beane’s assistant Paul DePodesta described the move this way: ‘‘He’s an experiment for us y What we want to see is: at an age of physical decline does the skill maintain its level, even when a player no longer has the physical ability to exploit it?’’ (1993, p. 150). This bias for action and willingness to experiment was in stark contrast to the passivity of many MLB teams facing resource disadvantages. As Lewis (2004, p. 124) describes it, MLB teams in disadvantaged financial positions frequently ‘‘abandon all hope of winning,’’ and simply excuse themselves as engaging in a lengthy process of ‘‘rebuilding,’’ a process which seldom works as intended. Statistical analyst Keri (2006b, p. 312), analyzing the ineffectiveness of long-term planning in baseball, argued, ‘‘Having the flexibility to adjust to opportunities y tends to work better than X-year plans, no matter what number X represents.’’ It is important to note that the bias for action cannot be directly inferred from Sabermetric analysis. Statistical analysis suggested what skills and player behaviors might contribute to winning games, but it could not suggest how a resourceconstrained team might try to assemble or deploy these skills and behaviors, or even why it should not give up and claim to be rebuilding. Refusal to Enact Resource Limitations The MLB industry recipe defines what is valued as a player resource and, as importantly, what is not. Statistical analysts challenged the recipe for two decades, but their work had little effect on MLB despite the fact that it was widely available. Clearly, Sabermetric ‘‘insights’’ were viewed as little more than curiosities; academic novelties whose conclusions looked nice on paper but were irrelevant for assessing real men engaged in the heat of combat. How a player was to be assessed (and why) was already thoroughly

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understood and little could be done to alter the fundamental economics of the game. It was the A’s’ refusal to enact the limitations defined by the deeply institutionalized baseball recipe that began to change the recipe. Although Beane, Paul DePodesta, and Sandy Alderson were loosely guided by statistical insights, it was their willingness to use the statistical insights creatively and in unconventional ways that allowed the A’s to find value where other teams saw none. The theme of refusing to enact resource limitations suffuses the A’s narrative more than any other idea. Alderson framed the situation this way, ‘‘We suddenly were put into the position of: we can only afford a one-tool player. Which tool is it going to be?’’ (Lewis, 2004, p. 58). During the period through 2002, the A’s’ answer was, in oversimplified terms, to emphasize tools that got players on base and deemphasize tools that seemed to contribute less directly to winning and were overpriced, including running, fielding, and hitting with power. Subsequently, when others began to mimic the A’s approach, the answer would change. To other teams looking for players with more balance across the ‘‘five tools,’’ and indeed even to the A’s own scouting staff, most players that were attractive to Beane and DePodesta simply did not appear to be worth employing. Bill James encapsulated the opportunities squandered by failure to move beyond enacted resource limitations and the potential in what was at hand to MLB teams at little cost when he described the situation of Ken Phelps, a player he believed was inappropriately languishing in the minor leagues: ‘‘Ken Phelpses are just available; if you want one, all you have to do is ask. They are players whose real limitations are exaggerated by baseball insiders, players who get stuck with a label, the label of the things they can’t do – while those that they can do are overlooked’’ (Gray, 2006, p. 189). Players the A’s targeted lacked most of the tools, the ‘‘good face’’ and the ‘‘body you could dream on.’’ For example, while Beane and DePodesta coveted Kevin Youkilis (‘‘a fat third baseman who couldn’t run, throw or field’’ (Lewis, 2004, p. 19)) because of his ability to draw walks (a way of getting on base not included in the five tools), the scouts resisted even going to see him. To scouts who scorned players with faces or bodies deemed inappropriate for baseball, Beane would sometimes retort, ‘‘we’re not selling jeans here’’ (Lewis, 2004, p. 34). The continued enactment of resource limitations by other MLB teams and their scouts allowed the A’s to accumulate a group of undervalued players with useful skills. Other teams didn’t want Scott Hatteberg with his crippling injury or the aged David Justice. Indeed, Jeremy Brown, a college player from Alabama who held most

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of the collegiate Southeastern Conference hitting records, was mocked by one of the A’s scouts for his weight: ‘‘when he walks, his thighs stick together’’ and ‘‘if you put him in corduroys, he’d start a fire’’ (Lewis, 2004, p. 34). But for the A’s, the refusal to enact these limitations created opportunity. As DePodesta put it, ‘‘We don’t get the guys who are perfect y there has to be something wrong with them for them to get to us y What gets me really excited about a guy is when he has warts, and everyone knows he has warts, and the warts just don’t matter’’ (Lewis, 2004, pp. 142–149).9 Indeed, another apparent characteristic of the standard industry recipe – that traits which did not fit the preconceived mold were ridiculed – made it easier for Beane to operate; because others did not want to be the subject of ridicule themselves, he could cheaply pluck players others were afraid to pick. Following this approach, by 2002 the A’s had the best pitching staff in the American League, ‘‘yet of all their pitchers only Mark Mulder, one of the team’s three brilliant starters, had failed to inspire serious doubts at some point in his career in the baseball scouting mind’’ (Lewis, 2004, p. 221). By refusing to enact taken for granted limitations regarding what constitutes a resource – limitations completely natural and taken for granted by other teams – the A’s were able to assemble a winning team on a shoestring budget; as Keri noted (2006b, p. 211) ‘‘Beane grabbed freely available talent for next to nothing, gaining solid production from scrap-heap survivors.’’ A Certain Contrarian Impulse Lewis claims that Billy Beane was particularly well-positioned to challenge accepted truths in baseball because Beane’s personal experience as a player made him simultaneously an insider and an outside critic. From his days in high school, scouts had celebrated Beane’s prowess and carried forward the assumption that he was destined to be a star. Indeed, so clearly was he marked by the face, ‘‘a body you could dream on,’’ and all five tools that managers and scouts appeared to have difficulty even noticing that as he moved through the ranks of professional baseball he simply didn’t play very well. Beane struggled in and out of MLB right up until the day that he voluntarily quit the game, and in a previously unheard of move, asked to be demoted from player to scout. In Lewis’s rendering, the A’s’ challenge to how scouts and baseball insiders think about the game was driven in part by Beane’s need to understand and come to terms with what had happened to him and how he had failed despite all his outward predictors of potential and success. Perhaps for these reasons, Beane, with DePodesta’s help and Alderson’s support, seemed to take particular pleasure in publicly flying in the face of

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all that baseball holds sacred. Other research has described a similar pattern of behavior among bricoleurs, who appeared to be motivated in part by their disdain for competitors who were immobilized unless they were able to acquire exactly the right resources for every task. Bricoleurs appeared to be saying to their competitors, in effect, ‘‘see what I can do!’’ and their desire to maintain this posture fed into a strong bias for action and willingness to compete under tight resource constraints (Baker & Nelson, 2003). Beane, too, appeared to relish his contrarian role. Rather than trying to hide what he was doing, an approach that might have allowed him to take advantage of others’ biases a little bit longer, Beane aimed to make trades that caught everyone’s attention, what he called, ‘‘a Fucking A trade y one that causes everyone else in the business to say ‘Fucking A’’’ (Lewis, 2004, p. 179). During the 2002 draft, when the A’s had a large number of valuable early-round draft picks, they used these picks to acquire players whom they could probably have acquired with much lower and less valuable picks in later rounds because other teams did not share Oakland’s assessment of these players’ value. It appears Beane may have ‘‘squandered’’ an advantage simply to make a point along the lines of ‘‘see what I can do!’’ To us, this suggests the likelihood that – particularly under resource-disadvantaged conditions – bricolage may often be driven by a contrarian impulse that creates a bias for action and refusal to enact resource limitations, but which in competitive circumstances also makes effective copying of the innovation more likely because its practitioners revel in the visibility of their unconventional actions.

Relying on the Resources at Hand Prior studies of bricolage have included among the resources at hand both those already under the control of an organization and those available cheaply or for free relative to standard resources (Baker & Nelson, 2005; Garud & Karnoe, 2003; Levi-Strauss, 1967). Because of the structure and rules of MLB, the A’s drew primarily from two pools of resources. First, as described above, the A’s cheaply10 accumulated players for whom they were able to see potential beyond their ‘‘warts.’’ Second, because of antitrust exemptions and the rules of free agency, the Oakland A’s organization was able to employ drafted players in the minor leagues for up to seven years at low wages and without the threat of salary competition from other teams. Even more importantly, if a player was moved to the major league team, the A’s could pay the player the league minimum salary (10–15% of league

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average wages) for three years before the player could file for salary arbitration and low wages for six years before the player became a ‘‘free agent’’ able to enter the open market for bidding by other teams (Carfagna et al., 2006; http://mlbplayers.mlb.com/pa/info/faq.jsp). During this time, even if a player demonstrated the superior potential the A’s had envisioned and became more broadly recognized as valuable, the player remained available to the A’s at a much lower price than bidding would have established absent the MLB’s antitrust exemption. Because of the structure of free agency in MLB, the ability to see potential invisible to other teams created benefits that remained available for a long time. For example, the A’s drafted one of the best pitchers in baseball, Barry Zito, in 1999 and were able to pay him a total of $940,000 during the three years ending in 2002, during which time his value on the open market would have been in excess of $10 million per year (Lewis, 2004, p. 22). Further, even when they lost their young stars to free agency – an outcome often seen as devastating to other teams – the A’s were able to treat these losses as an opportunity for resource acquisition because they would then receive a ‘‘compensating’’ pick in the next year’s draft from the team who acquired their player (http://mlb.mlb.com/mlb/events/draft/y2007/index.jsp?conten t=order). Many teams faced with losing a star to free agency attempt to retain that player by offering him a big increase in salary. The A’s, who did not have the resources to compete in the free agent market, either simply let these players become free agents or traded them. Thus, while they ‘‘lost’’ players as they became expensive-to-retain stars, they were able to garner multiple first and second round picks in the next year’s draft that they used to refill their pipelines with future talent which they could utilize more inexpensively and for a longer period of time than the players they lost.

Combining Resources Penrose (1959) argued that it is not resources themselves, but managerial talent that creates new opportunities for organizations by identifying and combining resources in idiosyncratic ways that generate valuable heterogeneity across organizations. A primary driver of the A’s ability to rely on the resources at hand was their ability to rethink how player skills might be combined and deployed. As noted above, because they could afford to keep very few players once they became eligible for free agency, the A’s expected to lose their stars. How they dealt with the impending change made such losses less damaging to team performance.

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At the same time the A’s lost first baseman Jason Giambi to the richest team in baseball, the New York Yankees, they also lost outfielder Johnny Damon to the second richest team, the Boston Red Sox, and they simultaneously needed to replace their designated hitter. While such losses might result in declaring the need for a ‘‘rebuilding’’ year for most resourceconstrained teams, Billy Beane instead noted, ‘‘The important thing is not to recreate the individual y The important thing is to recreate the aggregate’’ (Lewis, 2004, p. 141). The answer? The A’s acquired the two inexpensive ‘‘has-beens’’ we discussed above – David Justice and Scott Hatteberg – and added a third unproven player with a troubled personal history who was also therefore inexpensive – Jason Giambi’s younger brother, Jeremy. Thus the A’s responded to the loss of their stars to richer teams by replacing them with three players who collectively had about the same on-base percentage (the element of performance that the A’s were most intent on maintaining) and who could play the three positions that had been vacated (once Hatteberg retrained himself to play first base). Although these changes resulted in some loss of defensive skills, Sabermetric analysis suggested that the foregone defensive capabilities added less value than baseball insiders commonly assumed and that it could be compensated for by the expected increase in offensive productivity (Gray, 2006; Lewis, 2004). In other words, while the runs allowed per game might go up marginally, the runs scored per game would be maintained at low cost. Thus, by focusing on the possibilities inherent in combinations of resources available cheaply rather than the particular skills instantiated in individual players, and by being willing to accept a serviceable although imperfect solution, the A’s managerial talent identified and created idiosyncratic combinations of resources that provided services from inexpensive players that were a reasonable replacement for the almost inevitable loss of expensive stars.

From the A’s to MLB: Changing the Recipe As a consequence of their success, the A’s bricolage brought Sabermetrics into the core of MLB. The first legitimating effect of the A’s successful bricolage and ‘‘in your face’’ attitude was that other teams noticed what the A’s were doing and began trying to do the same thing (Pollock & Rindova, 2003; Scott, 2001; Suchman, 1995). Other resource-disadvantaged teams hired analysts steeped in Sabermetric approaches and took their prescriptions seriously. Several of Beane’s colleagues were hired away to become the

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general managers of other teams. For example, J.P. Ricciardi, former Director of Player Personnel with the A’s, became the general manager of the Toronto Blue Jays in 2001. In addition, some resource-advantaged teams recognized that Sabermetric approaches were not only advantageous to resource-constrained teams. Consequently, Paul DePodesta, Beane’s top aide, was hired as the GM of the Los Angeles Dodgers in 2004. Further, at one point the Red Sox had actually reached an agreement to hire Billy Beane himself, although Beane quickly decided to renege on the contract and stay with Oakland. Instead, John Henry, the erstwhile fantasy baseball sabermetrician and new owner of the Red Sox, hired Bill James as an analyst and advisor and Theo Epstein, a baseball outsider and Sabermetrics aficionado, as the youngest general manager in the history of baseball. Sabermetrics was further legitimized in 2004, when the Boston Red Sox, with a team designed using Sabermetric principles, were finally able to win the World Series for the first time in 86 years (Goldman, 2005; Mnookin, 2006). The current general manager of a competing team indicated to us in an interview that common parlance in MLB now identifies teams’ strategies as falling along a range from traditional scouting-dominated to heavy reliance on Sabermetric statistics. The incorporation of Sabermetric insights into MLB no longer relies on bricolage, but is instead being institutionalized as a commonplace and accepted routine in baseball’s industry recipe. Still, not every team has adopted the new Sabermetrics gospel; indeed, even as Sabermetrics and Moneyball have become a part of everyday baseball parlance, some serious baseball thinkers have rejected many of its tenets. For example, the Atlanta Braves, whose extraordinarily successful general manager John Schuerholtz moved up to President of the team in October 2007, continue to follow an approach that is explicitly ‘‘antimoneyball’’ (Schuerholz & Guest, 2006; Shanks, 2005). Further, the debate over the relative value of scouting versus statistical analyses continues unabated (Perry, 2006). Overall, however, Sabermetrics has flourished. As we noted above, a primary effect of many teams chasing the sorts of players that the A’s showed could be accumulated cheaply and deployed effectively has been to increase the price of those sorts of players to something more closely aligned with their newly recognized productivity (Hakes & Sauer, 2006). Sabermetrics has also flourished as an analytic activity. Although the insights of Bill James, Voros McCraken, and others have been rendered private as these analysts have become MLB team employees, other analysts, such as those associated with Baseball Prospectus, Inc., continue to make prodigious

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strides in improving the statistical analysis and objective understanding of patterns of performance in baseball (Keri, 2006a). Despite the impressive scholarship of such analyses, because Sabermetrics has become a legitimate tool of MLB (and has even spread to other sports), it may now be much more difficult for any team to create advantages through application of these insights alone. Indeed, the powerful statistical tools that have been developed are increasingly directed at answering questions that are interesting for aficionados but relatively trivial for managing a team; for example, what would happen to team performance if you combined the complementary physical attributes of two specific players – for example if the fastest runner in the league was also the best hitter? (Keri, 2006a). The initial space for competitive maneuvering that the A’s created through bricolage has thus largely been closed (Isidore, 2006).

Beyond Sabermetrics: Bricolage and the Resource-Disadvantaged Sabermetrics is increasingly part of the baseball recipe; bricolage is not. An important question, therefore, is what did the A’s do once the rest of the league adapted to their competitive maneuvering? We lack the detailed sorts of detailed insider reporting that Lewis (2004) and others provided on the A’s earlier activities, but watching Beane and the A’s is now almost a spectator sport in itself, and the available evidence suggests that, as much of the rest of the league adopted Sabermetrics, the A’s continued engaging in bricolage even while they veered away from Sabermetric insights. As the Yankee’s General Manager Brian Cashman (reported in Heyman, 2006) noted, ‘‘Billy Beane is a very bright individual who knows there are many different ways to skin a cat and find a way to be successful y Every year he comes up with a different game plan and finds a new way to win. He’s no one-trick pony.’’ Oakland continued to maneuver and experiment with new ways of deciding which players they want and how to use them. Perhaps the most surprising change was the A’s increased emphasis on defense (Wilson, 2006). As noted above, one of the core tenets of the A’s earlier approach was the idea that defensive inadequacies were best dealt with not by shoring up the team’s defense, but by further improving its offense (Lewis, 2004). Indeed, despite their regular season successes, one of the continued knocks against the A’s was that they were unable to make it past the first round of the playoffs. Beane himself was famously quoted by Lewis as noting ‘‘my shit doesn’t work in the playoffs’’ (Lewis, 2004, p. 275). An analysis exploring

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this issue (Silver & Perry, 2006) concluded that Oakland’s failure to advance in the playoffs was due to their weaknesses in pitching and defense. Similarly, one of the key statistical points around which the A’s earlier behavior pivoted was rejection of the scouting norm of placing high value on the potential of high school players, because of the difficulty in predicting MLB performance from high school performance and James’s Sabermetric demonstrations of the high risk that high school stars will not make it to the major leagues. Early on, Beane and DePodesta caused the A’s to focus their draft choices on more developed college players and to treat statistical measures of their college play as useful predictors of MLB potential. However, as other teams began following that pattern the A’s began pursuing high school players other teams left available (Heyman, 2006). What was undervalued changed, and the direction of the A’s bricolage changed as well. This approach resulted in continued success for the A’s, culminating in their making it to the 2006 American League Championship Series for the first time since 1992, where they were swept by the Detroit Tigers. In the first five years following this ‘‘golden era,’’ the A’s were unable to duplicate their success. While none of their seasons have been terrible, their average won–loss record hovered under 50% (.471) and they continually failed to make the playoffs (see Table 2). Nevertheless, with a retooled approach and a shift in focus, the A’s returned to the playoffs in 2012 following a furious September charge in which they caught the Texas Rangers just in time to return to postseason play. The fortunes of Beane’s prote´ge´s and Sabermetric analytic experts, J.P. Ricciardi and Paul DePodesta, offer further evidence that it was messy bricolage, and not Sabermetrics per se, that led to Oakland’s success. Ricciardi never achieved the same degree of middle market success with the Toronto Blue Jays that Beane displayed with the A’s. Between 2002 and 2007, Ricciardi’s team finished third or lower in the AL East Division five out of six years. It should be noted that the Blue Jays are competing in the same division as the Yankees and the Red Sox – a challenge that the A’s did not have to directly face. Paul DePodesta was hired to become the GM for the Los Angeles Dodgers, but his career as a GM was short-lived. After a promising start in 2004, when the Dodgers won the NL West Division, he was fired by the Dodgers at the end of the 2005 season for making what were perceived to be a number of disastrous trades during the 2004–2005 off-season, trades that were blamed for the Dodgers’ second-worst single season record in club history (http://en.wikipedia.org/wiki/Los_Angeles_Dodgers). After a brief

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period of unemployment, DePodesta was hired in 2006 as special assistant for baseball operations by the San Diego Padres. Thus, despite their involvement in the early, successful applications of Sabermetrics, neither Ricciardi nor DePodesta were able to replicate their original success.

DISCUSSION How do Resource-Disadvantaged Entrepreneurs Compete? In terms of the primary questions that motivated this chapter, our study demonstrates that by engaging in bricolage, resource-disadvantaged participants can make room for competitive maneuvering even when they are constrained to compete at the core of a highly institutionalized field. Explaining the dynamics of such competition is essential to understanding the processes through which entrepreneurs, whether at the helm of new organizations or existing ones they seek to transform, can find ways to compete against richer and entrenched competitors. Unlike much work on so-called institutional entrepreneurship, our study shows that resourceconstrained entrepreneurs needn’t create substantial changes to regulatory and normative institutions in order to create a space in which to compete. Instead, successful challenges to cognitive institutions, through bricolage or some other process can be enough to allow resource-constrained entrepreneurs to compete even in highly structured and institutionalized industries dominated by wealthy firms. We showed that MLB is a highly institutionalized field, and that when the new ownership of the A’s created a resource-disadvantaged situation, the leadership of the A’s adopted a pattern of behavior that rejected the bonds of the existing industry recipe and closely matched prior descriptions of bricolage. Refusing to hide passively behind excuses about financial determinism and ‘‘rebuilding,’’ or to enact taken-for-granted resource limitations, the A’s were able to compete effectively against teams with far more money to spend. Our answer to the question of how such a resource-disadvantaged competitor can continue to maneuver for advantage when its innovations result in adaptive responses by competitors is more tentative. The evidence suggests that the A’s are continuing to engage in bricolage, rejecting some of the earlier findings of Sabermetrics while many other MLB teams are actively following its tenets. The A’s continued to perform well for a time with a team possessing substantial differences from those that Beane and DePodesta built

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earlier, but have struggled in more recent years. Future research should continue to explore the sustainability of bricolage as a way to maneuver for advantage in highly institutionalized competitive environments.

The Nature of Organizational Resources The answer to the second major question motivating our study (what could be learned about the nature of resources from the creative maneuverings of bricoleurs?) supports the line of research extending from Penrose (1959), that the distinctive, advantage-generating characteristics of resources are based on the capabilities of managers to combine and deploy them in idiosyncratic ways (Baker & Nelson, 2005; Mishina, Pollock, & Porac, 2004). It also supports the Weickian notion that resource limitations are enacted and the claim that bricolage includes a bias for testing taken-forgranted limitations (Baker & Nelson, 2005; Weick, 1979). In a mature institutionalized field, it is ‘‘natural’’ (Berger & Luckmann, 1967; Schutz, 1944) to assume that the industry recipe describes the correct use and appropriate valuation of useful resources. This was the case with baseball’s valuation and devaluation of player attributes and it helps to explain why Sabermetric insights could exist for so long in parallel to the routine behavior and decision making of MLB teams, without causing substantial changes to the baseball recipe. Our study dispels the notion that consistent adherence to Sabermetrics is at the core of the A’s continued success, and shows instead that Sabermetrics is now a part of the industry recipe that defines the context in which the A’s now maneuver for advantage through bricolage. Our study supports the Penrosian argument that, to a large extent, resources are what organizations make of them. This argument provides some comfort for the majority of entrepreneurial firms who strive to persist and flourish despite severe resource deficits relative to larger, more established competitors. Firms that can achieve consistently superior financial results, that can dominate their competitors, and that can sustain resource and competitive superiority are rare indeed. Yet, our study suggests that even under the most limited of circumstance, firms can and do find ways to be resourceful and achieve viability and relative success. It also helps to explain why trying to compete on the same basis as richer competitors is oftentimes a mistake for the typical resource constrained start-up, and suggests that the willingness and ability to engage in bricolage may be an effective entrepreneurial strategy for using limited resources, even in mainstream and highly institutionalized industries.

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Contributions to Institutional Theory Research Our study contributes to the stream of research in institutional theory that seeks to explain sources of institutional change. As we went to some lengths to demonstrate, MLB is extraordinarily institutionalized, with a mature industry recipe and patterns of recruitment and socialization that contribute to a high degree of stability. MLB teams are constrained to compete within a rigid and stable set of rules guiding competition on the field, while laws, court rulings, regulatory procedures, and even public opinion guide many of the behaviors off the field. Prior institutional research would suggest that under these circumstances, resource-disadvantaged organizations are unlikely to be able to create space for effective competitive maneuvering and even more unlikely to create innovations that generate institutional change. In contrast, our study extends institutional theory’s grasp of endogenous change by focusing specifically on the cognitive institutions susceptible to change and by describing a mechanism through which such innovations may occur. The fact that Sabermetric truths lay underutilized for so many years throws into stark relief the limitations of simple knowledge or discovery as a means for resource-poor firms to maneuver competitively at the core of institutionalized fields, and reinforces the primacy of stability and constraint in highly institutionalized fields. Sabermetrics was not employed to undermine the MLB recipe until a set of bricoleurs wielded it to support their belief that they need not accept their own apparent limitations. Still, it was but one tool among many used by the A’s to challenge the taken-forgranted practices and constraints of MLB. The bricolage we have described was not easy, obvious, or simple to sustain. An important advantage of our study is that it takes place in a context in which institutional maturity and the nature of the field leaves no ‘‘periphery’’ to which resource-constrained organizations can move; every team plays a similar schedule against the same sets of competitors. There is no movement to another, more open field (Kraatz & Zajac, 1996); MLB teams have no other league to which they can move. The legal environment and the rules of the game are extremely resilient and slow to change. Thus, resource-disadvantaged teams can maneuver mainly through bricolage – through finding ways to test enacted limitations and to combine the resources at hand in novel ways. Indeed, the A’s bricolage challenged the cognitive elements MLBs institutions, leaving the regulatory and normative pillars largely unchanged. The A’s were not engaged in institutional entrepreneurship, but were simply trying to win more games. Ironically, by demonstrating that a resource-constrained team could maneuver for

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advantage, the A’s may have reduced the pressure on MLB to make the topdown regulatory changes necessary to make baseball less unfair. The success of other small market teams in recent years, such as the Tampa Bay Rays, Minnesota Twins, and Milwaukee Brewers also likely reduce the pressures to enact significant normative or regulatory changes. The context of our study allowed us to closely examine an important example of bricolage in MLB, but it does not allow us to address endogenous institutional change in fields where participants face different sets of constraints on their competitive maneuvers. An important question for future research involves trying to understand more generally the effects of highly institutionalized environments on how resources are valued and combined. For example, prior to the changes wrought by the A’s, the institutionalization of baseball and its powerful recipe clearly formed an effective barrier against new ideas and approaches. On the other hand, by retarding incremental changes to how players were valued and combined, this same institutionalization created a substantial opportunity for an organization to compete through bricolage. Future studies should examine the interplay between institutionalization as a drag on change and the slowness of change as a source of opportunity for effective competition through bricolage.

CONCLUSION As numerous analysts (e.g., Hakes & Sauer, 2006; Lewis, 2004) have noted, MLB is extraordinarily information rich and highly competitive. The A’s creation of valuable resources from combinations of players available at low cost and the subsequent revaluation of player skills across MLB suggest that other economically and culturally important fields may present substantial opportunities for competing through skillful bricolage. And even in mature and deeply institutionalized organizational fields, bricolage may be an important engine of endogenous change for firms of any age or size.

NOTES 1. Derived from the Society for American Baseball Research, ‘‘Sabermetrics’’ refers to a set of statistics aimed at providing more valid measures of contributions to run scoring and run prevention than prior, simple statistics.

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2. Arguably, the use of Sabermetrics allowed the A’s to obtain better players at lower costs or better selections of players in annual drafts than other teams were obtaining. It also gave them advantages in trades and in retaining high draft choices. Even though their focus was initially on hitting, the advantages spilled over into pitching in that they had better draft picks than other clubs. This is not to say that they did anything special in the years of 2003 and 2006, but simply that their better overall performance across several years placed them higher in the standings. In 2003 and 2006 this better performance resulted in playoff appearances. 3. Even executives of small market baseball teams with extremely limited resources are continually barraged by pleas to ‘‘play the game’’ as do large market teams, regardless of the success of the team or the ability of the teams to take this path. For example, Jim Souhan, the primary baseball reporter for the Star Tribune in Minneapolis, criticized the Twins’ management for not behaving like the Yankees, Red Sox, Angels, and Cubs in an article published on October 3, 2007, the day the 2007 playoffs commenced. The tagline read, ‘‘The Twins often get applauded for their low budget successes, but some of the big spenders are playing October ball this year.’’ Yet the Twins had been in the playoffs five of the previous six years. Terry Ryan, the Twins’ general manager, resigned that August despite his success in the face of overwhelming disadvantages. 4. This is one reason steroid use poses a huge conundrum, because it muddies fans’ abilities to make comparisons, for example, of the performance of Babe Ruth in the 1920s and 1930s with that of Barry Bonds in the 1990s and 2000s. 5. The belief in the ability of scouts to ‘‘know’’ talent intuitively or by how a player looks goes back at least 100 years. Leigh Montville, in his biography of Babe Ruth, reported the legend of the scout Jack Dunn who signed Ruth out of a Baltimore area orphanage: ‘‘[Jack Dunn] would check out the player the way a trainer or potential buyer might look at a young Thoroughbred horse. If he liked the player’s size, the way the player moved just walking across a room, he might make an offer. Dunn sometimes never even saw the player play a game’’ (Montville, 2006, p. 33). 6. The core batting statistics by which offensive performance had been traditionally judged include the three numbers that comprise the elements of the ‘‘triple crown’’: home runs, runs batted-in, and batting average. These simple measures have been somewhat supplanted in the post-Sabermetric era by more complex metrics such as ‘‘on-base-plus slugging’’ (OPS) and ‘‘wins above replacement’’ (WAR). 7. Perhaps because of the longer history of and greater availability of hitting statistics, Bill James’ earliest work was on analyzing statistics aimed at uncovering contributions to the number of runs a team scored over the course of a season. It was these insights that Beane’s brain trust focused on in gaining competitive advantage in hitter evaluation. However, this advantage also allowed the A’s to achieve superior pitching selections, because they were able to delay picking undervalued hitters in draft competitions, using earlier picks for promising pitchers, and they were able to gain more draft selections by trading overvalued hitters. In essence, their valuation advantage enabled run-scoring parity at a much lower cost and it enabled opportunities to acquire superior young pitching. 8. We might add that because in MLB all such strategic moves are fully transparent, even strategies that are nearly ‘‘perfect’’ can be quickly imitated and are also rendered temporary.

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9. As is discussed in the next section, Billy Beane’s personal experiences and cognitive disposition play an important role in this story; however, the infusing of these bricolage-type cognitions and attitudes into the mindset and behaviors of the entire organization was necessary to make them work. 10. There are two main costs to acquiring an MLB player: compensation to the player’s prior team and subsequent salary costs. In theory, a player can be just about ‘‘free’’ because prior teams trying to unload players sometimes subsidize their salaries with new teams. For the most part, though, the players we refer to in this study were relatively inexpensive but not free; henceforth we will use the words ‘‘cheap’’ or ‘‘cheaply.’’

ACKNOWLEDGMENT We would like to thank Jim Detert, Matt Kraatz, Myleen Leary, Mike Pfarrer, Steve Ross, Jaume Villaneuva, and Marvin Washington for their helpful comments on earlier drafts of this manuscript.

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SELECTIVE OR PARALLEL? TOWARD MEASURING THE DOMAINS OF ENTREPRENEURIAL BRICOLAGE Mikko Ro¨nkko¨, Juhana Peltonen and Pia Arenius ABSTRACT Entrepreneurial bricolage has been proposed as a method of alleviating resource constraints of entrepreneurial firms. However, the outcomes of bricolage for a firm may vary greatly. One of the most pressing issues is to clarify how bricolage may enhance firm growth. Based on case studies, Baker and Nelson (2005) propose that applying bricolage in limited areas (‘‘selective bricolage’’) may enable firms to grow, whereas excessive (‘‘parallel’’) bricolage may lead to the opposite outcome. However, the process of testing the generalizability of this relationship using quantitative methods has just begun. In this chapter, we describe our efforts to develop a scale that measures bricolage manifestation in firms by using the ‘‘environmental domains’’ of Baker and Nelson (2005) to facilitate quantitative testing of the bricolage–growth relationship. Keywords: Entrepreneurial bricolage; business growth; selective bricolage; environmental domains

Entrepreneurial Resourcefulness: Competing with Constraints Advances in Entrepreneurship, Firm Emergence and Growth, Volume 15, 43–61 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1074-7540/doi:10.1108/S1074-7540(2013)0000015005

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INTRODUCTION It is paradoxical how certain firms with limited resources are able to survive or grow in hostile environments; some of these firms are even able to challenge firms with fewer resource constraints. Baker and Nelson (2005) offer entrepreneurial bricolage as one explanation for this phenomenon. Under conventional analysis, firms facing resource constraints may either attempt to access standard resources or avoid new challenges; Baker and Nelson (2005) propose bricolage as a third option that attempts to create resources in the process of ‘‘making do by applying combinations of the resources at hand to new problems and opportunities.’’ This process may be characterized as a refusal to accept limitations by combining or using abandoned or lower-quality resources in unorthodox ways. However, Baker and Nelson (2005) observe that bricolage is not a silver bullet; excessive and ‘‘parallel’’ bricolage may backfire and limit growth, whereas ‘‘selective’’ bricolage may create new resources that help firms avoid spiraling toward less professionalism in operations and the many negative consequences that follow. Although bricolage may prove to be a fundamental building block in the emergence of successful firms, research on this topic has mostly been dominated by case studies (Baker, Miner, & Eesley, 2003; Baker & Nelson, 2005; Lanzara, 1999). However, quantitative research is beginning to emerge, led by the pioneering studies of the CAUSEE project (Senyard, Baker, & Davidsson, 2009; Senyard, Baker, & Steffens, 2010; Steffens, Baker, & Senyard, 2010). Nonetheless, as research on bricolage begins to test the generalizability of the relationships among its central constructs, the broader firm-level implications of bricolage remain largely unknown. When measuring bricolage, it is important to consider the multilevel nature of the bricolage–growth mechanism proposed by Baker and Nelson (2005). Whereas bricolage is typically described on the level of individuals, tasks, and resources (Baker et al., 2003; Baker & Nelson, 2005; Lanzara, 1999; Pina e Cunha, 2005), growth is a firm-level phenomenon. Thus, in the spirit of Coleman (1990), one must also consider inter-level mechanisms that might link bricolage to firm-level outcomes in examining the relationship between bricolage and firm growth. Examining the relationships between bricolage, innovativeness, resources, and growth (Senyard et al., 2009, 2010; Steffens et al., 2010; Steffens, Senyard, & Baker, 2009) represents an important step in this direction. However, we argue that these inter-level mechanisms might be triggered differently (if at all) depending on how bricolage manifests within a firm.

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In other words, merely considering whether bricolage has occurred in an organization, or how common such occurrences are, may not be sufficiently sophisticated for testing theories. For example, if a marketing manager of a firm undertakes bricolage frequently to gain exposure or establish new business contacts, it is far from certain that this would in any way drive growth from newly created technological resources, as observed for example by Garud and Karnøe (2003). We underscore the differences in how bricolage manifests consistent with Baker and Nelson (2005), whose case studies suggest that bricolage may enable growth through the development of resources; they note that bricolage may manifest in five different environmental domains that they place under three categories: (i) inputs (physical, labor, skills), (ii) customers/ markets, (iii) and the institutional and regulatory environments. According to Baker and Nelson (2005), if bricolage is undertaken in all five domains, it is likely to result in a ‘‘bricolage identity’’ or a ‘‘permissive community of practice’’ that hinders growth by reducing the firm’s ability to identify and seize opportunities in broader markets. However, if bricolage manifests in fewer domains, the resource-driven growth mechanism dominates in what they call ‘‘selective bricolage.’’ Thus, different mechanisms and organizational outcomes may be triggered depending on the manner in which bricolage manifests in an organization. Following this approach, we set out to develop a measurement scale based on the domains of bricolage that may be used to test the bricolage-firm growth mechanism described by Baker and Nelson (2005). This chapter is organized as follows. In the next section, we review the literature on entrepreneurial bricolage. Next, we articulate the need for a new scale based on existing literature. We then proceed to describe our scale development procedure. We conclude this chapter by discussing the implications of our findings. .

THE CONCEPT OF BRICOLAGE The concept of bricolage originates from the anthropological research of Le´vi-Strauss (1966), which was subsequently adopted by other disciplines (Duymedjian & Ru¨ling, 2010). The foundations that Le´vi-Strauss (1966) provides for the use of the term in areas outside anthropology are somewhat weak because he only characterizes bricolage and does not clearly define it (Harper, 2011). One might argue that Le´vi-Strauss treats bricolage as a metaphor – not a concept – in research that primarily describes the

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differences in the culture and epistemology of tribal people and modern societies. Because the research from which bricolage was adopted does not provide a definition or even an explicit characterization of bricolage as a concept for management or entrepreneurial research, several recent papers have attempted to conceptualize it. In management literature, bricolage has been presented as a coping mechanism (Johannisson & Olaison, 2007) or a survival mechanism in sudden and unexpected situations (Pina e Cunha & Viera da Cunha, 2007). According to Baker and Nelson (2005), bricolage is a resource process that facilitates firm survival and growth. When faced with an opportunity for growth, firms either acquire the necessary resources to exploit the opportunity or let it pass by. Bricolage offers firms a third option, as it may help create useful combinations that generate temporary income for a firm, permit the firm to offer attractive pricing deals for customers, or generate significant new business activity (Baker & Nelson, 2005). The outcomes related to bricolage can range from mundane and imperfect solutions to brilliant and unforeseen results (Le´vi-Strauss, 1966, p. 17). More generally, bricolage has been described as the process of creating something from what appears to be ‘‘nothing’’ (Baker & Nelson, 2005). Entrepreneurs engaged in bricolage disregard commonly accepted definitions of material inputs, practices, and standards; alternatively, they test conventional limitations and combine and reuse resources at hand for purposes other than those for which they were originally intended or used (Baker & Nelson, 2005). We have identified three complementary discussions of bricolage in the literature.

The Domain Categories of Bricolage According to Baker and Nelson (2005), bricolage may be used in the following three domain categories: inputs, customers/markets, and institutional and regulatory environments. The inputs category includes resources and can be divided into the physical, labor, and skills domains. Baker and Nelson emphasize what they call a ‘‘diverse resource trove’’ throughout their paper. The entrepreneurs that engaged in bricolage tended to maintain a broad collection of tools, parts, and other physical resources for which no immediate need was available; they experimented with such resources. These entrepreneurs were frequently self-taught jacks-of-all-trades instead of formally educated and specialized engineers. Baker and Nelson indicate that the experimentation process also extended to customers; at times during

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their fieldwork, they had difficulty distinguishing customers from employees because of the way certain entrepreneurs utilized their customers as a source of labor or expertise. With respect to customer needs and markets, the bricoleurs tended to serve anyone they could (including customers that other firms would find unattractive) instead of focusing on certain types of customers. Moreover, instead of maintaining a professional distance with their customers, many bricoleurs had an informal approach to customers that involved them as resources; these informal and close relationships led to a pattern in which the entrepreneur and customers often formed a community of friends. Baker and Nelson’s third and final domain of bricolage involves institutional constraints. In many cases, entrepreneurs were able to challenge the ‘‘industry recipe’’ (Spender, 1989) and create novel solutions with the resources at hand. However, this dimension also had a negative side in which certain entrepreneurs disregarded regulations relating to the environment and work safety, for example. Instead of following regulations, the firms did what they had learned that they can ‘‘get away with.’’ Only a small subset of the firms studied by Baker and Nelson embraced this type of behavior.

Practice, Epistemology, and Metaphysics of Bricolage A second conceptualization of bricolage can be found in a relatively recent paper by Duymedjian and Ru¨ling (2010). Instead of building on an empirical study such as that of Baker and Nelson, Duymedjian and Ru¨ling (2010) rely on interpreting Le´vi-Strauss and his contrast of the two archetypes of bricoleur and engineer.1 They describe bricolage on the following three levels: acting (practice), knowing (epistemology), and underlying worldview (metaphysics). This discussion of bricolage is more abstract than that previously presented and might be considered as an extension of the characterization of bricolage by Baker and Nelson (although the authors do not present it as such). The practice level is closely related to the inputs domain of Baker and Nelson and describes the resources and routines that the bricoleur uses. The second level, epistemology, defines what the bricoleur knows and how this knowledge is used and produced. Similar to Baker and Nelson, Duymedjian and Ru¨ling (2010) present the knowledge of a bricoleur as broad, versatile, and originating from practice instead of abstract and generalized laws. The third level of bricolage, the metaphysical, characterizes the values structuring an individual’s world. Duymedjian and Ru¨ling (2010) explain that a bricoleur sees the world as a closed, complex, and

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interconnected system, whereas the engineers’ world is a decomposable system in which complex problems can be solved through reduction. This difference in world-view explains the tendency of bricoleurs toward experimentation and exploiting what is at hand instead of seeking out new resources. Material, Labor, and Skills Bricolage Interpreting Baker and Nelson, Desa (2012) describes bricolage as a threedimensional construct consisting of material bricolage, labor bricolage, and skills bricolage; he implies that resource combination is the core of the bricolage framework. He further argues that the interesting part of bricolage is not starting with little but transforming scarce inputs into useful outputs. According to Desa (2012), it is the unfamiliar institutional context rather than the availability of resources that restricts the development of the firm. Here his interpretation departs from the previous two classifications. Moreover, the three dimensions belong exclusively to the practice dimension presented by Duymedjian and Ru¨ling (2010), which perhaps renders this resource-centric characterization of bricolage too narrow. Summary These three discussions of bricolage present competing and complementary approaches to how bricolage might be studied. The resource perspective used by Desa (2012) is appealing because of its simplicity; however, comparing it to the three-level-framework presented by Duymedjian and Ru¨ling makes the resource-based characterization of bricolage appear unsophisticated. Comparing the three domain categories of Baker and Nelson to the three levels of Duymedjian and Ru¨ling (2010), the model by Baker and Nelson (2005) is perhaps more applicable to organizational settings because the epistemological and metaphysical levels of Duymedjian and Ru¨ling (2010) are tied to an individual, which makes it difficult to generalize this description to the organizational level.

SCALE DEVELOPMENT After considering different perspectives on bricolage, we view Baker and Nelson (2005) as the most suitable platform for further scale development.

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However, before proceeding to our own scale development, we visit existing quantitative research based on the paper. Existing Scales Whereas there is at least one preexisting scale built of entrepreneurial bricolage that was developed and applied to data collection in the CAUSEE project (e.g., Senyard et al., 2009, 2010; Steffens et al., 2010), we felt that this scale does not meet all the requirements for testing hypotheses related to bricolage and other constructs in entrepreneurship research. The scale developed in the CAUSEE project is based on the definition of bricolage found in Baker and Nelson (2005), and it contains the following three dimensions: (i) making do, (ii) use of resources at hand, and (iii) resource combinations applied to new problems and opportunities. The scale contains eight items relating to these dimensions that the respondent rates on a five-point scale from ‘‘never’’ to ‘‘always.’’ Thus, the scale is designed to measure how common bricolage is within a firm but is agnostic to the domains in which the bricolage manifests. Although it may be likely that there is a positive relationship between how often firms engage in bricolage and the breadth of the domains involved, significant inconsistencies may arise. For example, a firm that always resorts to bricolage on physical inputs but in no other domains would likely receive a very high score on the CAUSEE bricolage scale. Thus, we find that quantitative research – particularly on the bricolage–growth relationship – would benefit from a new measurement scale that is explicitly based on the domains of bricolage identified by Baker and Nelson (2005). Developing a New Measurement Scale for the Bricolage Construct In developing the metric for the bricolage framework, we followed the scale development processes laid out by DeVellis (1991). To reduce the likelihood of item ambiguity problems, we phrased our questions as semantic differential statements to describe the extreme values of items as concretely as possible. Moreover, we believe that this type of scale is somewhat less sensitive to social desirability bias because respondents are more likely to acknowledge both positive and negative aspects of the extreme ends of statements. The scale was developed and tested using two surveys conducted in the Finnish software industry. The software industry fits this study well because

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inexpensive software assets are both readily available and are typically combined in many ways (Lanzara, 1999). For example, the source code for open source software components may be downloaded by anyone with internet access and can be easily extended and combined with other software components to implement new functionality with few restrictions. Because existing literature on bricolage often emphasizes the use of material resources, focusing on an industry where most resources are immaterial increases the generalizability of the research: While considering extant bricolage research as we developed the items, we were also forced to raise the level of abstraction of the scale to maintain relevance for the target industry.

Step 1: Developing the Initial Item Pool We developed the items using the three domain categories (inputs, customers/markets, and institutional and regulatory environments) that Baker and Nelson (2005) used in their multiple-case study. We further paid special attention to the inputs domain category to cover all three domains of bricolage included in it so that all five domains of bricolage identified by Baker and Nelson (2005) would be included (physical, labor, skills, customers/markets, and institutional and regulatory environments). Throughout the scale development process, we assumed that the domain categories of bricolage might vary independently because we did not find a pressing reason to assume the contrary. For example, the case descriptions of Baker and Nelson (2005) suggest that managers and individuals often have agency in choosing whether to engage in a bricolage activity when bricolage was conducted ‘‘selectively.’’ Thus, if potential bricoleurs have a choice about whether to engage in bricolage, it seems unreasonable to assume as a starting point that the domain categories of bricolage will automatically correlate with one another. Although this may appear to be an assumption that relates only to the final scale validation phase, it may also have implications for earlier phases of scale development. For example, if correlation between the domain categories of bricolage is the baseline assumption in scale development, it is possible that items that correlate sufficiently with all of the rest of the items would pass onto the final version of the scale disproportionately. Conversely, by making the independence of the domain categories in the bricolage framework our baseline assumption, we avoid the risk of rejecting items that contribute pragmatically to measuring bricolage, but only in a single domain.

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During the development of the initial item pool, we considered the applicability of the scale within the empirical context in which it was later tested and simultaneously paid attention to generalizability within other contexts. Whereas Baker and Nelson (2005) discuss ‘‘physical inputs’’ and a ‘‘diverse resource trove,’’ their definition of bricolage is not limited to material resources and inputs. Furthermore, the remainder of the bricolage literature did not suggest that bricolage should be confined to material inputs. Thus, we attempted to avoid wording that would limit the usability of the scale in any industry’s resource environment. We also considered the possibility of creating one item for each of the three dimensions in Baker and Nelson’s (2005) definition of bricolage (making do, use of resources at hand, and resource combinations applied to new problems and opportunities) for each of the five domains of bricolage (physical, labor, skills, customers/markets, institutional and regulatory environments). However, we abandoned this approach because the resulting scale would have been excessively long considering the need for surplus items in the scale development, and it was difficult to find practical and concise wordings for items that would simultaneously capture only one dimension of bricolage and only one domain of bricolage. Nonetheless, we found certain concepts from Baker and Nelson’s (2005) definition of bricolage useful in wording the items. All of the items were reworded several times to avoid representing either end of the scale as more desirable than another. The initial item pool contained 19 items. After a review by three industry practitioners, as recommended by DeVellis (1991), 7 items were dropped and revisions were made to the remaining 12 items. We decided to shorten the scale to 12 items for two reasons. First, we considered that the full 19-item pool would be excessively long because the items were later used in a survey that also contained many other questions (Ro¨nkko¨ et al., 2010). Moreover, semantic differential scales cannot be laid out as densely as rating scales on the survey form and 12 items filled one page of printed survey questionnaire. The second factor was that 12 questions provided us with 4 items for each of the 3 domain categories, which left us room to drop or replace poorly performing items and still maintain a set of core items that would be jointly sufficient to identify the scale in a statistical analysis. Step 2: Scale Refinement Using a Pilot Study These remaining 12 items were tested in a pilot study in 2010. The target population for our scale development efforts was limited to all independent

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software companies (NACE rev. 2 codes 62.01 and 62.02) based in Finland that are small in size and employ at least one person (2–50 employees). We decided to focus on small firms in line with Baker and Nelson (2005), on whose research our scale development mainly builds on. We conducted our data collection through a survey that addressed the state of the Finnish software industry in 2010, and targeted a slightly broader population that aimed to maximize coverage of the industry (Ro¨nkko¨ et al., 2010), but also includes all firms under the NACE codes of interest in this study. In the survey, we collected the data by using an online and a paper questionnaire that followed a modified version of the tailored design (Dillman, 2007), which involves sending a pre-notice letter that is followed by the survey and reminders. A total of 7,578 firms were contacted using either e-mail, traditional mail, or both. Our letter was addressed to the CEO and up to two management team members, and it contained information about the survey and instructions about how to respond. Several approaches were taken to convince the recipients of the importance of the survey. Many prominent nonprofit organizations closely linked to the Finnish software industry were asked to endorse the survey. Signatures of high-ranking persons and logos of such organizations were used as a sign of endorsement in the paper letters. In addition, we promised to provide firm-specific reports of the responses to further incentivize recipients. In reminder e-mails, we attached firm-specific reports generated from secondary trade register data (when available). Our efforts resulted in 650 complete responses with a response rate of 8.6%. We proceeded by removing firms outside the population of our scale development (35% of the responses). Next, we analyzed the data from the pre-study using exploratory and confirmatory factor analyses with Mplus 6.1 software. Based on these analyses, we chose three pairs of items that we considered to best measure the three domain categories of bricolage. After analyzing the distributions of the items, we made small adjustments to those items that were skewed toward either of the response options to reduce the skew. Then, we repeated the item generation process; this resulted in seven additional items included in the scale, in addition to the six core items. These items were then used in the main study in 2011.

Step 3: Validating the Scale with a Second Survey The modified scale was validated with a second survey one year after the initial study. The survey procedures were similar to the pilot survey. The

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second survey was sent out to 5,489 firms; after two rounds of reminders, the final number of returned complete responses was 506 with a response rate of 9.2%. A full description of the survey that addressed the state of the software industry in 2011 is available in the final report of the survey project (Ro¨nkko¨, Peltonen, & Pa¨rna¨nen, 2011). Consistent with our approach, we again removed companies outside the study population resulting in 315 responses (63% of the full responses). The median revenue of the remaining companies was just over 500,000 euros, which makes the sample somewhat comparable to earlier studies that have addressed bricolage in the context of small firms (Baker & Nelson, 2005; Senyard et al., 2009) or nascent and young firms (e.g., Senyard et al., 2009). The median firm age was 9 years, which indicates that most companies had passed the startup stage and had established routines and procedures. A typical company grew by 11% based on 2010 revenue data, which is the latest available revenue data from the Finnish Trade Register at the time of writing.

Step 4: Analysis of the Scale We tested the factorial validity of the scale with a confirmatory factor analysis (CFA) in which the three bricolage domain categories were fitted as separate factors that were allowed to correlate. As we argue earlier in this chapter, the overall degree of bricolage in a firm should be understood as a combination of the three independent domain categories.

RESULTS Confirmatory Factor Analysis to Establish Factorial Validity We began testing by fitting a CFA model using the three dimensions of bricolage. After the initial factor analyses, we decided to drop four poorly performing items, which left us with a final scale of three sets of three items that each measured a distinct dimension of bricolage. The model fit indices for the final CFA are presented in Table 1, and the final set of items is listed in Table 2. The resulting CFA model contains at least one item for each of the five domains of bricolage, and they are grouped into domain categories that are similar to those used in Baker and Nelson (2005, p. 349), with the exception of one item. To improve the CFA model fit, we decided to move

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Table 1. Fit Indices. Model CFA

w2

df

p(w2)

57.999 23 0.0001

RMSEA p(RMSEAr.05) 0.070

0.071

CFI

TLI

0.917 0.871

SRMR 0.056

AIC

BIC

7933.575 8049.905

the item then labeled Cust1 from the inputs (Inp) domain category into the customers/markets domain category. This item is based on the labor domain of bricolage, and it relates to involving customers in the daily tasks of the firm. Thus, it is natural that the item should correlate with items Cust2 and Cust3, which also address the firm’s customers. The scale’s items map to the five domains of bricolage in the following manner: physical (Inp1, Inp2), Labor (Cust1), skills (Inp3), customers/ markets (Cust2, Cust3), and institutional and regulatory environments (Inst1, Inst2, Inst3). All of the poorly performing items that were dropped during scale development are summarized in Table 3. The two main reasons for dropping an item were severe skewness caused by the informants preferring one option over the other and lack of correlations with any other items. The w2 for the CFA model is significant, but this is not alarming because this is a strict test for model fit. Moreover, this statistic is sensitive to the strength of the correlations in the sample (Kline, 2005, p. 136). Of the remaining fit indices, RMSEA, CFI, and SRMR indicate acceptable fit, but TLI falls slightly below the commonly used 0.90; again, this depends on the average correlations, an issue that we will return to later in this chapter. Fig. 1 shows the standardized parameter estimates for the fitted CFA model. Modification indices suggested that the last two related items of customers/markets that measured the targeted customer segment had a stronger correlation than should be expected if they were caused by one general factor measuring the customer dimension of bricolage. To reduce the effect of these customer-segment-related items on the model, we added an error correlation for these items. The factor loadings on the measurement model are somewhat low and exploratory factor analysis of the items indicated that the uniqueness of the items was high. This may be the result of weaknesses in the scale, but there is another possible explanation. Although we took the independence of the dimensions into consideration by modeling the construct as an aggregated multidimensional (Edwards, 2001), it is possible that each of the three subconstructs continue to have dimensionality that is not captured by

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Table 2. Final Bricolage Scale. In our general approach to utilizing resources (e.g., technology, staff, knowhow), wey Inp1

ymake do with the skills and other resources that we currently have even if they were limited.

&&&&&

ycontinuously invest in improving the skills and other resources that we have to stay competitive.

The technologies and other resources of our firmy Inp2

Inp3

yare more of a result of what we have happened to accumulate over time. yrequire broad and intimate knowledge so that new employees would have great difficulty working with them without extensive supervision.

&&&&&

&&&&&

yare more of a result of systematic development and acquisition. yare well documented and follow generally known principles so that new employees can quickly work with them without extensive supervision.

When dealing with our customers, wey Cust1

Cust2

Cust3

yhave very informal relations and often even involve them in our daily work tasks. yoften help our customers to solve a wide range of problems that other firms did/would not help them with. yalso serve customers that our competitors consider to be less attractive.

&&&&&

&&&&&

&&&&&

yalways have a professional approach with some formality in our customer relations. yacknowledge that our customers have many needs we should not try to serve. yfocus on well-chosen and profitable customer segments.

In our way of operating, wey Inp1

Inp2

Inp3

yoften do things in ‘‘our own special way’’ instead of using approaches that other firms would consider to be conventional. yabandon conventional industry practices, if it leads to a better outcome. ycombine resources in unorthodox ways for a company in our industry.

&&&&&

&&&&& &&&&&

yonly use methods and practices that are generally accepted and common in our industry. ydo things ‘‘by the book,’’ even if it sometimes means disappointing customers yhave the same approach to utilizing resources as other companies in our industry.

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Table 3.

Bricolage Items that were Used in a Survey but were Dropped in Scale Development.

In our general approach to utilizing resources (e.g., technology, staff, knowhow), wey Inp4

Inp5a

Inp6

a

Inp7

yoften also involve outside people through less formal arrangements. yuse new resources only if it does not involve significant additional costs. yoften utilize resources that firms in our industry consider of lesser value. yalmost completely rely on reuse of our existing resources even in new kinds of projects.

&&&&& &&&&& &&&&& &&&&&

yonly involve people that have formal agreements with our firm. ydo not hesitate to purchase or develop resources we lack, if a situation requires it. yutilize resources that other firms in our industry typically utilize. yoften purchase or develop new resources for new kinds of projects.

In their daily work, our personnel typicallyy Inp8a

Inp9a

yuse a wide range of practical skills obtained through experience. yperform a larger number of diverse tasks also outside their main domain of expertise.

&&&&&

&&&&&

yuse very focused skills gained through formal training and experience. yfocus mainly on performing tasks in their main domain of expertise.

When dealing with our customers, wey Cust4a

yoften involve our customers very closely and informally in our daily work.

&&&&&

yalways prefer to keep a professional distance to our customers.

In our way of operating, wey Inst4

Inst5

Inst6a

a

yoften choose a workable solution that is quick and inexpensive to implement, even if it is not perfect. ymay temporarily ignore legal and regulatory matters in order to create working solutions. yoften choose the first workable solution that comes to mind, even if it is not perfect.

&&&&&

&&&&&

&&&&&

yalways thoroughly evaluate all possible alternatives before acting and never compromise any professional standards. ywe never assume any legal or regulatory risks.

ythoroughly evaluate all possible alternatives before acting and never compromise high professional standards.

The item was either changed or dropped after the pilot study.

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Toward Measuring the Domains of Entrepreneurial Bricolage 0 Bricolage

1

1

1 ns

–.063 .312

Inp1

.804

370

Inp2

1 Institutional and regulatory environment

Customer/ markets

Inputs

.644

.661

1

1

.370

Inp3

Cust1

.592

.381

Cust2

.574

Cust3

.578

Inst1

Inst2

.632

Inst3

.355

Fig. 1.

CFA Model with Standardized Parameter Estimates.

the model. Considering the existing theory suggests that for example inputs domain category has three subdomains, this is not surprising. Bricolage can manifest as a collection of diverse practices and this is just reflected in our data. Nevertheless, SEM may partial the unique variance from the model if the ratio of sampling error to true score variance in the indicators remains sufficiently low. Moreover, when measuring complex constructs, the breadth of the indicators should be preferred over their homogeneity (Little, Lindenberger, & Nesselroade, 1999).

DISCUSSION AND CONCLUSIONS Bricolage has become an increasingly prominent concept in entrepreneurship research (Phillips & Tracey, 2007). However, limited empirical research has been undertaken to date to test the relationship between entrepreneurial bricolage and firm growth (for exceptions, see Senyard et al., 2009, 2010). Therefore, our study seeks to contribute to the emerging research on entrepreneurial bricolage by introducing a new scale based on the domains in which bricolage is practiced (Baker & Nelson, 2005). Furthermore, our

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approach involving a multidimensional analysis provides a close fit to the current conceptualization of bricolage. Additionally, we believe that using a semantic differential scale reduces the possibility of biases caused by social desirability and item ambiguity. Although bricolage as a qualitative phenomenon may be indispensable in explaining certain entrepreneurial outcomes, researchers should not overlook how bricolage manifests because it may trigger different mechanisms that lead to different outcomes. For example, a short and isolated episode of bricolage may be decisive in shaping the future path of an organization, such as the case of Apollo 13, when NASA’s engineers saved the crew aboard the Apollo 13 capsule by developing a replacement CO2 filter (Pina e Cunha & Viera da Cunha, 2007). In this case, bricolage enabled an ad hoc solution that averted a major setback for manned space flight. Conversely, bricolage is hardly a term that applies to space flight operations or NASA on a general level. In the context of bricolage and firms, it has been proposed that bricolage may help firms to create resources enabling them to grow (Baker & Nelson, 2005) when used ‘‘selectively.’’ However, Baker and Nelson (2005) also propose that bricolage can lead to a nonprofessional closed culture that limits growth, if it is present in all the ‘‘environmental domains’’ they identified. Again, the literature suggests that the only consideration in measuring bricolage is how broadly it manifests in different areas of the firm’s operations, instead of whether it occurs or how often it manifests on a general level. Consequently, failing to distinguish the degree to which bricolage is ‘‘selective’’ or ‘‘parallel’’ might hinder efforts to test theories regarding bricolage, growth, and other outcomes. Our scale has been used in an initial study to test the relationship between bricolage and firm growth with promising results (Peltonen, Ro¨nkko, & Arenius, 2012). While we believe that the scale can be useful for entrepreneurship research, caveats apply. Bricolage is fundamentally a multidimensional construct and there may be further dimensionality in the three main domain categories that our scale focuses on. Depending on the study, modeling that combines these multiple domain categories as one multidimensional construct may not be optimal (Edwards, 2001, 2011), but each domain category should be treated separately. For example, a statistical analysis of bricolage may reveal more insights if, in addition to testing the full scale, each domain category would be analyzed as a separate construct. The diversity of the practices that are collectively described as bricolage means that each of the three main domain categories has dimensionality that

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is lost when these practices are combined as one measure. While structural equation modeling can extract the common variance that items measuring different practices of bricolage have and high unique variances need not be viewed as a problem (Little et al., 1999), item uniqueness needs to be observed if data collected with our scale is used as a summed scale. Item uniqueness is often interpreted as random measurement error that causes unreliability of composite measures leading to attenuation of covariances and loss of statistical power. However, as stated earlier, uniqueness also contains reliable item dimensionality that is not captured by the common factor. Combining items that contain dimensionality as a single index is possible, but in this case reliability of the scale would need to be accessed with the test–retest method (cf. Bollen, 1989, Chapter 6). Although we have tried to make our scale apply across different firms and industries, further studies would be helpful in assessing its generalizability in different industries and environments. The scale developed here follows the three domain categories of Baker and Nelson (2005). As the theory on entrepreneurial bricolage develops, new domain categories may be identified and existing categories may be subject to change. Thus, it is likely that the scale will need to be further developed. In conclusion, in light of the current understanding of entrepreneurial bricolage, we believe that the scale we have developed is a useful tool for researchers interested in studying the antecedents and outcomes of bricolage in entrepreneurial firms.

NOTE 1. For Le´vi-Strauss (1966), the opposite of the bricoleur is the engineer. Similar to the bricoleur, Le´vi-Strauss provides no exact definition for the engineer. Although the engineer is characterized as not being confined by available tools and materials, the engineer sees that each task requires a specific and predefined set of tools and materials, which fundamentally limits what the engineer can accomplish.

REFERENCES Baker, T., Miner, A. S., & Eesley, D. T. (2003). Improvising firms: Bricolage, account giving and improvisational competencies in the founding process. Research Policy, 32(2), 255–276. Baker, T., & Nelson, R. E. (2005). Creating something from nothing: Resource construction through entrepreneurial bricolage. Administrative Science Quarterly, 50(3), 329–366. Bollen, K. A. (1989). Structural equations with latent variables. New York, NY: Wiley.

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Coleman, J. S. (1990). Foundations of social theory. Cambridge, MA: Belknap Press of Harvard University Press. Desa, G. (2012). Resource mobilization in international social entrepreneurship: Bricolage as a mechanism of institutional transformation. Entrepreneurship Theory and Practice, 36(4), 727–751. doi:10.1111/j.1540-6520.2010.00430x DeVellis, R. (1991). Scale development: Theory and applications. Newbury Park, CA: Sage. Dillman, D. A. (2007). Mail and internet surveys: The tailored design method. Hoboken, NJ: Wiley. Duymedjian, R., & Ru¨ling, C.-C. (2010). Towards a foundation of bricolage in organization and management theory. Organization Studies, 31(2), 133–151. Edwards, J. R. (2001). Multidimensional constructs in organizational behavior research: An integrative analytical framework. Organizational Research Methods, 4(2), 144–192. Edwards, J. R. (2011). The fallacy of formative measurement. Organizational Research Methods, 14(2), 370–388. Garud, R., & Karnøe, P. (2003). Bricolage versus breakthrough: Distributed and embedded agency in technology entrepreneurship. Research Policy, 32(2), 277–300. Harper, P. T. (2011). The logic and the limits of entrepreneurial bricolage. Ph.D. thesis, University of Virginia, Charlottesville, VA. Johannisson, B., & Olaison, L. (2007). The moment of truth – Reconstructing entrepreneurship and social capital in the eye of the storm. Review of Social Economy, 65(1), 55–78. Kline, R. B. (2005). Principles and practice of structural equation modeling (2nd ed.). New York, NY: The Guilford Press. Lanzara, G. F. (1999). Between transient constructs and persistent structures: Designing systems in action. The Journal of Strategic Information Systems, 8(4), 331–349. Le´vi-Strauss, C. (1966). The savage mind. Chicago, IL: University of Chicago Press. Little, T. D., Lindenberger, U., & Nesselroade, J. R. (1999). On selecting indicators for multivariate measurement and modeling with latent variables: When ‘‘good’’ indicators are bad and ‘‘bad’’ indicators are good. Psychological Methods, 4, 192–211. Peltonen, J., Ro¨nkko, M., & Arenius, P. (2012). Entrepreneurial bricolage and firm growth – Towards empirical measurement and hypothesis testing. Academy of Management annual meeting, Boston, MA. Phillips, N., & Tracey, P. (2007). Opportunity recognition, entrepreneurial capabilities and bricolage: Connecting institutional theory and entrepreneurship in strategic organization. Strategic Organization, 5(3), 313–320. Pina e Cunha, M. (2005). Bricolage in organizations. FEUNL Working Paper No. 474. Social Science Research Network, Rochester, NY. Retrieved from http://papers.ssrn.com/sol3/ papers.cfm?abstract_id=882784 Pina e Cunha, M., & Viera da Cunha, J. (2007). Bricolage in organizations: Concept and forms. In M. A. Rahim (Ed.), Current topics in management (Vol. 12, pp. 51–70). New Brunswick, NJ: Transaction. Ro¨nkko¨, M., Peltonen, J., & Pa¨rna¨nen, D. (2011). Software Industry Survey 2011. Espoo, Finland: Aalto University. Retrieved from http://www.softwareindustrysurvey.fi/ ReportFinland2011.pdf Ro¨nkko¨, M., Ylitalo, J., Peltonen, J., Parkkila, K., Valtakoski, A., Koivisto, N., y Mutanen, O.-P. (2010). Software Industry Survey 2010. Espoo, Finland: Aalto University. Retrieved from http://www.softwareindustrysurvey.org/ReportFinland2010.pdf

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Senyard, J. M., Baker, T., & Davidsson, P. (2009). Entrepreneurial bricolage: Towards systematic empirical testing. Frontiers of Entrepreneurship Research, 29(5), Article 5. Retrieved from http://digitalknowledge.babson.edu/fer/vol29/iss5/5 Senyard, J. M., Baker, T., & Steffens, P. R. (2010). Entrepreneurial bricolage and firm performance: Moderating effects of firm change and innovativeness. Academy of Management meeting, Montreal, Canada. Spender, J.-C. (1989). Industry recipes: An enquiry into the nature and sources of managerial judgement. Oxford, UK: Blackwell. Steffens, P. R., Baker, T., & Senyard, J. M. (2010). Betting on the underdog: Bricolage as an engine of resource advantage. In Proceedings of annual meeting of the Academy of Management 2010. Academy of Management, Montreal, Canada. Steffens, P. R., Senyard, J. M., & Baker, T. (2009). Linking resource acquisition and development processes to resource-based advantage: Bricolage and the resource-based view. Babson College Entrepreneurship Research conference, Boston, MA.

THE BLESSING OF NECESSITY AND ADVANTAGES OF NEWNESS Benson Honig, Tomas Karlsson and Gustav Ha¨gg ABSTRACT This chapter explores the advantages of newness and positive aspects of resource constraints, critically departing from assumptions of resource constraints and liabilities of newness. The chapter is based on a multiple case study consisting of nascent entrepreneurial processes from inexperienced entrepreneurs with severely constrained access to resources. Six theoretical concepts (legitimacy, fashion, flexibility, networks, bootstrapping, and motivation) are developed in the frame of reference. Empirical data is collected on a rich variety of sources, including longitudinal data in the form of weekly logbooks, business plans, theoretical reflections, and additional collected data during the process. Based on this data, the analysis shows that while these entrepreneurs face resource constraints and liabilities of newness, they also use strategies to leverage their constraints and novelty as an advantage in advancing their venturing efforts. Keywords: Entrepreneurial processes; legitimacy; flexibility; networks; bootstrapping; motivation

Entrepreneurial Resourcefulness: Competing with Constraints Advances in Entrepreneurship, Firm Emergence and Growth, Volume 15, 63–94 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1074-7540/doi:10.1108/S1074-7540(2013)0000015006

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INTRODUCTION At first glance, starting a profitable new business seems like an impossible mission. An entrepreneur must do everything from ‘‘scratch,’’ as frequently all that they begin with is a conceptual idea. Resource constraints are paramount. Incumbent firms have their production flows worked out, a core of employees with defined roles, and an established customer base. Theoretically, the odds are stacked against new and emergent firms. From an economic perspective, new ventures suffer from high mortality rates, a disadvantageous position due competitive barriers to entry, liabilities of newness (Stinchcombe, 1965), and smallness (Aldrich & Auster, 1986). Incumbent firms have economies of scales, no entry costs, and lower capital requirements. It is more difficult for emergent firms to raise capital, attract employees, and comply with regulatory obligations. Resource acquisition becomes a key to their eventual success (Barney, 1996). From institutional and ecological perspectives, the new venture faces liabilities in persuading established institutions of their legitimacy, fighting off established incumbents often well-tailored to the specific niche, as well as recruiting untrained employees. The odds are currently stacked against new entrants to such a degree that Aldrich and Fiol (1994) refer to new entrants in new industries as ‘‘fools.’’ Nevertheless, many new entries continue to occur in both established and new industries, and these occur during both expansionary and recessionary times. Worldwide, despite the recession, entrepreneurial start-ups were found to be on the rise (Kelly, Singer, & Herrington, 2012). Further, many well-known firms were started with very scarce resources. Examples include U-Haul, Microsoft, and IKEA. Those familiar with entrepreneurial processes know that many entrepreneurs regularly manage with resource constraints, outcompete established incumbents, and introduce innovation. Thus, there is more to the story than the depiction of strict liabilities of newness with a deficit of resources. In this chapter we highlight the impact of significant resource constraints and newness on new venture entry, and, counterintuitively, argue that constraints provide organizational cultural and environmental advantages that enhance future success. In this study we develop a number of ways of examining the advantages of new venture entry, critically deviating from the gloomy forecasts emanating from mainstream economics, institutional theory, population ecology, and strategy (Aldrich & Ruef, 2006; Hannan & Freeman, 1977). While studies of liabilities of newness are many, we found only two previous studies focusing on the relative advantages of newness. Carayannopoulos (2009) conceptually investigated how new technology-based firms can

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leverage their relative newness in a disruptive technology context. Her emphasis is on how new firms may be more flexible, how they develop a learning advantage, and how they are able to replace incumbents who would be more rigid. She also develops arguments regarding how new firms may leverage their relative anonymity to obtain an entry wedge in a market. Choi and Shepherd (2005) investigated the positive and negative aspects of newness in attitudes about a firm held by stakeholders, and found the investigation promising with respect to a new firms’ ability to open up a critique to an overly pessimistic view on newness. In this study, we investigate the advantages of newness, but we do not limit our scope to disruptive technologies (Christensen, 1997), but rather focus on the initial emergent life-cycle stage faced by most first time entrepreneurs, when they are subject to both newness and resource constraints. In particular, we examine how resource constraints and newness can be leveraged as an environmental and field level advantage, rather than a disadvantage. In doing so, we depart from conventional theory and address a research gap frequently overlooked. In the following section we explore a theoretical framework discussing the advantages of entrepreneurial resource constraints and newness, focusing on six specific concepts. The subsequent method section describes our rich qualitative data, the case sampling logic, and analysis method. We proceed to describe and illustrate the six theoretical concepts with data from our cases. We conclude with a discussion of the theoretical and practical implications of the study as a whole.

THEORETICAL FRAMEWORK Scholars of organizational theory have long held that older firms, as well as larger firms, are more stable and less susceptible to environmental changes and challenges, while newer and smaller firms are more vulnerable and more likely to fail (Aldrich & Auster, 1986; Stinchcombe, 1965). However, contrasting this view is that firms face a liability of adolescence (Fichman & Levinthal, 1991), suggesting that an inverted U-shaped curve increases failure rates at the adolescent level relative to newer or older firms. This perspective argues that newer firms are provided with some margin of buffering, such that external legitimacy is more readily proffered in the form of goodwill, and that certain resources are more easily acquired. Inspired by both critical management theory and institutional theory, we investigate the issue of entrepreneurial resource constraints from a

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counterintuitive positive angle. This means that instead of focusing on the limitations of resource constraints and advantages of resource munificence (Barney, 2001), we examine the potential positive effects of severe resource constraints upon new entry. We pay particular attention to effects of deficits in legitimacy, social capital, and financial capital, as nascent firms negotiate new paths of entry and attempt to occupy new spaces and develop new fields (Drori & Honig, 2013). We draw on insights from creative institutional strategies (Zimmerman & Zeitz, 2002), legitimacy (Suchman, 1995; Suddaby & Greenwood, 2005), and entrepreneurial bootstrapping (Winborg & Landstro¨m, 2001). In short, we examine the positive effects of resource constraints, exploring how necessity mothers invention. We outline and describe six advantages to newness and resource scarcity, specifically: creation legitimacy, fashion, flexibility, networks, bootstrapping, and motivation.

Creation Legitimacy Legitimacy is defined by Suchman as ‘‘a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate with some socially constructed system of norms, beliefs and definitions’’ (1995, p. 574). It is essential for obtaining critical resources, including support from investors, potential employees, customers, and other resource providers. Thus, one of the first tasks of any nascent venture is to begin establishing legitimacy in its organizational field – either by mirroring other successful models, by creating networks of similar nascent ventures, or by attempting to transfer legitimizing routines from a different field into a newly emergent one (Kostova & Roth, 2002; Kostova & Zaheer, 1999). These legitimation activities are based on the perception that legitimacy is supported by a logic of conformity. While conformity is one way of gaining legitimacy, it is still possible to gain legitimacy without prior networks, copying other models or transferring routines from established fields. As Zimmerman and Zeitz (2002) observe, legitimacy is possible to achieve from the very act of being different, to challenge preexisting expectations, and by creating new ones. New ventures, contrary to expectations, often gain legitimacy by introducing something entirely new that shocks, violates, or even offends and contradicts the existing social structure. For example, the music service Napster became an online global success by freely distributing protected music before encountering legal difficulties that radically upturned the music business, and was eventually acquired.

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Emergent organizations introducing radical innovations may have additional flexibility to run counter to conventional institutional norms and procedures. However, less understood and researched are the processes and elements utilized by more commonplace emergent organizations in leveraging their nascent activities in order to maximize flexibility and external legitimacy. Related to the idea that legitimacy can be gained through creation activities is the concept of fashion. Fashions gain legitimacy in being new, by definition.

Fashion and the Emergent Firm Innovation diffusion studies identify the existence of early adopters, who are active information seekers regarding new ideas (Rogers, 1983); perceive relative advantage from a new idea, practice, or object; and are willing to take the risks necessary to pursue these potential advantages (Howell & Higgins, 1990; Scho¨n, 1963). Such stakeholders hold a strong affective congruence to innovation and newness (Choi & Shepherd, 2005). Newness has substantial prestige value (Redmond, 2003), and is equated with superiority. Since organizational reputation is embodied both in perceived prominence and in quality (Rindova, Williamson, Petkova, & Sever, 2005) even the promise of a new dimension in quality can have significant ramifications. For example, IPhone 4S owners lined up for hours and even days to obtain the newest Iphone 5, before these early adopters were even aware of its capabilities. The combination of significant media attention and the prestige value of early adoption of new technology certainly helped increase demand. The consumption of fashion is a way of displaying wealth (Galbraith, 1958). New ventures might reap similar benefits from introducing fashion in three ways. First, through leveraging the market of early adopting consumers. Second, through leveraging media attention for new phenomenon such as the introduction of a new product/service or start of a new company; and third, by leveraging this advantage in finding external sources of capital. The dot.com bubble exemplified an environment where emergent firms provided venture capitalists and other established business people with promises of nontechnical benefits, similar to that of fashion (Abrahamson, 1991), signaling innovativeness, instilling hope, enormous potential, and excitement (Cassidy, 2003). While they were successful in promoting a reputational impact, they were unsuccessful at providing an economic impact, which are very distinctive activities (Rindova et al., 2005).

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Flexibility Related to fashion is the ability for new generations of entrepreneurs to be in ‘‘sync’’ with current changes in consumer preferences. New subcultural trends fuel the start-up of many new companies, while established companies often fail to cater to such trends. Growing markets such as adult fans of Lego, Preppy Fashion, House Music, and Brony (bros who like my little ponies), are underserviced and, to some extent, unknown by incumbents but catered to by a number of growing start-ups. Incumbents could be at a disadvantage in leveraging changes in the preferences of new customer groups, lacking the flexibility necessary to adapt. Arguably the most developed reasoning behind the potential of new venture advantages stems from an understanding of new ventures having a learning advantage, and large established firms having learning disadvantages due to rigidities and sunk costs. The result is that large established firms have a disadvantage in pursuing disruptive technologies (Christensen, 1997; Henderson & Clark, 1990). Learning advantages and subsequent flexibility in management help organizations to become more adaptable to environmental changes (Autio, Sapienza, & Almeida, 2000). In a specific interpretation of strategic flexibility, it may also help to explain one reason as to why new organizations disband relatively more often than established organizations. They are simply more strategically flexible and can adapt both goal and organizational form much easier than an established firm. Their rapid demise may thus be reflected in their subsequent reorganization for different purposes. For example, a fully enclosed electric motorcycle designed by Lit Motors was prototyped and developed in a single facility, by a college dropout designer, with $750,000 in start-up capital, a very small sum for a transportation manufacturing firm. This emergent firm breaks nearly every conventional rule of transportation emergence: They are under-capitalized, designed by an ad hoc team of tinkering designers, and manufactured in Silicon Valley, far from conventional sources of industrial machine tool and die-making facilities. Rather than outsourcing components, Lit Motors makes their components in house. Given the limited sunk financial and institutional costs, Lit motors may either dissolve or reconfigure themselves as the market demands. Such flexibility would be difficult if not impossible for a conventional automobile or motorcycle manufacturer. Typically new organizations are seen as having an advantage in disruptive field constructing events (Christensen, 1997), but rarely is this seen as an advantage in commercializing non-disruptive innovations.

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Networks New initiatives and products may provide a forum that enables even strangers to form a new organizational relationship. This is particularly true for those who do not have strong established networks providing an extra incentive to search and find one. For example, the ‘‘homebrew computer club’’ in Silicon Valley between 1975 and 1986 produced an organizational forum for the future founders of both Microsoft and Apple computers, as well as many other Silicon Valley companies. Early adaptors may share psychological attachments such as favorable prior beliefs, trust goodwill, or psychological commitment (Fichman & Levinthal, 1991). We argue that new resource constrained entrepreneurs have an advantage in creating such interest groups around narrow but emerging fields of technology and social trends. Generating new relationships can be seen as a social responsibility and a desire of those who have already achieved significant career accomplishments. Research on the subject of mentoring has shown that mentors receive intrinsic benefits from mentoring prote´ge´es (Eby, Durley, Evans, & Ragins, 2006). Mentorship provides emotional satisfaction as well as insight into the mentor’s cultural and age-related differences that might provide value to them in their own firms. Due to the newness and probable lack of resources of emergent firms, we posit that entrepreneurs with relatively fewer resources will have an easier time accessing free assistance from experienced and successful industry peers.

Bootstrapping New firms may develop new innovations more inexpensively than established firms due to their improved ability to bootstrap. The traditional way of viewing bootstrapping is that firms utilize their own limited resources due to their relative newness (Ebben & Johnson, 2006). Because emergent firms often lack traditional financial metrics, an existing track record, and perhaps even a clear conception of their business idea or business model, they have severe difficulties in obtaining external financing. Research shows that banks and venture capitalists are unlikely to provide financing for entrepreneurs (Christensen, Anthony, & Roth, 2004). Instead, new ventures have to finance themselves more creatively by using what Bhide refers to as ‘‘the three Fs: Family, friends, and fools’’ (Bhide, 1992). In contrast to this view, we interpret bootstrapping as a financing advantage for the emergent organization, only accessible to the new and small firm. Large established

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firms must leverage publically available loans and venture capital due to the amount of capital needed. When the organization is young and new, being excluded from formal loans and venture capital financing opens up their access for soft interest free loans and equity outside the market. New firms may receive invaluable access to other strategic resources as well. In addition to financial capital, emergent firms may also gain access to low cost premises, utilization of private assets for company use (Karlsson, Honig, Welter, Shakked, & Sadaovski, 2005), and discounts due to their relative newness. Winborg (2009) finds four main reasons for founders to use bootstrapping. While half noted the lack of capital as a major reason regarding why they used bootstrapping, 89% saw it as a way to lower their costs of capital, almost half thought it was fun to help and receive help, and 45% noted that it was saving them time. Thus, the positive reasons clearly outweighed the negative ones for utilizing bootstrapping.

Motivation Entrepreneurs engaging in creation activities can have an emotional advantage in goal commitment, challenging goal setting, persistence, and creative problem solving. This produces positive entrepreneurial passion (Cardon, Wincent, Singh, & Drnovsek, 2009). This passion, in combination with learning orientation, has been shown to positively influence entrepreneurial intentions (De Clercq, Honig, & Martin, 2012). By virtue of being new, the entrepreneur may experience what we call ‘‘beginners mind.’’ Beginners mind is a state of the mind where an individual is engaged in learning something new. This state is prone to the experience of passion, flow, and the joy of learning, and has demonstrated an increased level of entrepreneurial intention (De Clercq et al., 2012). Conversely, passion for entrepreneurial activities is likely to have a negative effect on goal striving, planning, and attending to task feedback. As the importance of task efficiency increases with firm age and size (Cardon et al., 2009), it is likely that the initial emotional passion of the entrepreneur may be reduced as the firm matures and ages.

METHOD Our one-year longitudinal data comes from the careful study of an incubation/training program in Sweden, focusing on the assistance, direction,

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and training of nascent entrepreneurs. We rely upon an extreme case sampling, allowing us to examine, over time, the specific obstacles, barriers, creativity, and strategies of an identified group of start-ups. These entrepreneurs began with limited market information, inadequate knowledge of the institutional environment, and constrained access to resources. They all had little previous entrepreneurial experience, and were under significant time pressures, being required to begin operation within a six-month window. Thus, these nascent entrepreneurs were not only restricted by barriers to entry and liabilities of newness, but faced an additional deficit in terms of resources, experience, networks and industry reputation. By selecting truly nascent entrepreneurs all with limited resources and experience, we reduced the heterogeneity that otherwise could obfuscate the findings (Choi & Shepherd, 2005, p. 577). We therefore complement studies explaining nascent start-up success based on previous start-up experience (Ucbasaran, Westhead, Wright, & Binks, 2003), or the initial endowment of human and social capital (Davidsson & Honig, 2003). This unusual data thus provides a rich comparative and longitudinal window into the nascent entrepreneurial process of six emergent firms, data rarely observed or reported in the literature. In the following text, we discuss in detail how the theoretically derived concepts are analyzed.

Case Selection In total, data was collected from over 50 nascent entrepreneurs in their startup process. These entrepreneurs had, however, varying degrees of access to financial capital and social capital. Previously it has been shown that access to financial human and social capital at the start of the business improves the likelihood of a successful firm founding (e.g., Davidsson & Honig, 2003). Such resources enable nascent entrepreneurs to start on a more equal footing with established organizations. In unusual cases, new entrants could have even more resources than established firms. We wanted to make sure that our entrepreneurs would be deprived of such an advantage. In order to clearly see the advantages of resource constrained new firms, we chose only six cases with severely limited access to social and financial capital. The chosen entrepreneurs recently arrived to the country at the start of the study, they were fairly young with very little financial capital backing them. This line of reasoning is in accordance with Yin (2009) regarding extreme case sampling. Eisenhardt (1989) also points out the importance of selecting extreme cases when building theory from cases.

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Multiple case studies are considered to be an asset when building generalizable theory (Eisenhardt & Graebner, 2007). Furthermore Eisenhardt and Graebner (2007, p. 27) argue that multiple cases create more robust theory, as the propositions are more deeply grounded in varied empirical evidence, and by using multiple cases, constructs and relationships are more precisely described, since it is easier to determine accurate definitions and appropriate levels of construct abstraction. The firms were nascent at the start of their incubation, with entrepreneurs having the intention to start a new firm, but without having registered a firm. Their progress was carefully and systematically documented on a weekly real-time basis throughout a six-month period. Moreover, their CVs, budgets, forecasts, and business plans were also documented and are used in this analysis. The entrepreneurs were also continuously observed through various consulting sessions, business seminars, and at pitches to venture capitalists and business angels. Sources The data sources for this study involved weekly logbooks that the entrepreneurs handed in to instructors during a 20-week period (November–May), as well as business plans in several different stages of development, the respondents own theoretical reflections and assignments as part of their educations, and some observations during public events such as presentations to customers and investors. The bulk of the data was collected during September 2011–May 2012, although some additional information was gathered up until September 2012. By being able to use these different types of sources we gained insight into the process the entrepreneurs undertook in forming their new venture, the individuals background and reasons for making the journey, the formation of the new organizations, and how the environment affected the creation of their new venture. Logbooks as a Source for Qualitative Analysis In this study, logbooks were used to provide a close examination of the entrepreneurial process, as well as the thoughts, feelings, and reflections of the nascent entrepreneurs (Brundin, 2007). The entrepreneurs’ logbooks documented issues related to what, when, and why they engaged in particular activities (Bolger, Davis, & Rafaeli, 2003; Zimmerman & Wieder, 1977).

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The strength with this type of empirical material is to provide a time lag between action and reflection, which reduces the rationalization effect (Brundin, 2007). However, there are also limitations with this type of research method. First, in many cases there is a need to instruct the writers regarding how the process of writing should be conducted to make sure that the participants fully understand the process; second, to obtain reliable and valid data requires a level of participant commitment and dedication, which is seldom required in other types of research studies (Bolger et al., 2003, pp. 591–592). The logbooks were solicited with predetermined headings, so that the content would more likely hold relevant reporting of the phenomenon that was being researched. We focus on the entrepreneurial learning during the NVC process. This was seen through the entrepreneurs’ thoughts, reflections, and actions during the oneyear education where they wrote in their logbooks between November and May. Ethical Concerns The ethical concern is important to bear in mind when using these logbooks, since the level of detail can contain sensitive information. While we have not come across any extraordinarily sensitive data, we have taken the extra precaution of using pseudonyms for both individual entrepreneurs as well as their company names.

Method of Analysis The analysis was primarily based on the logbooks that the entrepreneurs wrote during their incubation period. In their logbooks they described what happened during the weeks and how they acted, as well as their feelings in different situations. In addition, business plans, forecasts, budgets, and CVs were used as sources for information along with a personal description letter in order to describe the cases. These multiple sources helped us identify different characteristics providing an alternative view on the aspect of newness. The analysis follows the structure of the theoretical section, divided into six sections. For this chapter we operationalized the concepts as depicted in Table 1. Details of the six case summaries are provided in the appendix.

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Table 1. Construct

Construct Framework.

Action Pattern

Example

Creation legitimacy

By introducing something new to the market, the respondents clearly gain legitimacy benefits equal to or greater than that of incumbent companies.

‘‘y Pitched our idea to a business center at their value creation forum y received overwhelmingly good feedback y they pledged their continuing support over the next few weeks leading up to a pitch to industrial partners.’’ (Logbook, week 1, Adam)

Fashion

We coded indications that our cases are seen as fashionable and setting trends.

‘‘yMet a person working for a weekly business magazine y the networking was done to have some attention in media y turns out the people I have met seem to know each other which means that some of the most important people in the ‘‘diversity’’ sector are now aware of us y also had offers of collaboration for job fairs with focus on diversity.’’ (Logbook, week 8, Caroline)

Flexibility

We coded indications that the cases were adaptable to changes due to less established goals and organizational forms.

‘‘y Initial idea was to start our own insurance company focusing on pets y decided to form a partnership y meaning that we will be able to use the brand of our partner y in our feasibility analysis we came to the conclusion that we need to partner with a company to succeed.’’ (Logbook, week 1, Erika)

Networking

We coded indications of advantages to creating social networks of people others with lacking business networks (less than 5 years experience) and toward senior executives (+30 years business experience).

‘‘y Continue to meet with advisors and experts in order to integrate their experience and expertise into our process, thereby strengthening our process and image.’’ (Logbook, week 9, Florence)

Bootstrapping

We coded indications of an advantage in attracting soft loans, donations, and equity without return targets and getting resources below market value.

‘‘y Pitched my business concept to a group of designers y to have them designing my brand identity, product image, package image, logo and art work involving graphic design y life has given me friends who are designers y now they are part of my firm y they will not charge me for their services.’’ (Logbook, week 2, Diego)

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Table 1. (Continued ) Construct Motivation

Action Pattern

Example

We coded for indications of high degrees of beginners mind and for entrepreneurial passion.

‘‘Strategic meeting y important to know what needs to be done and what everybody will work with in the near future to ensure the effectiveness of the venture y progress takes a lot more time than planned.’’ (Logbook, week 4, Adam)

Table 2. Six Theoretical Concepts. Concept/Case

Number of Cases Clearly Indicating an Action Pattern

Legitimacy Fashion Flexibility Networks Bootstrapping Motivation

Adam, Caroline, Diego, Erika, Florence Bjorn, Caroline Adam, Bjorn, Caroline, Diego, Erika Adam, Bjorn, Caroline, Diego, Erika, Florence Adam, Caroline, Diego, Erika Adam, Bjorn, Caroline, Diego, Erika

RESULTS AND ANALYSIS Action Patterns of the Novice Entrepreneur We began our analysis by summarizing the six theoretical concepts described in relation to each of the cases, in Table 2. This was done in order to clarify how the concepts were related to the cases and also to show that each of the cases did not contain the entire set of concepts. The first concept is divided into two parts; morality building legitimacy and partnership as a means of advancing legitimacy. The reason for this is that we found that the entrepreneurs used two distinct ways of building up legitimacy and taking advantage of their newness. Building Moral Legitimacy New ventures seem to have an advantage in promoting social causes because they are not carrying any baggage from earlier endeavors; they have no track record, which makes them trustworthy just like the juridical saying ‘‘innocent until proven guilty.’’ Once proven guilty in the broadest meaning

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of the word, it is hard to recover faith in one’s moral purity. By having a high degree of work ethic they are able to visualize themselves as driven, and this seems to provide an allure for organizations working with social issues. Thus, the entrepreneurs are able to form partnerships despite not having a guarantee of monetary contributions in advance. However, there also seemed to be a process of branding the start-up in order to create legitimacy toward potential investors and customers, as shown in the following quote. y by having the hunger relief organization backing and endorsing my firm, we will convey legitimacy so as to reduce the liability of newness and uncertainty. (Logbook, week 14, Diego)

By establishing strategic partnerships with an NGO, the entrepreneurs are able to effectively use their partners legitimacy and more effectively present themselves in the eyes of potential stakeholders, investors, and future customers as a caring company interested in more than just profit making. Diego was not the only entrepreneur engaging in this behavior. y By gaining certification from well-established initiatives such as Cradle to Cradle, we would be able to effectively ‘‘piggy-back’’ on their legitimacy to open doors in our potential market. (Logbook, week 5, Florence)

The above quote indicates that the entrepreneurs had a strategic outlook when approaching particular and well-selected future partners. Partners were not just randomly picked for their social orientation, but instead chosen as a target for their values that conformed with the new business the entrepreneurs wanted to establish. Partnerships as a Means of Advancing Legitimacy In addition to the entrepreneurs’ ability to build legitimacy through positioning themselves as having a social cause, they also demonstrated an ability of establishing legitimacy through partnerships with well-known and market leaders in their targeted industry. Adam was able to build up a partnership with the market leader in the telecom industry nationally, which ensured increased legitimacy when establishing customer contact. Caroline was able to get funding from the Swedish unemployment agency through her niche business concept, which was not seen in other similar businesses. Erika developed a partnership early with her mentors, allowing her to have a well-known company backing her when approaching potential partners as well as customers. For example: y [we]Decided together to form a partnership y when we investigated the opportunity to use veterinaries in a neighboring country, we would be able to use the brand of our

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partner, and we will get access to all the statistics and knowledge from them y [they] signed a contract that we may not talk to other businesses about our idea. (Logbook, week 1, Erika)

Another view on this is seen in Florence, as she built her business concept around partnerships. This could be the result of her business being situated in a nonprofit sector where profits are hard to obtain in the early stage. Thus, the need for strategic partnerships was particularly important in order to gain legitimacy when approaching potential investors. y Approached a large foreign University to undertake our research and analysis y their expertise and reputation offers legitimacy to our results y our business is founded on the idea of co-operation and partnership y this demonstrates that and it helps us bootstrap, whilst also creating a win-win situation. (Logbook, week 17, Florence)

Fashion and the Emergent Firm Fashion is especially important as seen in the case of Bjorn and Caroline. Through various means, these entrepreneurs relied upon the public press in order to promote their aspiring ventures. The common denominator was their focus on making a presence through promoting start-ups that actually bring something back to society and can work as support for oppressed groups that have limited financial opportunities. Although their motives were somewhat different, as Bjorn’s business ‘‘Donate your bottles’’ was a nonprofit organization and Caroline’s was focused on revenues, they shared the importance of being a social cause, which seemed to draw the attention of different media outlets, something they leveraged: y We did an interview for the local student magazine to draw attention to our business concept. (Logbook, week 11, Caroline)

Caroline was able to reach her target group with the help of the local media, which probably gave her business a positive push in the right direction when it came to awareness. It was, however, important that the press focused on the type of customers the businesses aimed at. Besides being noticed in interviews, some of the entrepreneurs are also recognized through prizes they received in different business-related competitions that they entered into during the program. y Received the prize for ‘‘new thinker of the year’’ hosted by Danske Bank y motivation was that I had proved my innovative mind by taking action by starting my business, but also by solving the case that we were given in a concrete manner. (Logbook, week 13, Caroline)

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Another of the cases that was particularly good at gaining free press was Bjorn, who, through his project ‘‘Donate your bottles,’’ was able to get the attention of daily regional newspapers as well as being positioned in a major national website for recycling as a partner. By gaining this media attention Bjorn and his partner were able to raise the awareness of their business idea in a very short amount of time, creating a presence on the national market for recycling. This was a great way of promoting the business by spreading the word and receiving a more positive impact in the number of customers willing to donate their bottles to support local organizations and people in need of help. Flexibility By being new, the entrepreneurs were flexible, since their goals and plans were easily changed in order to suit the environment that was constantly changing. This flexibility was seen both through their innovative business ideas and through the natural use of the Internet as their main platform for doing business and reaching out to customers, potential stakeholders, and future investors. As part of being young and having grown up in the digital era, the entrepreneurs utilized cost-free marketing communication channels like Twitter, Facebook, and YouTube as an integral part of their resource efficient market strategy. Being located instantly on the Internet provided them a flexible point of departure in order to reach out to the external environment. As most of their targeted audiences were situated in the same age category they took advantage of cost savings in promotion: y We see an opportunity in the market for a company which is associated with free solutions for relocating students. We will build our brand recognition through strategic partnerships, University associations and students ‘‘sharing’’ our offerings online y our website is crucial to our success. (Business plan, 2012, Adam)

The Internet does not necessarily need to be their main channel for commerce, but it is an important arena for communicating their business and also provided a low cost approach, which helped them in their business development. It was an important part of getting customers, and being noticed online became a cost-efficient mean that the resource constrained entrepreneurs were able to maximize. Having grown up in the digital world, they were more oriented toward reaping the benefits of using this media for communicating their business ideas.

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The main media used on the Internet among the entrepreneurs were the new forums for communication that evolved in the last couple of years, such as Twitter, YouTube, and Facebook: y We will use social media in an innovative way to enhance the legitimacy of our sellers, and alleviate the perceived risk of seller dishonesty. When listing their product, the seller will be given the option to provide their Facebook information. (Business plan, 2012, Bjorn)

The reason behind this approach was that their cohort and customers were brought up with this type of media. While being a clear strategy for the young and aspiring entrepreneurs, it might not be as clear for their incumbent competitors. Networking: Low Cost High Quality Labor As our nascent entrepreneurs were young, individual entrepreneurs were able to access young students as free or cheap labor. Since their financial resources were constrained, the entrepreneurs needed to find other ways of getting high-qualified labor into their future ventures. By forming teams within the program the entrepreneurs obtained access to highly educated specialists (as there are a broad variety of educational backgrounds within the program) willing to invest large amount of time with very modest remuneration. This was made possible through ownership shares at the startup, promising deferred compensation should the venture become profitable at a later stage. There were also entrepreneurs that traded services between each other, as they were skilled in different fields, and provided each other’s start-ups with various services. By trading services, the entrepreneurs were able to make progress without having to spend money on specialists that they could not possibly afford.We found that the main objective of the entrepreneurs was not the profits they might reap. Rather, it was based on being in control of their own future. Without access to students the entrepreneurs would probably not be in a position to gain the competence base needed in order to perform all the different tasks in such a short amount of time. We also found instances of innovative solutions as nascent entrepreneurs reached out to other faculties outside the program facilitating a working knowledge and an opportunity to test their accumulated knowledge: y Managed to get a last year law student to work with us, he will help us out with all legal issues such as agreements with suppliers, terms and conditions to users, and approving of contracts given to us by other organizations y reason for initiating contact with a law student was the high need of contract signing y with our partners and

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BENSON HONIG ET AL. the lack of knowledge within this area in our management group y complement our skills y seeing we can’t pay a lawyer we directed our focus to the law faculty. (Logbook, week 4, Bjorn)

We observed that the young entrepreneurs exploited their contact to other young individuals. As recent students themselves, they understood that students are looking for practical hands on experience to complement their studies. The entrepreneurs could leverage these competent resources for free. Another perspective on the creation of networks was seen through the mentor–mentee relationships that were created during the establishment process, as well as other relations created outside of the program. The entrepreneurs benefited from the mentor relationship within the program as well as other network relationships they incorporated into their business through innovative means. The mentors provided the entrepreneur with experienced advice in business-related matters. The mentors were not given any payments and helped the entrepreneurs due to their interest in sharing their experiences to the coming generation of entrepreneurs: y Visiting the food fair with my mentor was of great value y since she clearly and meticulously explained to me the dynamics of a national food fair and, therefore, I learned so much from her in almost no time y meeting to go through the business plan y her feedback was of great value, since it will enable me to enhance the final version. (Logbook, week 10, Diego)

Although partnerships might be used by the mentors in order to gain innovative business ideas, the entrepreneurs benefited in getting industry knowledge and legitimacy in having a well-established partner, and by increasing the chances of reaching the market at a more rapid pace. The downside might be that they were locked into one partner/mentor, which might not be optimal. However, being able to reach the optimal partner may not have been possible in many cases and, through the mentor relationship, the entrepreneurs were able to obtain a large network beneficial to their businesses: y Met my mentor y discussed future possible problems for our venture and what we need to do in the next couple of weeks y after consulting with my mentor we decided to conduct plans (budget, marketing, and grant acquisition). (Logbook, week 3, Bjorn)

Bootstrapping There were some similarities between bootstrapping and the use of highskilled low-cost labor, but the main difference we found was the way different people employed resource saving activities. In bootstrapping they used people and services outside of academia, not making use of fellow entrepreneurs that would work for them for low

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earnings or even in the hope of obtaining potential reimbursements in the future. y Pitched my business concept to a group of designers y three highly skilled and experienced professionals, at my place so as to have them designing my brand identity, product image, package image, logo and art work involving graphic design y I have had the opportunity to inspire them to work with me and, as a result of that, now they are part of my firm. They will not charge me for their services which mean that I will save up to $15000 in graphical design work. (Logbook, week 2, Diego) y We got the logo/website and hopefully parts of the printing for free and I’m very proud of our bootstrapping skills. (Logbook, week 5, Caroline)

In order to get free support, the entrepreneurs needed to provide plans and reports of their business concept leading to the establishment of a new venture: y Making progress with the tech transfer office who has now agreed to provide legal support to us. This will allow us to have legal documents arranged which can be used with advertising partners, although it’s a small amount of work, having to pay for legal resources would mean we have less for other more important areas. (Logbook, week 14, Adam)

Motivation The entrepreneurs demonstrated very high levels of motivation. This motivation had a special kind of flavor for some of the entrepreneurs. By engaging in a new business start-up, an activity they had never done previously, they achieved very high levels of creative motivation and flow. We found this motivation best described as a ‘‘beginners mind.’’1 y It is amazing to see that one’s idea is actually starting to materialize itself. It is a great feeling that I actually can develop something new. Moreover, this week it has been very inspiring to talk to the customers and hear their reflections and answer to our survey. (Logbook, week 13, Erika)

One reoccurring notion emanating from the entrepreneurs was that their high drive kept them from losing faith in their core business idea, even as they had multiple projects going on and were forced to deal with time limits and resource constraints. By being able to focus on their abilities they were able to keep the momentum in their business creation and found means to overcome the resource shortages in certain areas by, for example, outsourcing parts that otherwise would result in a prolonged time before launch: y Barry and I will focus on all the registration needed for the company and the business plan and Brian will continue to build the website y important to know what needs to be done and what everybody will work with in the near future to ensure the effectiveness of

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The entrepreneurs demonstrated a great deal of passion for their business ideas, which was demonstrated in the amount of time they devoted to making them work, despite the very low earnings they made at the earliest stages. Their passion was displayed in different ways, but one thing that defined them was their drive. Their drive was best described as a life quest, which Diego displayed in many of his logbook entries as well as in his business plan: y Diego Deli’s purpose is greater than commercializing a product or service, it goes beyond profitability, it is about bridging culturally and commercially both Sweden and Argentina y as a result we expect to create welfare through employment and economic growth. (Business plan, 2012, Diego)

Thus these nascent entrepreneurs were not driven by monetary causes but by their desire to create something sustainable with a potential to develop into something beneficial, something that might provide a contribution to society.

DISCUSSION While much discussion regarding the importance of resources focuses on the limitations of being new (cf. Stinchcombe, 1965) and the competition with mature firms for unique resources (Barney, 2001), our data demonstrate that the liability of newness may be turned into an opportunity of newness, whereby resource constraints signal an opportunity for amelioration, as targeted resources are attracted. Utilizing carefully selected cases from an entrepreneurship program, we observed patterns that demonstrated an advantage when entering into new businesses. While previous scholarship suggests that lack of legitimacy restricts and constrains new organizations (Aldrich & Fiol, 1994), we observed de novo start-ups turning their newness into an attractive targeted resource magnet. New firms were able to use their emergent and often stylistic culture to attract mentors, employees, customers, and investors. They further made use of their newness in order to bring forward their moral standpoint by engaging in collaborations with NGOs, which created awareness in the minds of the customers interested in the social responsibility of the new firms. It should be noted that social

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entrepreneurship and social responsibility are relatively new movements largely absent during the previous era of organizational studies. We found emergent firms using these as a means of building legitimacy when establishing a presence in the market, and for attracting investors and potential partners. This was facilitated with a concept and track record that appealed to various NGOs. Our study further demonstrated the importance of legitimacy, but more importantly, focused on how emergent firms are able to signal legitimacy to new constituents, often those who are attracted to refreshingly innovative aspects of their organizational field. Absent much of the normative bureaucracy and attributes of more experienced and mature competitors, these emergent entrepreneurs were particularly successful in obtaining strategic partnerships. Our case studies showed that nascent entrepreneurs were in a position to attract mentors, as well as establish reputations based on aspirations, rather than based on performance. In many cases, they were able to attract the attention of senior well-established businesspersons who felt that mentoring the new firms provided them with a nostalgic look at their own origins, while simultaneously providing them an opportunity to contribute to community and entrepreneurship building activities. These mentors frequently volunteered their time and attention, often becoming as enthusiastic an advocate as the nascent entrepreneurs themselves. Rather than consider these start-ups as eventual competition, they were instead attracted to the energetic enthusiasm generated by these future entrepreneurs. Fashion, as well, dictated an attraction and notoriety that nascent entrepreneurs were able to leverage to positively impact their organizations. The Internet has facilitated a high speed, global, as well as niche opportunities previously unavailable and often overlooked by established competitors. Entrepreneurs were successful at obtaining media attention when introducing business ideas that were perceived as new and fashionable. Furthermore, the new and emergent firms in this study took advantage of their newness when it came to flexibility, as they had not yet organized their companies in a strategic manner in comparison to the incumbents. Their flexibility enabled them to alter their initial idea quickly if the external environment failed to absorb the idea as anticipated. Their early focus on using the Internet as their main platform for doing business provided them the option of reaching a large audience in a short amount of time, as well as receiving feedback swiftly and modifying their ideas to suit the preferences of their target population. These entrepreneurs were largely young, brought up with the Internet, and comfortable utilizing it as a natural platform for conducting business, regardless of whether they were offering a service or

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product. These cases demonstrated innovative solutions in response to resource constraints through online means such as Twitter, YouTube, and Facebook. The use of networks was another important characteristic regarding how these emergent firms accumulated knowledge and obtained a foothold in their industry. We found the role of the mentor to be an important facilitator for the new and emergent firms to gain inside information on how to access important actors in their industries. The mentors also served as sounding boards and provided an opportunity to reflect on necessary decisions to move forward with their ideas. Further, our study demonstrated the importance of building up a network between other emergent firms, creating a social hub for sharing their thoughts and experiences between them. We also found that bootstrapping ensured that the new firms were using what resources they could find or borrow to the maximum benefit. They were successful at obtaining free advice from experienced senior managers by leveraging their newness. This was facilitated because they were not seen as a competitive threat, allowing them access to knowledge that would be rather hard for established firms to obtain. They were also quick to leverage regional assistance and counseling at a low cost to newly established firms. This was especially important for those individuals who came from abroad with little knowledge regarding the rules and regulations for conducting business in Sweden. Finally, we found the new entrepreneurs were empowered by their passion and motivation. We introduced the concept of the ‘‘beginners mind’’ to highlight the advantages, optimism, and passion that drive and increase entrepreneurial intensions as well as behaviors. They rarely evaluated their time commitments in terms of rates of return; rather, they saw themselves as new ideologues, pushing forward innovative activities that would be consequential to their communities, their chosen niche fields, and to themselves.

CONCLUSION This study has both practical and theoretical implications. Theoretically, we demonstrate in some detail, what ‘‘necessity is the mother of invention’’ means for nascent ventures, not only in their capacity to target markets in unique ways, but in their ability to address competitive resource gaps through novel and appropriate means largely unavailable to their more mature and more resource munificent competitors. The study provides

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a fresh perspective on nascent entrepreneurial processes by departing from the notion that new ventures are incomplete, younger versions of older organizations (Stinchcombe, 1965). Additional social and financial capital likely would most probably enable them to compete on a more similar level as their older counterparts (Davidsson & Honig, 2003). At the same time, however, they would probably lose some of their unique advantages. Practically, we hope to inspire some optimism to resource constrained new ventures by emphasizing and clarifying some of the advantages of resource constraint and novelty. We open up new lines of thinking and opportunities for nascent entrepreneurs to enrich and improve their advantages. We also believe that advantages of newness can be intensively modeled, promoted, channeled, and enhanced through appropriate programing and education. We hope our study advances progress in this regard.

NOTE 1. Shoshin ( ) is a concept in Zen Buddhism meaning ‘‘beginner’s mind.’’ It refers to having an attitude of openness, eagerness, and lack of preconceptions when studying a subject, even when studying at an advanced level, just as a beginner in that subject would. The term is especially used in the study of Zen Buddhism and Japanese martial arts. The phrase is also used in the title of the book Zen Mind, Beginner’s Mind by the Zen teacher Shunryu Suzuki, who says the following about the correct approach to Zen practice: In the beginner’s mind there are many possibilities, in the expert’s mind there are few. Saadat A. Khan suggests, ‘‘Beginner’s mind embodies the highest emotional qualities such as enthusiasm, creativity, zeal, and optimism. If the reader reflects briefly on the opposites of these qualities, it is clear to see that quality of life requires living with beginner’s mind. With beginner’s mind, there is boundlessness, limitlessness, an infinite wealth.’’

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Hannan, M., & Freeman, J. (1977). The population ecology of organizations. American Journal of Sociology, 82(5), 929–964. Henderson, R. M., & Clark, K. B. (1990). Architectural innovation: The reconfiguration of existing product technologies and the failure of established firms. Administrative Science Quarterly, 35(1), 9–30. Howell, J. M., & Higgins, C. A. (1990). Champions of technological innovation. Administrative Science Quarterly, 35(2), 317–341. Karlsson, T., Honig, B., Welter, F., Shakked, L., & Sadaovski, A. (2005). A cross-national comparison of incubated organizations: An institutional perspective. In D. A. Shepherd, & J. A. Katz (Eds.), International entrepreneurship (Vol. 8, pp.165–184). Advances in Entrepreneurship, Firm Emergence and Growth. Bingley, UK: Emerald Group Publishing Limited. Kelly, D., Singer, S., & Herrington, M. (2012). Global entrepreneurship monitor, 2011. Wellsely, MA: Babson College. Kostova, T., & Roth, K. (2002). Adoption of an organizational practice by subsidiaries of multinational corporations: Institutional and relational effects. Academy of Management Journal, 45(1), 215–233. Kostova, T., & Zaheer, S. (1999). Organizational legitimacy under conditions of complexity: The case of the multinational enterprise. Academy of Management Review, 24(1), 64–81. Redmond, W. H. (2003). Innovation, diffusion, and institutional change. Journal of Economic Issues, 37(3), 665–679. Rindova, V., Williamson, I., Petkova, A., & Sever, J. (2005). Being good or being known: An empirical examination of the dimensions, antecedents, and consequences of organizational reputation. Academy of Management Journal, 48(6), 1033–1049. Rogers, E. M. (1983). Diffusion of innovations. New York, NY: Free Press. Scho¨n, D. A. (1963). Champions for radical new inventions. Harvard Business Review, 41, 77–86. Stinchcombe, A. L. (1965). Social structure and organizations. In J. G. March (Ed.), Handbook of organizations (pp. 142–193). Chicago, IL: Rand McNally & Company. Suchman, M. C. (1995). Managing legitimacy: Strategic and institutional approaches. Academy of Management Review, 20(3), 571–610. Suddaby, R., & Greenwood, R. (2005). Rhetorical strategies of legitimacy. Administrative Science Quarterly, 50(1), 35–67. Ucbasaran, D., Westhead, P., Wright, M., & Binks, M. (2003). Does entrepreneurial experience influence opportunity identification? Journal of Private Equity, 7(1), 7–14. Winborg, J. (2009). Use of financial bootstrapping in new business: A question of last resort? Venture Capital, 11(1), 71–83. Winborg, J., & Landstro¨m, H. (2001). Financial bootstrapping in small businesses: Examining small business managers’ resource acquisition behaviors. Journal of Business Venturing, 16(3), 235–254. Yin, R. K. (2009). Case study research: Design and methods (Vol. 5). Thousand Oaks, CA: Sage. Zimmerman, D. H., & Wieder, L. D. (1977). The diary: Diary-interview method. Urban Life, 5(4), 479–498. Zimmerman, M. A., & Zeitz, G. J. (2002). Beyond survival: Achieving new venture growth by building legitimacy. Academy of Management Review, 27(3), 414–432.

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APPENDIX: CASE SUMMARIES Cases (Six Cases: Adam, Bjorn, Caroline, Diego, Erika, and Florence) Below follows a short summary of each case to clarify their background. The summaries are focused on explaining why they are suited for the study concerning lack of business network and resource constraints. Additional information regarding their prior educational background, country of origin, earlier entrepreneurial and working experience, and their motivation for applying to the master’s program is also described. In each of the case summaries there is a table declaring among others whether or not the business has been registered as an actual company or if they have only established it. By establishing it they have not reached the point of becoming public. Case At Place: Adam Attribute

Adam

Age

26

Country

United Kingdom

Previous start-up experience

Little, from selling office hardware equipment

Previous education

Sports management

Established customers during program

Yes

Business idea established during At Place, registered in summer 2012 program Business industry

Telecom

Profit orientation

Yes

Adam is a 26-year-old from the United Kingdom. Before entering the university he pursued a potential career as a professional swimmer, but realized it was a short-term career option and returned to higher education. He holds a bachelor in sports management focusing on the psychology of

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exercise choices. He has working experience within B2B sales, as an account manager. From this he gained a new way of thinking, which he used when working in various countries around the world, spending one year in Vietnam working with overseas communication in export companies. He has little entrepreneurial experience and as he comes from abroad his lack of business network could be an argument for not starting a business in Sweden. During the program he teams up with a Swedish student and establishes, and later on registers, At Place. At Place is a SIM-card service for students spending a semester abroad. The business concept is based on creating partnerships with established telecom operators and offer free prepaid SIM-cards to students before going abroad. This will decrease the uncertainty of being new in a foreign country without inexpensive means to contact both relatives in the home country and students in the host country. Case Borderline Online-Market Place (BOMP): Bjorn Attribute

Bjorn

Age

24

Country

Sweden

Previous start-up experience

No

Previous education

Business economics

Established customers during program

Yes

Business idea established BOMP and Donate your bottles, established during program early 2012 Business industry

Online second-hand market for electronics and nonprofit organization

Profit orientation

Yes and No

Bjorn is a 24-year-old from Sweden. His educational background is within business and economics, where he majored in strategy and management systems. During studies he spent an exchange semester in Australia where he also made an internship at a finance department. This was made possible

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through his earlier employment at this firm in Sweden. His earlier work experience is linked to the same company mostly concerning logistics and product management at their finance department in one of their offices in Sweden. He has, however, also worked as an operational manager between highs-school and university studies at a well-known hamburger restaurant in Sweden. During his bachelor studies he simultaneously worked as a sales person for a company within the retail industry and he has done some extra activities for student organizations as well. As a person he describes himself as follows: y Important for me is the social interaction that occurs when people meet and I always try to meet friends or others on my spare time. (Personal description letter, August 2011)

Bjorn has no previous entrepreneurial experience, but has an advantage in coming from Sweden when it comes to networking activities. He has, limited resources that he needs to turn into advantages through innovative low cost means. During the program he initiates two businesses, one that is concerning social entrepreneurship, ‘‘donate your bottles,’’ and one that focuses on the second-hand market for used Apple products, Borderline online-market place. Case Coming from Abroad: Caroline Attribute

Caroline

Age

22

Country

Sweden

Previous start-up experience

None

Previous education

Economics

Established customers during program

Yes

Business idea established during program

Coming from abroad, registered in the beginning of 2012

Business industry

Recruitment industry

Profit orientation

Yes

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Caroline is a 22-year-old from Sweden. She holds a bachelor in economics. Her main focus when she started to study was political science, but realized that the topic was not for her. Her interest for entrepreneurship is quite fresh, despite the fact that her mother has been self-employed for more than 20 years. She gained an interest for entrepreneurship during a field study in Kenya where she saw how inefficient social organizations are organized. Her interest in connection to venturing is more of a social entrepreneurship character. As she has little working experience, which could be connected to her youth, she has also an undeveloped business network that she has to develop to become successful in her entrepreneurial endeavors. During the program she initiates the business Coming from abroad, which is a recruitment agency with the mission to get unemployed immigrants into the Swedish job market, matching the educational level with the type of work. This is not a new and revolutionary business idea, but it is something that earlier has been hard to realize as many immigrants in Sweden are working on positions that are not matched with their academic educations. As both Caroline and her business partner has some experiences working with recruitment and immigrants they take advantage of their prior knowledge in order to reach organizations working with integration.

Case Diego Deli: Diego

Attribute

Diego

Age

30

Country

Argentina

Previous start-up experience

No

Previous education

Business administration

Established customers during program

No

Business idea established during program

Diego Deli, registered in spring 2012

Business industry

Import (Food-retailing)

Profit orientation

Yes

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Diego is a 30-year-old from Argentina. He holds a bachelor in business administration from Argentina, received in 2008. During his studies he worked as Key account manager, and later on travelled to Europe to work as an HR Administrator in Italy as well as an International Sales Manager (Personal description letter, August 2011). These working experiences were also the beginning of his thoughts in acquiring knowledge within the entrepreneurial field. As he has some experiences from living in Sweden he is not a complete stranger and by that he could be argued to reap some benefits when it comes to establishing network contacts. However, his resources are constrained and the little resources he has are mostly concerning contacts in his home country. y Entrepreneurship has always been my first-hand choice, as I always look for new horizons embracing change and new development opportunities y I have lived in different countries and cannot help noticing and discovering new opportunities in the marketplace y I’m an adventurer, who has an untamable heart, just as any other pioneer who does whatever it takes to develop his or her business idea into a successfully lunched venture. (Personal description letter, August 2011)

His idea is based on importing a boiled condensed milk product from Argentina, which is a healthier alternative to the products that currently exist in the Swedish market. During the program he establishes Diego Deli, which is an importer of a unique condensed milk product, Dairy Dulche, a sweet treat that is made out of natural ingredients with its base consisting of condensed milk, and more importantly, it has not yet been introduced to the Swedish market (Business plan, 2012). Case E-Solution: Erika Attribute

Erika

Age

25

Country

Sweden

Previous start-up experience

No

Previous education

Business economics

Established customers during program

No (Finished the business proposal)

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Business idea established during program

E-Solution, established in the end of 2011

Business industry

Insurance

Profit orientation

Yes

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Erika is a 25-year-old from Sweden. Before joining the program she acquired a bachelor in business economics from a university in Sweden. Erika describes herself as ‘‘a driven, creative, coffee lover who spends a lot of my spare time in the stable’’ (Personal description letter, August 2011). Her earlier working experience consists mostly of positions in the insurance and banking sector (CV, August 2012). She has access to slightly more social capital than some of the other cases, as she knows the system and by that has an easier task of approaching relevant actors for her idea. However, as she has no earlier experience from the entrepreneurial field she is to be considered a novice. Erika’s initial idea was to start a pet insurance company. This was however short-lived due to lack of funds, legitimacy, and capabilities, which was made clear during her first mentor meeting. The idea was reworked and out of this process the idea of an insurance product emerged. The idea was sprung from a possible arbitrage opportunity within animal insurances, focusing on dog insurances. The idea consists of sending dogs and their owners to Denmark for veterinary treatment. The reason behind the idea is found in arbitrage profits due to lower prices on a large number of dog diseases and treatments in Denmark compared to Sweden. Case F-Grow: Florence

Attribute

Florence

Age group

28

Country of origin

United Kingdom

Previous start-up experience

No

Previous education

Social science

Established customers during program

No

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Business idea established during program

F-Grow, business established in 2012

Business industry

Agro-culture (NGO)

Profit orientation

No

Florence is a 28-year-old from the United Kingdom. She holds a bachelor in social studies with a focus on International Politics and Military History. She also has a master in Conflict Resolution. In her personal description letter (August 2011) she highlights that although she is born in the United Kingdom she has spent several year in various countries around the world and she is currently living in Copenhagen, Denmark. Her working experience is mostly related to her previous studies and when it comes to entrepreneurial experience she could be argued to be a novice. As of this her resources upon entry could be said to be scarce and her newness in the entrepreneurial field is significant. Her background is very much an influence of what she wants to achieve with the program. During the program Florence comes up with a business idea that is connected to social entrepreneurship. The idea is to develop the knowledge and expertise to aid cooperative development of natural ecosystem based farms (Permaculture Farms) in rural areas (Business plan, 2012). Initially the focus is on areas and communities suffering from food insecurity. In order to create funding for these ecosystems the company will promote and sell carbon-capturing qualities produced by the farms to companies and individuals interested in making a genuine environmental and social difference (Business plan, 2012).

SELF-DOUBT AND ENTREPRENEURIAL PERSISTENCE: HOW FOUNDERS OF HIGH-GROWTH VENTURES OVERCOME COGNITIVE CONSTRAINTS ON GROWTH AND PERSIST WITH THEIR VENTURES Howard Haines and David Townsend ABSTRACT Overconfidence in one’s entrepreneurial abilities is often assumed to motivate the behaviors of founders of high growth ventures. However, when founders encounter significant obstacles in the firm growth process, some begin to doubt their efficacy of their abilities to manage these growth processes successfully. In these circumstances, prior research suggests that such self-doubt creates significant cognitive constraints on an entrepreneur’s growth ambitions. Similar to other types of resource constraints, cognitive constraints are thought to impact firm performance outcomes negatively. Despite these claims, in this study,

Entrepreneurial Resourcefulness: Competing with Constraints Advances in Entrepreneurship, Firm Emergence and Growth, Volume 15, 95–124 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1074-7540/doi:10.1108/S1074-7540(2013)0000015007

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phenomenological analysis of the experiences of a group of entrepreneurs creating and managing high-growth ventures based largely in Silicon Valley suggests that a number of these entrepreneurs experience significant levels of self-doubt but still persist in growing their ventures. Yet current entrepreneurship theory provides limited guidance regarding how entrepreneurs overcome these self-doubts and persist in creating a new venture. To address these theoretical limitations, in this chapter, we examine the cognitive process through which entrepreneurs wrestle with self-doubt in order to overcome self-imposed, cognitive constraints on firm growth. Based on this analysis, we develop a process model using a unique sample of interviews with 27 high-tech, high-growth entrepreneurs who have received venture capital funding. This model suggests entrepreneurs overcome self-doubt by managing the emotional impact derived from the discrepancy between their ideal and actual selves. Furthermore, entrepreneurs engage in an active process of transforming negative mental states by leveraging their intentionality, engaging in forethought, taking consistent action, and relying on the support of others. Overall, we find that entrepreneurs display a high level of entrepreneurial agency when attempting to transform negative mental states in order to persist with their ventures. Implications of these findings for cognitive theories of entrepreneurial action are discussed. Keywords: Persistence; self-doubt; self-efficacy; identity discrepancy; entrepreneurial agency

INTRODUCTION Extreme confidence in one’s entrepreneurial abilities is often assumed to motivate the behaviors of founders of high growth ventures despite known constraints (Hayward, Shepherd, & Griffin, 2006; Townsend, Busenitz, & Arthurs, 2010). Indeed, Silicon Valley folklore is replete with stories of resource-constrained founders persevering against all odds, armed with nothing but an unrelenting belief in their vision and resourceful abilities (e.g., Hertzfeld, 2012). These myths wield considerable cultural power in shaping how society views entrepreneurs and the process of entrepreneurship (Brockhaus, 1987; Dodd & Anderson, 2007; Shane, 2008). In practice, however, myth collides with reality when founders encounter significant obstacles or constraints in the firm creation and growth processes

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(Davidsson, 1991). In particular, challenges associated with finding customers (Krueger & Brazeal, 1994), raising capital (Aldrich & Martinez, 2001), hiring employees (Davidsson & Honig, 2003), establishing organizational routines (Starr & Fondas, 1992), among many other sometimes competing objectives causing some entrepreneurs to begin to doubt their efficacy of their abilities to manage these growth processes successfully. In these circumstances, prior research suggests that such self-doubt creates cognitive constraints, or a difficulty in perceiving, processing and selecting the information needed to make the decisions that will facilitate the achievement of an entrepreneur’s goals, leading in some cases for the entrepreneur to exit the venture (Busenitz, 1999; Gatewood, Shaver, Powers, & Gartner, 2002; Gimeno, Folta, Cooper, & Woo, 1997). Similar to other types of resource constraints, cognitive constraints instantiated in weak or ineffective management teams are thought to impact firm performance outcomes negatively (Mahoney & Pandian, 1992; Penrose, 1959). For example, while acknowledging the negative impact of capital and environmental constraints place on firm growth prospects, Penrose (1959) argues that entrepreneurial versatility, resourcefulness, ambition, and judgment, fundamentally shape the growth rate of firms. The lack of growth or even failure, according to Penrose (1959), derives more from the ineffectiveness of management reflected in the pursuit of ‘‘unenterprising direction(s)y(and) poor judgment’’ than in other resource-based constraints. Accordingly, among entrepreneurs, a lack of ambition or judgment stemming from either inexperience and/or self-doubt undoubtedly places significant cognitive constraints on firm growth, leading in many cases to the failure of nascent firms (e.g., Townsend & Busenitz, 2008). By implication, widespread view among theorists holds that successful entrepreneurs possess extreme confidence that makes them immune to self-doubt and enables them to manage firms that survive and ultimately thrive. Although pervasive, in contrast, the phenomenological analysis of the experiences of a group of entrepreneurs creating and managing high-growth ventures based largely in Silicon Valley suggests that a considerable number of these entrepreneurs experience self-doubt but still persist in growing their ventures. These experiences prompt the question: how do these resourceful entrepreneurs manage or overcome the cognitive constraints (or apparent lack of overconfidence)? Furthermore, these analyses suggest that the conventional folklore regarding the swashbuckling, world-conquering, technology entrepreneur causes, in part, a cognitive discrepancy between the idealized role sets these entrepreneurs possess and their actual experiences as

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an entrepreneur. Yet, current entrepreneurship theory provides limited guidance regarding how entrepreneurs overcome these cognitive constraints and persist in creating a new venture. To address these theoretical limitations, in this chapter, we examine the cognitive process through which entrepreneurs wrestle with self-doubt in order to overcome the self-imposed, cognitive constraints on firm growth. Based on these analyses, we develop a process model using a unique sample of interviews with 27 high-tech, high-growth entrepreneurs who have received venture capital funding. Using constant comparative analysis we recursively worked between the analysis of the interview transcripts and the development of the theoretical model by identifying and categorizing phrases through multiple rounds of open, focus, and axial coding (Baker & Nelson, 2005; Denzin & Lincoln, 1998; Glaser & Strauss, 1967). Based on these analyses, we find that entrepreneurs overcome the cognitive constraints of self-doubt by resourcefully managing the emotional impact derived from the discrepancy between their ideal and actual selves. Furthermore, we find that these founders engage in an adapted process of entrepreneurial agency (Bandura, 2006; Townsend, 2012) by leveraging their intentionality, by engaging in forethought, by taking consistent and creative action through self-reactiveness, and by reflexively relying on the support of others throughout the process in order to overcome the constraints imposed by self-doubt. Overall, our analyses indicate that despite the obstacles entrepreneurs encounter; these founders, rather than giving up, exercised entrepreneurial agency to persist with their ventures.

SELF-DOUBT AND ENTREPRENEURIAL PERSISTENCE Cognitive Constraints on Firm Growth According to Penrose (1959) the growth rate of firms is set largely by the quality of ‘‘ythe internal resources of a firm y particularly the productive services available from management with experience within the firm’’ (1959, p. 5). Entrepreneurial ventures, however, often must contend with resource constraints such as a shortage of key physical and/or knowledge-based inputs, financial capital, limited opportunity set in the external environment, and a lack of managerial skill and/or ambition that often severely limit the growth rates of firms (Mahoney & Pandian, 1992). Over the long run,

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resource constraints – particularly a lack of managerial skill and ambition – often increase long-term production costs (Penrose, 1959). To overcome these constraints, entrepreneurs engage in a dynamic process of transforming the functional value of resources into competitive products and services thereby improving operating margins (Rao & Drazin, 2002). In environments with severe resource constraints, the creative agency or resourcefulness of individual bricoleurs can transform ‘‘valueless’’ resources into viable inputs for production processes (Baker & Nelson, 2005). At the heart of this process resides both the skill and ambition of the entrepreneur to transcend immediate dictates of the surrounding environment (Townsend, 2012). Growth Intentions and Cognitive Constraints In prior literature, growth intentions are theorized to play a central role in increasing firm growth rates (Dutta & Thornhill, 2008; Penrose, 1959). Cognitive factors such as self-efficacy (Krueger & Carsrud, 1993), alertness (Kirzner, 1973), risk-taking propensity (Busenitz, 1996), and the proactiveness of the entrepreneur (Lau & Busenitz, 2001) coupled with external factors such as the availability of resources (Bergmann, Lichenstein, & Brush, 2001) and environmental uncertainty (Nicholls-Nixon, Cooper, & Woo, 2000) fundamentally drive the formation of growth intentions among entrepreneurs. The actual process of creating and managing high-growth ventures, however, often constrains the efficacy of growth intentions on subsequent firm outcomes. In particular, as we noted earlier, challenges associated with finding customers (Krueger & Brazeal, 1994), raising capital (Aldrich & Martinez, 2001), hiring employees (Davidsson & Honig, 2003), establishing organizational routines (Starr & Fondas, 1992), among many other sometimes competing objectives challenge the self-efficacy of entrepreneurs, leading in some cases for them to doubt their abilities (cf. Jovanovic, 1982). In these circumstances, prior research suggests that such self-doubt creates cognitive constraints, or a difficulty in perceiving, processing and selecting the information needed to make the decisions that will facilitate the achievement of an entrepreneur’s goals, and emotional turmoil, often leading in some cases for the entrepreneur to exit the venture (Busenitz, 1999; Gatewood et al., 2002; Gimeno et al., 1997). Self-Discrepancy, Self-Doubt, and Idealized Role Sets The conflict between ideal and actual role sets creates dissonance and imbalance in individuals, often leading to emotional discomfort due to

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inconsistencies in beliefs (Festinger, 1957; Heider, 1958). Self-discrepancy theory builds upon those foundations and further explains how discrepancies between self-perceptions and self-guides create distinct emotional responses as opposed to just positive or negative emotions (Higgins, 1987). An individual’s perception of their current self is referred to as the actual self. The self-guides are the ideal and ought selves. The ideal self is what the individual aspires to or what someone close to them desires them to be. Entrepreneurs often create this ideal self, based on the cultural narratives in which they are immersed. For example, one entrepreneur (#21) noted that while she was a student at Stanford University, yyou tend to, I wouldn’t say idolize other founders, but you have this really mystical interpretation of what their lives are like. At school, especially being at Stanford, you hear like Larry and Sergei – when I was there, their offices were still there and theirs and these other names and you’re like, wow, Googley (Entrepreneur #21)

Across a broad spectrum of individual actors, these cultural narratives shape the mental states of entrepreneurs – intentions and expectations – thereby fundamentally shaping their subsequent actions. The ought self is the individual’s perception of what others expect them to be or of what others perceive as expected. Entrepreneurs create this ought self as they interact with others, but especially when interacting with potential stakeholders. However, these normative expectations often amplify the emotional and cognitive conflict for entrepreneurs when they find that their idealized view of what entrepreneurship is supposed to be like differs from their actual experiences. For example, one entrepreneur noted: You don’t hear people talk about how freaking hard it is. Part of that is, if you are going to go raise money in a few months, you don’t want potential investors seeing you complain, about how hard it is. Everybody always wants to make it look like they’re kicking ass, and it’s so easy and fun. (Entrepreneur #12)

When there is a discrepancy between the actual self and the ideal self, the absence of positive outcomes results in feelings of dejection (e.g., depression or disappointment). When there is a discrepancy between the actual self and the ought self, the presence of negative outcomes results in feelings of anxiety (e.g., fear or restlessness). An entrepreneur may experience these discrepancies simultaneously but the intensity of those feelings will depend on how much of a discrepancy there is between the perceptions of self. Recently scholars have also described an additional self-guide that looks back on what might have been had the individual made a different choice earlier in life. This results in regretful thinking (Markman, Baron, & Balkin, 2005; Obodaru, 2012).

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Positive or negative affect can influence the cognitive processes involved in the growth intentions and motivation to take further action (Erez & Isen, 2002). People are motivated by expected and valued outcomes, whether intrinsically or extrinsically based, that are perceived as accessible due to action (Rotter, 1982; Vroom, 1964). The greater the value placed on the outcome and the more certain that a particular action will result in that outcome, the greater the motivation to achieve it. Expectancy theorists also suggest that individuals will assess a variety of outcome expectancies, defined as the estimated probability that engaging in a specific behavior will lead to a specific outcome (Bandura, 1977; Meier & Albrecht, 2003), prior to making a choice and taking action (Fig. 1). While negative affect, such as anxiety or a fear of failure, may drive an entrepreneur to persist as suggested by need achievement theory; the presence of negative affect often negatively impacts the formation of outcome expectancies (Atkinson, 1957; Bandura & Locke, 2003; Jacobs, PrenticeDunn, & Rogers, 1984). The presence of negative affect also is considered when deciding if potentially continuing to feel the negative emotions is worth the effort of continuing down the path that first produced them. In summary, when individuals experience self-discrepancies, various kinds of negative affect are produced. These negative feelings encourage desisting from the current course of action and inhibit the creation of outcome expectancies that, in turn, limits the individual’s motivation to take action. The entrepreneur may experience these discrepancies and subsequent emotions at various times during the process of starting a new venture, as each decision may be perceived as if

Cognitive Process of Entrepreneurial Agency to Overcome Cognitive Constraints

Precipitating event challenges self-efficacy.

Founder Motivation: Negative Emotion Experienced Deflated Motivation Self-Doubt Ensues

Founder Reflexivity: Identity Discrepancy Emotional Resilience Communicative Reflexivity

Self-Reactiveness: Consistency Resourceful Action/Experiential Learning

Intentionality: Purpose Vision Customer Empathy

Forethought: Intuition Focus

Fig. 1. Process Model of Entrepreneurial Persistence and Agency in the Face of Self-Doubt.

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the weight of the free world rests on this one decision, this one thing today, and you beat yourself to shreds if you’re not perfect as you expect yourself to be in your role. (Entrepreneur #14)

However, often this discrepancy tends to happen more often at the beginning of the process as one entrepreneur noted: when you’re a new entrepreneur you tend to be sort of paranoid that anyone’s going to introduce an opinion at any given point that can just unravel your world. That can just like topple the house of cards that you’ve put together. (Entrepreneur #16)

Still, even experienced entrepreneurs encounter discrepancies and emotional challenges that seem to be part of the process of starting a new venture. I’ve been doing start-ups for 10 years now so ‘‘hard’’ is relative. Everybody talks about how emotional it is. I don’t think people realize if you’ve never done a start-up, where the highs are super high and you think you’re going to conquer the world – I call that the exclamation point moment, to the lows are super low, almost depressive lows and I call those the question mark momentsy There were moments, even along that [fundraising] process, where we thought, ‘‘This is going to happen,’’ and then we were like, ‘‘Okay. Maybe this won’t,’’ because we got new information or we heard about something. (Entrepreneur #7)

Entrepreneurs frequently experience new information that causes them to question how they perceive reality and how they’ll overcome obstacles. The ‘‘question mark moments’’ are times when self-efficacy is challenged by the presence of self-doubt (Bandura, 1982; Vancouver & Kendall, 2006). It is at these points – when external information, reason and emotion are priming an entrepreneur to succumb to the constraints, that entrepreneurs must decide whether to persist or quit. Growth Intentions, Self-doubt, and Entrepreneurial Persistence Persistence has been defined as the continuance in a course of action in response to feedback and in spite of difficulty or opposition (Hoang & Gimeno, 2010). A course of action, however, does not mean that the specific resulting action be exactly the same as it was prior to the feedback received. Instead, persistence implies a problem-solving resourcefulness or learning component coupled with the constancy of effort applied over time. The decision process of entrepreneurial persistence is a complex function of individual characteristics and environmental conditions (DeTienne, Shepherd, & De Castro, 2008; Gimeno et al., 1997). Individual characteristics include such things as the entrepreneur’s aspirations, passions, investment, options, prior experience, values, and perceived self-efficacy; while

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environmental characteristics include munificence and the amount of adversity present (DeTienne et al., 2008; DeTienne, 2010; Holland & Shepherd, 2013). When entrepreneurs begin to doubt their abilities based on the conflict between their ideal and actual selves, the combination of these factors provide an opportunity for the exercise of entrepreneurial agency – defined as ‘‘the emergence and/or transformation of firms, markets, industries governed by the evolving interaction of temporally-situated, intentional strategic action with a malleable external environment’’ (Townsend, 2012). For example, one high-tech entrepreneur revealed that starting her venture involved ‘‘y (many) unknowns and the insecurity that comes with it y’’ She further elaborated that ‘‘y just overcoming that is a huge challenge. But, keep going. Just keep going. It’ll slowly piece together. That would be my advice. Never give up’’ (Entrepreneur #18). In this case, the entrepreneur’s motivation declined significantly because of negative emotions and a low level of self-efficacy. Yet, the entrepreneur still persisted through these constraints to create a new firm. These experiences raise the question of how negative mental states create cognitive constraints among entrepreneurs. Critically, when entrepreneurs begin to doubt their abilities based on the conflict between their ideal and actual selves, the combination of these factors raises of the central question as to the role of human agency in shaping the impact of negative mental states (i.e., self-doubt) on subsequent entrepreneurial behaviors. Stated simply, why do entrepreneurs persist even while doubting their own abilities?

METHODS AND DATA Sample To address the question of why entrepreneurs persist with their ventures even when doubting their own abilities, we conducted a phenomenological analysis of the experiences of 27 entrepreneurs creating and scaling new ventures, mostly in Silicon Valley. Originally, we were looking to identify what kind of obstacles entrepreneurs encountered and how more successful entrepreneurs went about overcoming them. We began by engaging in purposive sampling and utilized a corpus of interviews with 76 successful entrepreneurs who had acquired funding from investors in Silicon Valley. The entrepreneurs are part of the founding team and were interviewed by a third party, Matthew Wise of Founderly.com, a web site dedicated to promoting entrepreneurship by empowering founders to share their stories

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and experiences behind their start-up companies. A standard set of interview questions was used with minimal follow-up questioning, allowing for multiple perspectives regarding the same topic. The interviews have been professionally transcribed and, having been made available to the web site administrators, can be found underneath their respective videos at www.founderly.com. This data set is publicly available and provides an opportunity for researchers interested in using qualitative methodologies to explore the positive deviance within the field of entrepreneurship on a variety of topics. This group is representative of a unique set of entrepreneurs who have been able to successfully identify an idea and overcome constraints and challenges associated with starting a company as evidenced by their funding and validation by media outlets. Over 500,000 new businesses are started each year in the United States and, according to the National Venture Capital Association, only about 3,200 received early-stage, venture capital investor funding in 2010 – less than 1% of total companies started (Bureau of Labor Statistics; PricewaterhouseCoopers, 2010). The highly-selective funding process provides an indication of potentially superior ideas, technology, or talent within a new or nascent venture. Often, achieving this funding milestone alone is considered a measure of success regardless of the outcomes of the actual business. Half of the money invested by venture capitalists in 2010 was invested in companies that are located in California. Subsequently, Silicon Valley, a geographic region associated with cities immediately south of San Francisco, is often considered the ‘‘promised land’’ for start-ups, providing substantial legitimacy for ventures started within the area (Saxenian, 1994). Given the prominence of startups based in Silicon Valley, popular digital media publications such as Tech Crunch, a popular web publication with over 1.6 million feed subscribers as of April 12, 2012 (as measured by FeedBurner), often draw additional attention to high-profile startup companies, products, and web sites based in the Valley. Firms within our sample, as evidenced by their ability to raise funding in Silicon Valley and by their validation by media outlets such as Tech Crunch, suggests that these firms are exemplars in the entrepreneurial population.

Method of Analysis & Coding Process Initially, we began to explore the data set with the intention of identifying how they approached or overcame obstacles. We began to categorize the types of obstacles shared by the various entrepreneurs and how each type of

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obstacle was overcome. We noticed that frequently the entrepreneurs would have difficulty in identifying just one particular obstacle to describe. However, they had an even greater difficulty in articulating how they overcame the identified obstacle. The responses were short and general that implied the obstacle had just gone away or resolved itself. While reflecting on why there would be such vagueness we coded several interviews in which the entrepreneurs, as they reflected back on the process, confessed a lack of certainty in their judgment and a lack of specific understanding of how their vision would be realized. One interview in particular noted: So very often, you don’t hear the real stories and it really comes to forming really close relationships with other entrepreneurs that you finally see behind the veneer and find out that everyone’s got that same inner core of utter panic and terror that everything they’re doing’s wrong and it’s all going to come crumbling down around them. (Entrepreneur #2)

Based on stories such as the one described by Entrepreneur #2, we realized that a more fundamental issue was at play in the descriptions the entrepreneurs were providing about their experiences in trying to grow their ventures. Instead of expressing extreme overconfidence, many of the entrepreneurs in the sample expressed that ‘‘inner core of utter panic and terror’’ yet continued to build these companies. In order to better focus on answering this new research question we transitioned our research focus away from exploring what successful entrepreneurs do in order to overcome obstacles, to explore why these entrepreneurs, who appear so constrained by self-doubt, still persist with their venture. Consistent with this new focus, we engaged in data reduction to identify 27 of the 76 founders who instead of providing short or vague responses about the obstacles they overcame, specifically mentioned self-doubt, emotional challenges, or a questioning of their judgment when answering the following interview questions: 1. 2. 3. 4.

What What What What

was the hardest part or hurdle and was it overcome? have you learned about your business and users since starting? talents are naturally yours? What has been challenging? are the key elements to starting a startup?

These questions were selected to be able to capture situations in which the entrepreneur perceived that they had to struggle to overcome. The recall bias present in these types of narratives actually helps to examine a situation that was difficult enough to be memorable (Fischhoff, 1982;

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Holland & Shepherd, 2013). Narratives have been noted as a form of sensemaking within organizations and their careful examination can reveal important cognitive and social processes, such as the decision to persist in the face of self doubt (Weick, 1995). Table 1 provides additional background details about each of the founders in the sample. We structured the research methodology using established procedures for theory-building, inductive research by working recursively between the data analysis and development of the theory (Baker & Nelson, 2005; Denzin & Lincoln, 1998; Glaser & Strauss, 1967). The transcripts of the interviews were coded and categorized over several rounds of open, focused, and axial coding, using QSR NVivo 9 software for data management purposes. Open coding refers to the initial analysis in which we coded each incident in the data into as many categories of analysis as possible, as data emerge that fit Table 1. 27 Entrepreneurs of High-Growth Ventures. Entrepreneur l 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Gender M F M M F M M M M M M M F M M M M F M M F M F M M M M

Entrepreneur Age 32 35 33 29 40+ 26 23 30 44 40+ 26 29 32 42 30 32 37 29 39 26 30 33 32 34 29 23 31

Firm Age

Industry

Capital Raised

3 5 5 2 6 5 2 5 2 5 3 2 3 3 3 6 3 l l 3 6 3 5 4 3 3 2

Gaming Advertising Enterprise Web Web site Security Mobile Consumer Web Advertising Consumer Web Consumer Web Software Gaming Ecommerce Consumer Web Software Enterprise Web Mobile Advertising Consumer Web Consumer Web ecommerce Consumer Web Mobile Media Consumer Web Consumer Web Software Consumer Web

Undisclosed 7.02 M 14.2 M Undisclosed SM 670K 750K lM Undisclosed 14.3 M 7.66 M 1.53 M 24.7 M 35 M 13.2 M SM 8M Undisclosed 2M 9.2 M 70 M 1.8 M Undisclosed 40.5 M 13 M 10.5 M Undisclosed

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an existing category. Next, we engaged in focused coding which groups the various open codes into categories. Lastly, we engaged in axial coding that determines the relationships among and between categories. Once theoretical saturation was reached in each code and category, (i.e., no additional insights were provided during analysis of additional answers) any remaining interviews were then used to seek disconfirming evidence of the codes and categories to ensure that a full understanding of the concepts had been identified. Table 2 represents the identification and development of the elements within the data, specifically the development of the axial codes. The categories were selected by moving between the data and the literature on entrepreneurial persistence and agency in order to provide a framework for Table 2. Category

Categories resulting from Axial Coding. Description

Sample of the Codes within the Category

Intentionality

Desire or purpose

Vision Knowledge Experiential Learning Customer Empathy

Forethought

Anticipated outcomes that guide and motivate decisions

Focus Intuition Heuristics Time

Self-Reactiveness

Construction and execution of appropriate courses of action

Resourceful Relentless Consistency Commitment Decision Execution Entrepreneurial Self Efficacy

Self-Reflectiveness

The ability to influence and reflect upon the adequacy of one’s thoughts and actions

Emotional Resilience Positive Affect Inducement Passion Attitude of Learning Realistic Expectations Optimism

Support

The ability to gather, receive, and leverage assistance

Relying on others’ abilities Relying on others’ positive affect Relying on others’ intentions Relationship Commitment Impression Management

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the process that occurs when entrepreneurs persist in the presence of the cognitive constraints of self-doubt found in Fig. 1.

RESULTS Self-Reflectiveness One of the dimensions that stood out was how emotional the entrepreneurial process is, often being compared to a roller coaster with ‘‘high highs and low lows.’’ The management of these emotions becomes a priority, especially at the low ‘‘the world is going to end’’ moments. One entrepreneur had just relocated to California, anticipating funding, only to be told that they were no longer going to be funded. He briefly described his emotional reaction and the constraints it placed on further action: That was just like, a huge punch to the stomach. I sincerely, felt like throwing up, for a few days. I went back to the extended-stay hotel by the airport that we had moved into, because we didn’t know what else to do. We ended up living in that hotel for a month. While we spun around like crazy people, in the hotel room, my wife and I. We were just trying to figure out what we were going to do. (Entrepreneur #12)

Emotional Resilience These unexpected challenges were consistent in almost every interview. Each entrepreneur dealt with these emotionally charged experiences differently. Some of the entrepreneurs that had started more than one company did their best to manage their expectations as a coping mechanism: y there’s always stuff. If today’s awesome, I just know in three or four days, I’m going to have to deal with something and I’m okay with that. (Entrepreneur #7) y become comfortable with failure early on in the process. In other words, learn that you might put your heart into your product and launch it, thinking that you’re going to change the world, and nobody actually seems to care. The faster you become comfortable with that concept, the better you’re going to be. It allows you to free up a lot of emotional resources y (Entrepreneur #24) I and the rest of my team work around the clock, knowing we’re making mistakes, and taking stones from every single person that wants to throw them at you. And that might just be, you know, someone that’s not happy with your product for the day. It might be an investor that says no to you so they’re going to tell you that your baby’s ugly. I mean, there’s so many ways that people throw stones. I don’t mean that in an aggressive way, but just that no one ever tells you that everything’s perfect. (Entrepreneur #17)

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The management of expectations was reflective of the theme of emotional resilience or the ability to keep emotionally balanced or ‘‘even keeled’’ (Entrepreneur #1) to prevent excessive emotional reactions due to event changes. This resilience was most often reflected in comments regarding having an attitude of learning or when speaking about the emotional recovery or acceptance of failure, disappointment, or change as part of the process and not inherently tied to personal worth or identity. Positive Affect Inducements Other ways entrepreneurs dealt with the emotional roller coaster centered on producing a positive affect to counter act the negative affect caused by the constraints and challenges of the entrepreneurial process. Some entrepreneurs took a break from working on the start-up doing something unrelated, spending time with friends or loved ones, or exercised as a way to induce positive feelings. Those feelings of small accomplishments of things they had done before provided a sense of confidence. Another entrepreneur found that reflecting back on accomplishments or fears confronted helped her to not let the emotion limit her: I think the other thing is to try things that scare the crap out of youyyou put your best foot forward and getting out there and then learning to be OK with it and then learning to learn from it. Now, I really enjoy ityIf you start to take all of those layers and you start to pile them on top of yourself, you learn a lot. And you tend to grow, and then you start to become proud of yourself. I think that pride, not arrogance, just pride in what you do and what you accomplish and what you can build starts to really become a strength. (Entrepreneur #21)

Another tactic this resourceful entrepreneur used to create confidence was a little bit of competition and modeling mixed together. This particular entrepreneur had been at Stanford when the Google founders still had offices there and was a bit intimidated by the legacy and image of being a brilliant entrepreneur. She described what helped her take some steps past her self-doubt she experienced: I knew this guy who failed the same math class that I did, who also started his own company. He’s doing great. It’s like, well, there’s not a lot of difference between me and him. Once you start to internalize that confidence and you’re saying, I’m actually doing this, I’m doing a good job. (Entrepreneur #21)

These are examples of what was originally coded as emotional resilience but was recategorized as positive inducement skills to reflect the behavior and mechanisms as opposed to the inherent characteristics of individuals.

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Passion was another frequently echoed way to overcome negative emotions. When enjoyment is experienced in the actual implementation or customers express appreciation for solving their problem, it becomes an energizing force that adds to the momentum needed to persist. One entrepreneur shared how that interaction influenced his decision to continue working on his venture instead of taking an employment offer: yBut from a personal point of view, there was definitely a lot of hesitation and thinking, ‘‘Am I doing the righty?’’ because I had offers from, I won’t name the companies, but pretty large companies to work for them but it was a tough choice for me, but I thought, ‘I have to do this. I really want to do this thing’. Money can come later or not, that’s not the important thing for me. It’s so exciting, every time you help a person on these groups and you show them, ‘‘This is where the problem is on your website, this is what you should do about it,’’ it’s so visceral. The thanks that you get, the guy even puts a smiley face and says, ‘‘Thank you very much. You just saved me seven hours of mucking through all of my website,’’ that’s awesome for me. I just had to do this thing. I couldn’t do a job. (Entrepreneur #4)

These emotional self influence skills are indicative of the entrepreneurial self-reflectiveness or the extent to which entrepreneurs are able to utilize techniques to change one’s emotional state – including altering expectations, modeling, and engaging in activities that create positive emotions. This is an essential first step, though it may also occur throughout the process if negative affect returns due to uncertainty or additional challenges. Intentionality While passion may refer to the enjoyment of an activity it also can reflect the desire or vision. The identification of a problem or an unmet need provides a hope or belief, and a rallying cry. One entrepreneur summarized how passion helps in the process of starting and continuing to persist when giving some final advice: Think about what you’re passionate about, because I think that you’re much more likely to solve a problem well and see it through if it’s something you care about. (Entrepreneur #6)

After an entrepreneur had mitigated the impact of the negative emotion they were better able to assess what and why they were doing what they were doing. The intentionality of the founder determines much of what the new venture will look like and do. Some entrepreneurs may desire only to make money but soon find that the extrinsic value itself or the uncertainty of earning money may not be enough to make engaging in the

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entrepreneurship process worth it. However, just because an entrepreneur starts with visions of profit does not mean that they cannot later identify a purpose as one entrepreneur commented regarding his Twitter-based business: I initially set out to build a very large and profitable business, build a business model that was robust and that was going to be big. As I started working on that, and as an entrepreneur, you have lots of ups and downs. What I realized is that, if there’s not something, a driving force, that you have that motivates you at a fundamental level for what you’re doing, then it’s going to be much harder to make it through those down times. And, as an entrepreneur, you need to be constantly motivated and you need to be always going at it. And it might not be when you start an idea or when you start a business that you discover what it is. It may come as you actually start building it up and iterating. yI feel that Twitter and what we’re doing on top of Twitter has a potential to allow more people to express themselves and allow more people to achieve a little more of the human potential. The thing that really excites me is, if you can get a larger part of society to express themselves more, even just one percent more, they’ll be able to achieve potentially one percent more of their human potential. And if you can achieve that across the broader swath of society, I think tremendous things can happen. (Entrepreneur #9)

Purpose is the extent to which the entrepreneur interprets their actions as worthwhile and meaningful. This intention is what motivates the founder and enables them to transcend the immediate pressures exerted by the external environment. Another entrepreneur noted that understanding the purpose or vision of the new venture also helps in managing the emotions and motivations of others: y it’s always good to have a vision, a come to the mountains. What I’ve realize is whether 100% you’re sure if the three year goal is right or not, you have to have it and it has to be powerful yI mean emotionally. You know morale. People want to have a goal greater than themselves and nothing puts people together better than having a message that people can take to heart. (Entrepreneur #22)

Forethought Another central theme or constraint that came across in the interviews was the amount of information and opinions regarding the direction and viability of the start-up that an entrepreneur must wade through. New knowledge and information results from the obstacles and challenges faced as entrepreneurs seek to bring about a vision that really meets a customer’s need. An entrepreneur’s intention may include a willingness to understand what a customer’s wants or needs regardless of what the initial plan was that was

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challenged. One entrepreneur describes the struggle of aligning their vision (i.e., forethought) with the customers’ desires: y the hardest part was, and I guess still is, putting yourself in the mind of the people that will use you. And it’s tricky because there’s this dilemma that you have as a founder. You’re supposed to have the vision and you have a strong idea of what the product should be and will be. And you’ve got this intuition and that intuition is usually right. But it’s kind of wrapped in all sorts of preconceived ideas about who these people are that are going to use it. And you never really spell out your assumptions and you have to peel off these assumptions one by one. And you’ve got to think, well, I’m completely convinced of this. The product’s going to be like this and like that. But what am I assuming? Am I assuming my user is a developer that’s already experienced, he already knows how to use this. He speaks English. You know he lives in San Francisco maybe because he’s going to see my little ad, I don’t know, everyone has their own. But we all do, we all have those. And we have to peel them off look at them and say, okay is this true, do I have to test it? So it’s not being stubborn and sticking to your vision and saying everyone is wrong. But it’s not running after people in the street and saying, what do you want? Tell me what you want and I’ll make it for you. It’s kind of this weird combination. (Entrepreneur #26)

A balance of perspective may be required but an inherent constraint in this large amount of data is the question of whom and how much to listen to or as one entrepreneur put it: y listening to everyone but not really trusting anyone’s opinions or even facts unless you sort of experienced with your own eyes and really vetted things for yourself. (Entrepreneur #16)

This and other heuristics or rules that help entrepreneurs make quick decisions surfaced quite a bit as explanations for various decisions or actions taken. One entrepreneur specifically referenced the use of heuristics that he would often share as pieces of advice: y so having rules and a mantra in place so that you can make decisions really quickly, is nice. One of this is, if two experts disagree then just do whatever the hell you want. Another rule of thumb is you can’t use the word ‘‘and’’ when you’re talking about things you’re developing. If you have an ‘‘and’’ and you’re focusing on one thing and another, you’ve inherently removed all the quality from the first and you’ve proven that the first thing doesn’t matter because you had to make a second thing, y if you take the advice from someone without knowing where you get the advice or where they get the advice, then you might as well work for them and not for yourself, so take advice with a grain of salt and apply it to your life as opposed to enforce it onto your life y also just do what you love, because if you don’t, it’s really shitty and hard. (Entrepreneur #22)

Intuition and Focus While these heuristics help sort through information and options the entrepreneur ultimately will decide where to spend their resources and how

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to respond to the uncertainty that an obstacle has created. Most entrepreneurs reference the use of their gut or instincts to select where to focus since they yet lacked clarity or understanding as to what actions or path would lead to the desired outcome: y have conviction in what you’re doing but listen to the market, listen to the feedback and use your gut to find what the right advice is amongst all that noise and that was what got us through. (Entrepreneur #2) Focus, I think, also. There were several times during the early years of the company, the temptation to get into businesses that we could have gotten into because of the solution we produced, but would not have led to the success we have today. (Entrepreneur #5)

Time The essence of forethought is the extent to which an entrepreneur is able to utilize their intuition to wade through all the data and opinion to determine what the most important things to take action on are. The execution of these future oriented plans is time constrained, though, as anticipated outcomes may become unlikely as time passes and circumstances change, requiring greater amounts of entrepreneurial resourcefulness; or new ones may emerge as patterns are recognized after further information is absorbed. Self-Reactiveness Once an entrepreneur decides what to do it requires using their selfreactiveness to take action. Self-reactiveness is what converts, constructs and executes thought into appropriate action. Initially, the decision may simply be to continue doing what they’ve been doing while they figure everything out. Occasionally, the rational used to continue action might be that the plan was good but there is a need to improve the execution of the plan or because they committed to take specific action. Consistency The consistent effort was made evident by the various descriptions of tenacity, showing up daily, being professional, and exhibiting a high output of energy over long period of time: Though I think the number one thing I do that helps me through the process is y it’s like Woody Allen says, ‘‘90% of success is just showing up y Literally, you get here early in the morning, no matter how bad your day, your week, your month has beenyThe most important thing is to get here every single day. You give it your best shot, and you’re a professional. So, it’s sort of like y I played a lot of sports. So, why

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are these sports guys so good? These guys, they come in and just kind of knock it out every single day. They have a short memory, right? So, a guy has a terrible day pitching. The next time he comes in, he pitches his heart out because he has a short memory. You have to have a short memory as a founder. You’ve got to come in every single day and bust your butt, no matter how bad it’s been, because ultimately you’re a professional.’’ (Entrepreneur #1) But the tough part is doing it every day, no matter what, no excuses and doing it again, and doing it again, and, ‘‘Oh, I just worked a 19 hour day,’’ guess what, there’s 18 more hours of work waiting on your tomorrow, ‘‘But tomorrow’s a Saturday,’’ but it’s your company and if you don’t do it, no one else’s going to do it. Just discovering that really no one but you and your founder in your early stages, nothing happens unless you personally execute that thing and if you want to be great or you want to be successful with your business, it just requires a tremendous level of high output consistently over a long period of time. (Entrepreneur #19)

Resourceful The action taken also seems to have some additional characteristics that have often been used to describe entrepreneurs in general: relentless and resourceful. Relentlessness refers to the intensity of effort without regard to the likelihood of success or failure as evidenced by remarks such as this that describe the potential struggle: When you run a company nothing is going to drop in your lap. Everything good that happens to you, you have to claw for it. Even the things that you claw for that you think are going to happen, only 20% actually happen. You have to be really relentless about following up with people and pushing every deal even when it doesn’t necessarily look like it’s going to close. (Entrepreneur #15)

Entrepreneurial resourcefulness is the extent to which an entrepreneur is able to creatively solve problems, to work around obstacles, and to quickly respond to changes, opportunities, and information. The problem solving process may require relentlessness to execute and often are spoken of together but resourcefulness refers more to the trial-and-error experimentation and novel approaches that an entrepreneur may engage in to achieve their goal. This is also where the influence of entrepreneurial self efficacy comes into play. Self-doubt results from when the entrepreneur’s belief in their ability is challenged. The resourcefulness of the entrepreneur emerges to help them figure out the answers to the unknowns. y if I hit a wall I’m going right through it, I’m going over it, I’m going around it. There’s no way you can say no this isn’t going to work to me and I’m going to believe you, this is not going to happen. Whenever something goes wrong, just continue to look for another path forward. (Entrepreneur #13)

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I really believe that we’re experimenting, trying to find what an investor would call product-market fit and we’re in the process, continual process of testing things, until we’ve built a black box that’s efficient, that we can take to scale. At that point, you’re really a company, right? You’re scaling it up, but when you’re starting one of these businesses, you’re really in the business of experimentation and the better you are at executing something you want to experiment with, communicating it to viable customers, taking their feedback, iterating it, the whole start up customer development process that we all hear so much about. The better you are at that, the better and more successful you’re going to be as a start up. (Entrepreneur #19)

Experiential Learning Besides survival, knowledge gained through learning and pattern identification is the end goal of entrepreneurial persistence. As an entrepreneur continues to perform a task it becomes easier and knowledge becomes embedded in experience, reducing uncertainty. The entrepreneur is also able to learn through trial-and-error, approaching the lack of understanding in new and innovative ways. The self-reactiveness leads to action that reflects the behavior identified in the new ideal self that the entrepreneur has constructed through use of their intentionality, forethought, and self-reflectiveness. As entrepreneurs take action, it is often to seek help or to make connections which can then lead to more possible action, resources, or knowledge.

Communicative/Social Reflexivity All of the elements thus far, exist at the individual level but are supplemented and enhanced by the addition of others. The declaration that ‘‘you can’t do it alone’’ was evident in the interviews as entrepreneur after entrepreneur spoke of how they relied on others to get things done, to think things through, for support and trust, as suppliers of material, capital, advice, and perspective. The entrepreneurs seemed to use their support system to outsource various stages of the entrepreneurial persistence process. Support is the extent that entrepreneurs rely on others for things like abilities, knowledge, relationship, affect, and intentions. It’s all about the people you surround yourself with that will determine how successful your company is. (Entrepreneur #21) y rely on other mentors and advisors that can help you along the way, because you’re going to need a lot of help. (Entrepreneur #13) So, creating a core team of people who trust each other, that have complementary skills, and with whom you’re really happy to get up in the morning and go work with every day, is key. (Entrepreneur #5)

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y you need the energy to keep someone next to you, keep your energy up, because there’s down times, there’s other times you wanna celebrate with someone. (Entrepreneur #23)

A couple of entrepreneurs specifically expressed the role that the Silicon Valley entrepreneurial community had on their ability to persist and gain the right knowledge and relationships having relocated from other states: The difference for me even living in San Francisco has been pretty huge, so I’m not sure what specific lesson there is there, but if you can surround yourself with other entrepreneurs, other founders that are really launching companies. When I lived in Portland, I did a lot of work to try and surround myself with other founders, and I just couldn’t find it. It made it so much harder for me. Coming down to San Francisco, there’s just obviously a wealth of founders now, but even Portland’s getting more incubators that are popping up, that are really helping entrepreneurs. New York is a great startup city now. Austin, Boulder, Seattle, find those entrepreneurs, surround yourself with them, and you get to learn lessons together, and it’s an amazing support group. (Entrepreneur #8) ‘‘We didn’t have the resources of other Founders to learn from, and ask questions of, and get introductions through. We weren’t part of a start-up community. The power of the community is amazing. Everybody that can help you in some way, you have like a social connection to, through someone. Whether it be investors, people that hire, service providers, partners, potential acquirers, it all comes through your real life social network, out here. It’s amazing.’’ ‘‘Ask for help. I have found the community here to be very willing to take a meeting to talk to people and be very, very giving of their time. That would probably be my list of things that would be importanty A guy by the name of David Hauser really talked me off the ledge, during the Founder break-up, Y Combinator meltdown. He runs a company called Grasshopper, and another one called Chargify. Young dude, I might be a year older than him. But, he’s got great sense around business. He was like my sponsor, during that period of time. He’s a really good friend of mine and, he knows this. There’s a couple guys. I probably wouldn’t be out here doing this, if it weren’t for two of my friends. Ethan from FlowTown, and Darius ‘Bubs’ Monsef from COLOURlovers. These two guys helped me to transition out here. They encouraged me to get out here, helped me build my community. They had completely open attitudes about, ‘Hey, we got a new guy; let’s hook him up with everything. Let’s invite him to everything’. It kind of made the experience.’’ (Entrepreneur #12)

Support’s Down-Side However, it was unexpectedly noted that this support also, somewhat paradoxically, created challenges for the founders as well as help. In particular, one entrepreneur reflected, y living in either London or in San Francisco, being kind of encapsulated inside this tech bubble, it’s easy to forget that not everybody thinks in the same way as we do. Not everybody is obsessed by Macs, not everybody, you know, in your eyes kind of the number one priority, it’s easy to forget that people don’t live inside email or live inside chat or live inside their browser every day, and having to build a product which both

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satisfies the critics in terms of, you know, it looks nice, it works well, and also it’s simple enough for, you know, you’re kind of Joe Average user is tough. (Entrepreneur #3)

While the Silicon Valley community had an insular influence on the entrepreneurs psyche it also created a constraint that slowed product development and limited his perspective. Another entrepreneur shared how the financial resources support of her immediate community also spurred her fear-based motivations: So I had friends invest. I had my boyfriend at the time invest. I’d invested. I’d gotten a bank manager to trust me and you know, get me a bank loan, and you know, I was running out of money and you have that crazy terror every night when you go to sleep and every morning when you wake up that you’re about to disappoint everyone that trusted you. That was the hardest thing, but that was also the fire that kept you going and you just kept going and kept going. (Entrepreneur #2)

This fear caused by the presence of support seems to prompt both a negative affect and a motive to persist. Prior literature has suggested some individuals have a higher need for achievement and are inclined to prefer activities that are of intermediate difficulty but realistic enough to be successful. Others are driven by the fear of failure and either choose easy tasks or really difficult tasks in which the shame of failure is lessened (Atkinson, 1957). The other dark side of support was how external support networks sometimes constrained the behaviors of founders. Entrepreneurs are very cognizant of the need for support, especially financial support, which resulted in an attempt to manage impressions with potential investors or other stakeholders. As noted earlier, one entrepreneur suggested that it was part of the reason the iconic image of the confident entrepreneur continues: You don’t hear people talk about how freaking hard it is. Part of that is, if you are going to go raise money in a few months, you don’t want potential investors seeing you complain, about how hard it is. Everybody always wants to make it look like they’re kicking ass, and it’s so easy and fun. It is hard. Being a founder is hard. Our job is hard. (Entrepreneur #12)

DISCUSSION AND DIRECTIONS FOR FUTURE RESEARCH Implications for Theory This research contributes to theory by providing a model that seeks to explain how an individual might overcome self-doubt caused by selfdiscrepancies in order to persist enough to rebuild confidence levels and

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achieve desired outcomes. It describes unique but interrelated elements of the process of persistence and sheds light on mechanisms that might contribute to what makes entrepreneurs continue despite obstacles, constraints and disconfirming data. Based on these findings, this study makes three important contributions to the literatures on entrepreneur cognition and persistence. First, in contrast to a simplistic causal link between entrepreneur overconfidence and firm persistence, phenomenological analysis of the experiences of a group of Silicon Valley-based founders suggests that the discrepancy between their ideal and actual selves creates substantial self-doubt in regards to their perceived abilities to manage growth processes successfully. Despite the pervasiveness of these self-doubts, these founders still persist in managing their ventures by adapting a cognitive process of entrepreneurial agency (Bandura, 2006; Townsend, 2012). Specifically, by leveraging their intentionality, forethought, and self-reactiveness, these entrepreneurs strive to transcend the immediate confines of their negative mental states to find both purpose and reasons for acting in the face of these personal uncertainties. In doing so, however, these entrepreneurs utilize more communicative forms of reflexivity to process the environmental cues regarding the efficacy of their plans and action (Archer, 2012). In contrast, recent work outlining a theory of entrepreneurial agency (Townsend, 2012) proposes an internal metacognitive process of reflexivity as the mediating cognitive process between the environment and the entrepreneur’s mental states. In this study, the presence of substantial self-doubt suggests that perhaps the effectiveness of the reflexive, internal dialogue within the entrepreneurs is limited since the entrepreneurs may not trust their own self-assessment of their plans and actions. As a result, where the entrepreneur may not fully trust their self-imposed assessment of their activities, external support structures likely play a crucial role in assisting entrepreneurs in persisting with their ventures. These findings also suggest that overconfident entrepreneurs may not be as likely to seek out external views on the efficacy of their plans and activities. Instead, these entrepreneurs may focus too much on an internalized process of self-reflectiveness, thereby missing out on key ideas and information from external sources (e.g., Hayward et al., 2006). In either of these cases, the inclusion of external support structures may help entrepreneurs experiencing self-doubt to better manage their cognitive constraints, while simultaneously enabling overconfident entrepreneurs to better calibrate their judgments and predictions. In future research, investigating how to best structure these support structures may enable both

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scholars and practitioners to gain deeper insights into how various social factors enable entrepreneurs to maintain more helpful mental states. Second, the results of this study suggest that self-efficacy may play a more nuanced role in the entrepreneurial process than prior theory would suggest. Specifically, whereas various forms of high self-efficacy appear to increase firm startup rates, the erosion of self-efficacy is thought to increase firm failure rates (e.g., Townsend et al., 2010). The persistence, however, of these entrepreneurs in maintaining their commitment to the firm even when they begin to doubt their abilities suggests that belief in one’s abilities may not play a determinative role in firm entry and exit decisions. Instead, the ability of entrepreneurs to transcend even the immediate constraints of negative mental states suggests that agency plays an efficacious role in shaping the cognitive processes of entrepreneurs. Importantly, though, this cognitive process of the entrepreneurial agent is not based in the overconfident predictions of success, rather these entrepreneurs seek to overcome cognitive constraints and persist with their ventures even when they doubt their abilities to do so! Based on these findings, our study suggests that further research opportunities exist in better understanding the forethought component of this process and exploring what factors or heuristics entrepreneurs use in making decisions about when to listen and when to stay true to their vision in order to capitalize on potential opportunities. The process of entrepreneurial persistence only allows an entrepreneur to continue to take action, it does not guarantee success. Several narratives referenced flashes of insight or chance meetings as being ultimately responsible for the success of the new venture. Perhaps entrepreneurial persistence allows the entrepreneur to last long enough for luck to find them prepared and ready. Further research would need to explore how chance encounters and the generativity of entrepreneurial action in uncertain environments augment intentionality and the success of an entrepreneur’s predictions. Lastly, the results of our study suggest an intriguing new line of thinking for investigating the cognitive and social factors that impact the persistence of entrepreneurial ventures. Prior work by Gimeno and colleagues (1997) forms perhaps the classic perspective on the willingness of entrepreneurs to persist with their ventures in the face of negative performance cues. However, where Gimeno and colleagues (1997) find that various demographic and other factors shape the calculation of opportunity costs by entrepreneurs, our study suggests that role set expectations and the discrepancy between ideal and actual selves might add a conceptual richness to understanding why some entrepreneurs but not others persist with their ventures. Specifically, the

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findings that older entrepreneurs with a stronger family background in entrepreneurs and a high intrinsic motivation possessed a higher tolerance of low performance might be reinterpreted in the following ways. First, older entrepreneurs with stronger family experiences in entrepreneurs may experience lower levels of self-discrepancy (and correspondingly, less selfdoubt) since they would likely have been able to minimize the differences between their ideal and actual role set expectations in the reality of the entrepreneurial process. In other words, these entrepreneurs may not be strongly influenced by the idealized mythos of entrepreneurship that is pervasive in Silicon Valley and other prominent technology sectors. Gimeno and colleagues (1997) also find that intrinsic motivation, which they define as doing the kind or work that you want to do instead of working for someone else, led to a likelihood of survival but had no apparent influence on performance other than being willing to accept lower performance and choosing not to exit. Our study supports the presence of that intrinsic motivation; however also suggests that their findings may be simply a snap shot of the persistence process as entrepreneurs utilized their passion or enjoyment of the entrepreneurial activities to change their negative mental states choosing to influence their cognitive reasoning.

Limitations Although our analysis provides several important contributions to theory on entrepreneur cognition and persistence, our study is not without several key limitations. First, in our sample, we do not have comparable sample of entrepreneurs who experience self-doubt and yet do not persist with their ventures. Accordingly, we are not able to compare our findings with a sample of entrepreneurs who experience the same types of self-doubt and elect to exit their ventures. Since the majority of these ventures are backed by venture capital financing, entrepreneurs may be able to relieve some of the immediate existential pressure faced by firms which lack sufficient financial resources. Second, while the use of qualitative methods enables us to explore the phenomenological basis of the persistence question, our methodology does not enable us to rule out alternative explanations that may explain why the entrepreneurs in our sample are willing to persist with their ventures while others are not. The use of quantitative methodological strategies might be useful in future research to provide stronger generalizability of these results to other contexts.

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Third, the use of interview data from founderly.com limited our ability to follow up on intriguing lines of questioning based on the responses of the interviewees to key questions. For example, during our initial analysis of the 76 entrepreneurs many shared obstacles that appeared to challenge their efficacy but gave general or short answers. Follow-up questions would have allowed for specific examination of the process behind these vague answers. In addition, further questions or member checks may have offered additional insight or clarity regarding the process; including the ability to look for specific disconfirming evidence. However, we were able to utilize the interviewer as a proxy for the purpose of conducting member checks to validate our terminology and findings. Overall, the examination of entrepreneurial agency and persistence as a process and set of skills provides further opportunity to understand how entrepreneurs are able to succeed and create where others think not to look or fear to tread when faced with the cognitive constraints of self-doubt and uncertainty.

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ORGANIZATIONAL RESOURCEFULNESS: THE ROLE OF PURPOSEFUL RESOURCE FOCUS VACILLATION IN IMPLEMENTING CORPORATE ENTREPRENEURSHIP James M. Bloodgood, Jeffrey S. Hornsby and James C. Hayton ABSTRACT This chapter focuses on how corporate entrepreneurs seize opportunities and deal with threats through resource acquisition, control, and use. When corporate entrepreneurs fail to gain control of preferred resources they must rely on their ability to optimize their use of resources on hand in order to avoid the typical limitations inherent in a constrained set of resources. However, control of resources, whether existing or supplementary, by itself is an insufficient basis for influencing performance. Performance also depends on an organization’s capacity to deploy resources in combination with strategically important organizational processes to affect a desired end. The way in which corporate entrepreneurs utilize their resources is

Entrepreneurial Resourcefulness: Competing with Constraints Advances in Entrepreneurship, Firm Emergence and Growth, Volume 15, 125–147 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1074-7540/doi:10.1108/S1074-7540(2013)0000015008

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likely to have a more significant effect on performance than is merely having control of them. The current research aims to elaborate on how corporate entrepreneurs can become more resourceful by using a vacillation approach to resource acquisition and utilization. In this context, vacillation is movement between exploration and exploitation, or knowledge acquisition and knowledge integration from a knowledge management perspective. Vacillation is distinguished from the ‘‘balance’’ hypothesis prevalent in the organizational ambidexterity literature. A balance hypothesis states that both exploration and exploitation may be pursued simultaneously either by creating structural or contextual organizational ambidexterity. Here, we explain how vacillation enables an organization’s corporate entrepreneurship posture to lead to improved performance. In this chapter, we first describe the extant literature and construct relationships between corporate entrepreneurship posture, organizational resource level, vacillation, and organizational performance. We then analyze the learning processes associated with vacillation and discuss the research and managerial implications associated with the proposed relationships. Keywords: Organizational resourcefulness; corporate entrepreneurship; ambidexterity; resources; organizational performance

INTRODUCTION In their quest to be resourceful, entrepreneurs in any context including traditional, corporate, or social, are often perceived as continually seeking access to or control of additional resources. This chapter focuses on resource acquisition and control in the corporate context. Using resources enables corporate entrepreneurs to capture opportunities and manage threats, which subsequently improves organizational performance. When corporate entrepreneurs fail to gain control of additional resources they must rely on their ability to fully and creatively utilize the resources on hand in order to circumvent the limitations inherent in a constrained set of resources (Payne, 2006). However, control of resources, whether existing or additional, by itself is also insufficient in influencing performance. Performance also depends on an organization’s capacity to deploy resources including knowledge, usually in combination with strategically important

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organizational processes, to affect a desired end (e.g., Amit & Schoemaker, 1993; Grant, 1996). How corporate entrepreneurs utilize their resources is likely to have a more pronounced effect on performance than is merely having control of them. The current research aims to elaborate how corporate entrepreneurs can become more resourceful by using a vacillation approach to resource acquisition and utilization. By vacillation, we mean an alternation between modes for acquiring and exploiting resources as opposed to a fixed and unchanging employment of a single mode of acquisition and/or exploitation. Thus vacillation is movement between exploration and exploitation, or knowledge acquisition and knowledge integration. Vacillation is contrasted with the ‘‘balance’’ hypothesis in the domain of organizational ambidexterity. A balance hypothesis suggests that both exploration and exploitation may be pursued simultaneously either by creating structural or contextual organizational ambidexterity (e.g., Gibson & Birkinshaw, 2004). Here, we argue that vacillation itself is a capability that enables an organization’s corporate entrepreneurship posture to lead to enhanced organization performance. Thus, as shown in Fig. 1, vacillation is portrayed as a moderator of the moderating relationship between organizational resource level and the positive relationship between corporate entrepreneurship posture and organizational performance. In the remainder of this chapter, we first describe the extant literature and construct relationships between corporate entrepreneurship posture, organizational resource level, vacillation,

Organizational Resource Level

Resource Focus Vacillation - Exploration/Exploitation - Opportunity Recognition/ Knowledge Integration - Improvisation/Experimentation

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Fig. 1.

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A Model of the Impact of Resource Focus Vacillation on Organizational Performance in a Corporate Entrepreneurship Context.

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and organizational performance. We then offer an analysis of the learning processes underlying vacillation. We close with a discussion of the research and managerial implications associated with the proposed relationships.

LITERATURE REVIEW Corporate Entrepreneurship Posture Some organizations foster an environment or posture that is more entrepreneurially intense than others (Morris, Kuratko, & Covin, 2011; Vora, Vora, & Polley, 2012), and this can affect the degree of entrepreneurial activities that take place as well as financial performance (Zahra, 1991). Assessing an organization’s entrepreneurial posture represents an important element for successfully implementing a corporate entrepreneurship strategy (Hornsby, Kuratko, & Zahra, 2002). Factors such as top management support, rewards and reinforcement, autonomy and discretion, time availability, and organizational boundaries have been associated with an organization’s posture. These and other factors need to be assessed as to their role in influencing corporate entrepreneurship (Hornsby, Kuratko, Holt, & Wales, 2013) in order to answer the many questions that surround the linkages among entrepreneurial opportunity recognition, exploitation, and performance (Ireland, Covin, & Kuratko, 2009). Consistent with the above mentioned factors, Miller (1983) found that an organization’s type (i.e., simple, planning, organic) influenced entrepreneurial strategy. In addition, Hornsby, Kuratko, Shepherd, and Bott (2009) found that elements of an organizational posture for entrepreneurship led to increased entrepreneurial activity and that management level moderated the relationship. However, many elements can impede or facilitate the relationship between an organization’s corporate entrepreneurial posture and actual performance. Two such elements, resourcefulness and vacillation are described below. Resourcefulness and Resource Level The resource-based view (RBV) of the firm has promoted the idea that although controlling more resources is generally better than controlling fewer, the most beneficial resources are those that are valuable, rare, inimitable, and non-substitutable (Barney, 1991). Not only the control of resources, but an organization’s ability to derive value from resources

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through managerial and entrepreneurial services, is critical to growth and competitive advantage (Penrose, 1959). Importantly, resource constraints, such as those imposed on organizations with economic downturns or other environmental changes, increase focus on how current resources are utilized (Johnson, 1996). When external environmental changes like this occur, there can be a reduction in available resources if the change occurs faster than a firm is able to adapt (Meyer, Brooks, & Goes, 1990). In response, firms often try to engage in new activities designed to attract additional resources from stakeholders (Shortell & Zajac, 1988), since access to those resources can help ward off performance declines (Li, Zhao, Tan, & Liu, 2008). In addition to the typical focus on financial and physical resources of an organization, Hayton (2005a) proposed three distinct sets of assets in an organization: human capital, intellectual property, and reputational capital. This broader view of organizational resources is critical to the understanding of how corporate entrepreneurship can be implemented in an organization to gain a competitive advantage. Specifically applied to hightech ventures, Hayton (2005b) found that top management team human capital diversity and organizational reputation were significantly related to entrepreneurial performance. In addition, Simsek and Heavey (2011) found that knowledge-based capital mediates the relationship between corporate entrepreneurship and performance. Managers must keep in mind that these various types of resources can have different effects on a firm. For example, intangible resources may be able to be leveraged, whereas the use of tangible resources may be akin to a zero-sum game for firms with needs in multiple product lines or divisions (Burgelman & Doz, 2001). The motivation and awareness provided by a corporate entrepreneurship posture can enhance organizational performance by leading the organization toward taking advantage of beneficial opportunities. However, to take full advantage of these opportunities an organization must have access to the appropriate resources. When an organization has a strong corporate entrepreneurship posture, the availability of necessary resources can help the organization better implement its plans. When resources are in short supply, the organization may not be able to fully capture some opportunities depending, in part, on its resource fluidity (Doz & Kosonen, 2010). Although managing resource scarcity can be a challenge (Burgelman & Doz, 2001), it may not be equally critical in all situations. For conservative organizations we expect that having a high level of resources to be less important since the organization will not be attempting to capture new opportunities. In such cases, these slack resources may be costly to the organization (e.g., cost of capital, human resource costs) (e.g., Nohria & Gulati, 1996).

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It is important to note that when it comes to garnering resources for corporate entrepreneurship activity, many corporate entrepreneurs, also considered a resource (Alvarez & Busenitz, 2001), operate on the fringe of acceptable organizational policy. Corporate entrepreneurs, in attempting to overcome internal obstacles to reaching their goals walk a fine line between clever resourcefulness and outright rule breaking (Kuratko & Goldsby, 2004). If the organizational posture for corporate entrepreneurship is not strong, passionate, and driven, corporate entrepreneurs become very creative in acquiring financial and human resources.

Resource Focus Vacillation Organizations that control more resources are thought to be better able to take advantage of opportunities, in part, because they are more likely to be able to successfully adjust their strategies as environmental conditions change (Nohria & Gulati, 1996; Sheppard & Chowdhury, 2005). Organizations, however, cannot always easily switch between using various resources. For example, organizations might become accustomed to using existing resources and have trouble integrating new ones into their operations because of organizational inertia and core rigidities (Leonard-Barton, 1992). Thus, controlling resources may not always equate to using them effectively. Organizations that can utilize existing resources efficiently and effectively, termed exploitation, as well as develop or acquire new ones for new purposes, termed exploration, are likely to be more effective at capturing a larger set of opportunities (Murray, 1984; O’Reilly & Tushman, 2008). Organizations that engage in exploitation and exploration in a balanced and effective manner are called ambidextrous (Raisch & Birkinshaw, 2008). Being ambidextrous enables organizations to get more out of their resources since the resources can be utilized more often in appropriate ways and at the appropriate times (He & Wong, 2004). Engaging in both exploitation and exploration simultaneously can be difficult for any organization, but may be especially challenging for newer organizations that have not had time to develop these skills. Thus, ambidexterity is both valuable and rare and organizations that have it are likely to have a competitive advantage over their rivals (Sirmon, Hitt, & Ireland, 2007; Van Looy, Martens, & Debackere, 2005). Due to a variety of environmental and industry factors there may be significant variance in the degree of emphasis organizations place on exploitation and exploration. However, some type of balance between exploitation and exploration may

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be essential to avert misfit (Gresov, 1989), premature lock-in (Rivkin & Siggelkow, 2006), exploration suppression (Walrave, van Oorschot, & Romme, 2011), and the consequent negative effects on performance (Uotila, Maula, Keil, & Zahra, 2009). Some organizations may have difficulty engaging in exploration and exploitation at the same time (Ebben & Johnson, 2005), or they can become entrapped into disproportionate exploitation or exploration (Levinthal & March, 1993). Organizations that are not performing up to expectations in exploitation or exploration may choose to intensify their efforts rather than focus on making changes or seeking new processes (Repenning & Sterman, 2002). The objective is for organizations to be flexible in seeking valuable opportunities, and then dedicated to their exploitation once they are identified (Ghemawat, 1991). Exploitation enables the organization to acquire the prospective returns associated with an opportunity (Hill & Rothaermel, 2003). However, excess focus on exploitation may provide short-term benefits but limit identification of future opportunities and subsequent survival over time (Van Looy et al., 2005). One problem is that the activities associated with exploitation and exploration are often dissimilar and, thus, exploitation activities tend to interfere with those accompanying exploration (Benner & Tushman, 2003; Vorhies, Orr, & Bush, 2011). In addition, when these efforts necessitate substantial change, institutionalized exploitation activities are more resistant to change efforts (Giddens, 1984; Jarzabkowski, 2008). In other words, future adaptation can be impaired if the organization has ‘‘adapted too well to prior environments’’ (Levinthal, 1994, p. 168). Moreover, excessive focus on exploration can also negatively influence organizations because it inhibits them from profiting from any captured opportunities. For example, excessive exploration can disrupt routinized processes associated with exploitation (Hannan & Freeman, 1984) thereby causing inefficiencies. Although a balanced approach to engaging in exploitation and exploration has some merit, isolating exploitation and exploration activities, either spatially or temporally can improve ambidexterity (Benner & Tushman, 2003; Christensen & Bower, 1996; Nickerson & Zenger, 2002). For example, the ability to focus more strongly on one or the other at various points in time offers some additional benefits (Molina-Castillo, Jimenez-Jimenez, & Munuera-Aleman, 2011). Focusing may allow the organization to gain as much as possible from its exploitation and exploration efforts since they are not compromised by maintaining a balance which can distract the organization from optimizing its efforts. This idea is consistent with the concept of resource orchestration. Resource

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orchestration involves the managerial actions of structuring, bundling, and leveraging of firm resources (Hitt, Ireland, Sirmon, & Trahms, 2011), and activities such as asset search, selection, configuration, and deployment (Sirmon, Hitt, Ireland, & Gilbert, 2011), such that greater firm performance can be achieved (Ndofor, Sirmon, & He, 2011). A primary intention of managers engaging in orchestration is to achieve congruency among these activities in order to identify and seize beneficial opportunities in a way that enables them to capture as much value (profit) from them as is possible (Dhanaraj & Parkhe, 2006; Sirmon & Hitt, 2009). Currently, the processes associated with orchestration are not comprehensively understood (Wright & Stigliani, 2012). As researchers continue to identify the nature and elements of orchestration, we propose that one effective approach to engaging in orchestration is vacillation. Kor and Mesko (2013) explained how orchestration could lead to increased organizational learning, and we further develop this relationship by suggesting that vacillation provides a way to maximize learning. An organization can vacillate between the two elements of ambidexterity, as its needs vary, in order to enhance learning and performance. This vacillation involves proactively sequencing organizational structures to focus on either exploitation or exploration at one time and then moving toward the other when the organization’s needs change (Siggelkow & Levinthal, 2003). Vacillation between exploration and exploitation can enhance ambidexterity and performance in this manner (Boumgarden, Nickerson, & Zenger, 2012); although it may be just as important to know when not to vacillate in order to maintain strategic direction (Posen & Levinthal, 2012). Along with increases in organizational performance, the learning that stems from modifying the organization as it moves between high levels of exploitation and exploration enlarges the knowledge base of the organization (Itami & Nishino, 2010). Organizational actions, especially new ones, lead to organizational learning (Argyris, 1992). This additional knowledge, as detailed in Fig. 2, develops as the organization goes beyond its prior paths between exploitation and exploration. In times of resource constraints, the necessity and importance of enlarging these paths cause additional knowledge gaining opportunities for the organization as it performs in new ways (e.g., improvisation, Hmieleski & Corbett, 2006). This new knowledge helps the organization increase its managerial discretion (Payne, 2006) and its ability to successfully engage in exploration and exploitation. The differences in organization structures that are needed for exploitation and exploration provide a paradox for entrepreneurs (Chae & Bloodgood, 2006). Organizing for one can negatively affect the other. The research

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Learning Learning

Exploitation

Learning

Learning

Balance

Exploration

Resource Utilization Focus

Vacillation of Resource Utilization Focus

Normal

Resource Constraint

Degree of Resource Constraint

Fig. 2.

The Role of Vacillation in Effective Implementation of Corporate Entrepreneurship.

literature on paradox has provided some clues, however, on how to increase the chance for successfully engaging in both exploitation and exploration. For example, Sharma and Salvato (2011) described how causal (i.e., planned) and effectual (i.e., emergent) thinking could be performed at different times to promote goal achievement. The value of the paradox of ambidexterity is that an organization will learn as it moves between a focus on the contradictory structures underlying exploitation and exploration (Chae & Bloodgood, 2006; Tushman & O’Reilly, 1996). The organization does not just learn about how to successfully engage in exploitation or exploration; rather, the organization also learns to move between them in a more effective manner. This movement is a critical component of the value of ambidexterity; being good at both exploitation and exploration is important, but knowing when and how to move between them is just as important. For an example of how an organization moves between focusing on exploitation and exploration and improves its ability to engage in both as well as enhance its movement between them we can look to the automobile manufacturing industry. As automakers explore new engine technologies,

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such as electric, hybrids, and hydrogen, they look for advantages of each technology and try to grasp which ones are most likely to gain acceptance by consumers. The effort to explore, however, also enables the automakers to gain insight into how to most efficiently manufacture these engines so that the technology can be effectively exploited. Thus, organizations in the automobile manufacturing industry that fully explore these technologies may be in the best position to also exploit them. Determining when to suspend exploration of these technologies and increase exploitation efforts is beneficial because it helps an organization avoid unnecessary costs and time delays. As an automaker ramps up its exploitation efforts it may also discover potential avenues for further inquiry when it moves toward the next round of exploration. For example, if gasoline-based hybrid engine technologies are not meeting reliability expectations the automaker can then refocus its future exploration on improving reliability or switching toward other engine technologies. The iterative movement between exploration and exploitation assists an organization in improving its ability to explore and exploit, and when appropriately combined with the simultaneous management of other paradoxes can significantly influence organizational performance (Bloodgood & Chae, 2010). This characterization of moving between exploration and exploitation as increasing knowledge of the organization and enabling it to be more resourceful assumes that entrepreneurs and managers are rational in their efforts to learn and accurate in their perceptions of the situation. Some (e.g., Hayward, Shepherd, & Griffin, 2006) suggest that entrepreneurs may capitulate to socially constructed overconfidence that can be a detriment to resourcefulness because resources are not sought as much (e.g., not deemed as necessary). This can have a negative impact on organizational performance. Additionally, the shifting between exploration and exploitation may reduce the negative effects associated with their simultaneous engagement (Vorhies et al., 2011).

PROPOSITIONS In this section we discuss three posited relationships. The first relationship involves the influence of corporate entrepreneurship posture on organizational performance. The second relationship is concerned with the moderating effect of the level of organizational resources on the positive relationship between corporate entrepreneurship posture and organizational

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performance (e.g., Zahra, 1991, 1993; Zahra & Covin, 1995). The third relationship describes the moderating effect of resource focus vacillation on the moderating influence of organizational resource level on the positive relationship between corporate entrepreneurship posture and organizational performance. As a form of ambidexterity, vacillation is generally seen as involving exploration and exploitation. We include this is a general effect. We also include two additional, more specific sets of effects – opportunity recognition and knowledge integration, and improvisation and experimentation. These are presented in order to inform how a variety of differing organizational actions can be engaged in, using vacillation, to improve the effectiveness of organizational resources.

The Influence of Corporate Entrepreneurship Posture on Performance Although the role of corporate entrepreneurship in influencing firm performance is not the primary argument here, it is necessary to point out the relationship in order to construct later relationships. Based on prior research, corporate entrepreneurship seems to have a positive influence on firm performance. To the extent that corporate entrepreneurship posture is similar to entrepreneurial orientation (EO), we surmise that the positive relationship researchers typically find between EO and organizational performance (e.g., Wiklund, 1999; Zahra & Covin, 1995) holds for corporate entrepreneurship posture as well. One caveat to this positive relationship, however, is raised by Wiklund and Shepherd (2011). They explained that much of this empirical research is based on surviving organizations, and that EO may not just provide the potential for improved performance but that it may also contribute to a higher rate of failure because of increased risk. They tested and found support for the notion that EO may cause greater variability in performance, and they suggested that organizations that benefit the most from EO may be the ones that can limit its potential negative outcomes. Overall, we argue that organizations that have an entrepreneurship posture are generally capable of managing it in a way that is more beneficial than it is detrimental. For example, organizations can focus on lowering the costs of experimentation (Wiklund & Shepherd, 2011). Thus, we provide the following foundational proposition: Proposition 1. Corporate entrepreneurship posture is positively associated with organizational performance.

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The Moderating Role of Organizational Resource Level The first proposition suggests that a corporate entrepreneurship posture increases firm performance, however the posture is likely to work better if there are sufficient and appropriate resources available with which to work. While a number of organizational and environmental characteristics may influence the propensity to try new things, organization size and slack resources are expected to exert a significant influence. Smaller organizations are expected to be more flexible, innovative, and able to take more risks. Smaller organizations are less constrained by the demands of customers and expectations of suppliers (e.g., Christensen, 1997). Organizations with fewer employees are also subject to less organizational inertia because the routines are embedded within fewer individuals, and therefore the learning mechanisms underlying change processes will take less time to impact the entire organization. Change and experimentation imply uncertainty and risk. Organizations that have greater slack resources available to them usually have a greater degree of discretion in managerial decision-making (e.g., George, 2005). This discretion facilitates organizational adaptation to environmental turbulence and supports the development of new capabilities (Nohria & Gulati, 1996). Since it is easier for managers to take risks when discretionary resources are plentiful, we can expect that organizations with more financial freedom in the form of slack resources will be more likely to experiment. This leads us to the following proposition: Proposition 2. Organizational resource level moderates the positive relationship between corporate entrepreneurship posture and organizational performance such that higher levels of resources positively influence the relationship.

Purposeful Resource Focus Vacillation Although the existence of sufficient and appropriate resources can enhance the positive influence of corporate entrepreneurship posture on organizational performance, how those resources are applied is also likely to matter. In the earlier discussion on resource focus vacillation we explained that engaging in different types of resource utilization (e.g., exploration and exploitation) can be beneficial to a firm. Vacillation is a type of ambidexterity, and organizational ambidexterity involves the creation of

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conditions in which an organization or unit is adaptable to changes in the task environment, and at the same time is able to pursue internal alignment to the top-down strategic objectives of efficiency and/or quality of execution. Studies of new product development (e.g., Brown & Eisenhardt, 1995; Eisenhardt & Tabrizi, 1995; Miner, Bassoff, & Moorman, 2001) that contrast planned and experiential learning identify several differences in the organization of the work, the project team, and the characteristics of project leaders. Recent examinations of organizational ambidexterity also focus on differences in characteristics such as organizational structure (Benner & Tushman, 2003; Tushman & O’Reilly, 1996), top management team composition (Beckman, 2006), organizational context and leadership (Gibson & Birkinshaw, 2004). The common thread is that each of these individual, group, and organizational characteristics facilitate the exchange, critical evaluation, and integration of knowledge in rapid and recursive cycles. Organizations capable of vacillation are likely to have cultures, systems, and procedures that are conducive to experimentation and encourage dynamic change. These organizational characteristics and actions influence the ability of an organization’s resources to be effectively applied by a corporate entrepreneurship posture. Thus, the following general proposition is offered: Proposition 3A. Resource focus vacillation moderates the moderating influence of organizational resource level on the positive relationship between corporate entrepreneurship posture and organizational performance such that higher levels of vacillation lead to a larger positive influence of organizational resource level. Consistent with the above general proposition, there are likely to be a multitude of more specific relationships with particular organizational activities. For example, corporate entrepreneurship depends on the twin capabilities of opportunity identification and knowledge integration (Stevenson & Jarillo, 1990). However, these two capabilities rest on distinct processes and underlying behaviors (Kang, Morris, & Snell, 2007; Zahra & George, 2002). Opportunity identification depends on exploratory learning that breaks away from existing routines and capabilities (Burgelman, 1983; Christensen, 1997). The acquisition of new knowledge depends on the creation of informal networks that extend beyond organizational boundaries (Day, 1994; Kang et al., 2007) and can include acquisitions (Capron, Dussauge, & Mitchell, 1998). This type of learning frequently emerges as a result of bottom-up processes involving autonomous contributions of middle managers and leveraging of social networks inside and outside of

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the organization (e.g., Burgelman, 1983; Floyd & Lane, 2000; Floyd & Wooldridge, 1999; Mom, Van Den Bosch, & Volberda, 2007). The learning potential from sources outside the organization is typically influenced by both unique and common elements that help to assimilate valuable new knowledge into the organization (Phene, Tallman, & Almeida, 2012). In contrast, knowledge integration is intrinsically dependent on existing knowledge stocks and capabilities (Cohen & Levinthal, 1990; Mom et al., 2007; Zahra & George, 2002). As with exploration and exploitation, the distinction between opportunity identification and knowledge integration extends to the behaviors required to support these capabilities. Since opportunity identification involves the ability to not be constrained by existing norms and beliefs concerning means–end relationships, the spontaneous exploring and probing behaviors associated with opportunity identification may be described as individualistic, autonomous, and routine-agnostic (e.g., Floyd & Wooldridge, 1999). In contrast, knowledge integration requires consensus building, the invocation of shared goals, leadership, and strong organizational knowledge (e.g., Burgelman, 1983; Burgelman & Sayles, 1986; Day, 1994; Zahra & Nielsen, 2002). The integration of new knowledge with existing knowledge and capabilities involves social interactions requiring strong internal organizational networks (Grant, 1996; Kang et al., 2007; Nahapiet & Ghoshal, 1998; Zahra & Nielsen, 2002). Behaviors associated with knowledge integration may be described as collaborative, routine enhancing, and oriented toward the collective (e.g., Grant, 1996; Morris, Davis, & Allen, 1994). Because of these differences between opportunity recognition and knowledge integration we offer the following proposition: Proposition 3B. Vacillation between opportunity recognition and knowledge integration moderates the moderating influence of organizational resource level on the positive relationship between corporate entrepreneurship posture and organizational performance such that higher levels of vacillation lead to a larger positive influence of organizational resource level. Vacillation between different modes often requires the capacity for proactive experimentation and improvisation (Miner et al., 2001; Zollo & Winter, 2002). Improvisation and experimentation, as aspects of resourcefulness, reflect deliberate acts facilitated by past routines (e.g., Brown & Eisenhardt, 1995; Eisenhardt & Tabrizi, 1995; Moorman & Miner, 1998; Weick, 1998). Because these acts are deliberate, we refer to this movement as

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purposeful vacillation. Deliberate acts of repeated learning and experimentation are consistent with second-order organizational learning capabilities in that they are conscious attempts to generate and select among possible variations (Collis, 1994; Zollo & Winter, 2002). In opposition to reactive responses to some external shock or opportunity, and consistent with ambidexterity, improvisation and experimentation signal processes of enactment in which new knowledge is actively sought either for its own sake, or to resolve a specific organizational problem (Miner et al., 2001). Improvisation suggests that an organization can ‘‘work with the unexpected’’ (Weick, 1998, p. 544) in exploring new opportunities. The distinction between improvisation and experimentation is subtle. Learning is more improvisational when the design and execution of a solution occur simultaneously, and more experimental when it involves planned variations in underlying conditions (Miner et al., 2001). Improvisational learning is supportive of the vacillation required to maintain effective ambidexterity. Ambidextrous organizations must be simultaneously capable of exploiting existing knowledge and capabilities while exploring new opportunities (Birkinshaw & Gibson, 2004). Therefore, while prior experience must inform subsequent action, it should not constrain it by developing into core rigidities (Leonard-Barton, 1992) or competency traps (Levitt & March, 1988). The significance of this form of learning is that the ability to experiment and improvise is heterogeneous across organizations, reflecting organization-specific characteristics. Some organizations will be more likely to develop new routines, build unique and complex capabilities (Denrell, Fang, & Winter, 2003), and be less constrained by past routines than others. This may be supported by the development of more effective learning mechanisms of knowledge articulation and knowledge codification (Zollo & Winter, 2002). Paradoxically, while improvisational learning allows organizations to break away from established routines, experience is an important resource upon which individuals, groups, and entire organizations can draw when improvising new solutions (Miner et al., 2001; Weick, 1998). Prior practices serve as referents by providing both inspiration and constraint for subsequent actions (Miner et al., 2001). Therefore, while experimentation and improvisation may be characterized as exploratory ‘‘probes into the future’’ (Brown & Eisenhardt, 1995), we can expect that these efforts are influenced by prior experience. However, the influence of the past differs from the path dependency of learning-by-doing. In improvising, prior experiences represent only the departure point for further exploration and innovation through reinterpretation, embellishment, or variation (Weick, 1998).

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Theory and research on improvisation therefore suggest that, in combination with organizational flexibility, prior experiences provide a basis for the development of new responses or routines (Brown & Eisenhardt, 1995; Miner et al., 2001; Weick, 1998). Therefore, vacillation is likely to be supported by the same organizational characteristics that promote improvisation and experimentation. That is, smaller unit size, the availability of slack resources, autonomy, significant relevant prior experience, as well as flexible, less bureaucratic structures and supportive top management. Thus, the following proposition is offered: Proposition 3C. Vacillation between improvisation and experimentation moderates the moderating influence of organizational resource level on the positive relationship between corporate entrepreneurship posture and organizational performance such that higher levels of vacillation lead to a larger positive influence of organizational resource level.

DISCUSSION AND RESEARCH ASSERTIONS Corporate entrepreneurship, whether sanctioned or not, relies on acquiring and utilizing resources to achieve incremental to radical outcomes. When corporate entrepreneurs fail or are obstructed from acquiring additional resources they must rely on their ability to fully and creatively utilize the resources on hand and overcome limitations of a constrained set of resources (Payne, 2006). A major goal of this chapter and the proposed model is to emphasize the importance of purposeful vacillation as a strategy for resource acquisition and utilization. This chapter identifies very critical elements to the successful implementation of corporate entrepreneurship in an organization. Furthermore, a model is suggested that portrays the nature of the relationship between these elements. Much effort can be imparted by an organization to create a corporate entrepreneurial posture and attempt to bring incremental and radical changes. Deeper understanding of the nature of the corporate entrepreneurship process will result in more effective implementation. To that end, the following research assertions are suggested for future empirical study and understanding.  A corporate entrepreneurship posture comprised of top management support, rewards/reinforcement, time availability, autonomy, and removal of barriers significantly impacts organizational performance.

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 The relationship between a corporate entrepreneurial posture and performance is moderated by an organization’s resourcefulness such that the more effective/efficient the organization is at using current and acquired resources, the greater the organization’s performance.  Exploration and exploitation are critical elements to being resourceful; however, organizations better able to intentionally vacillate between the use of exploration and exploitation will achieve greater performance.  Vacillation is a capability that is supported by the organization’s capacity for experimentation and improvisation. Resource level and vacillation appear to be important moderators of the association between corporate entrepreneurship posture and measures of organizational performance. The relationship between an effective corporate entrepreneurial posture and performance will be facilitated or constrained by the degree to which it is balanced by the amount of resources available and the ability of an organization to vacillate between exploration and exploitation activities for utilizing and acquiring resources. Traditional focus on the importance of ambidexterity and creating a balance between exploration and exploitation activates may not necessarily be the best approach. Instead, generating the dynamic capability of vacillating between them based on context and resource levels will be more effective, especially in the long run. Strategic discontinuities and disruptions usually call for changes in business models. But, over time, efficient firms naturally evolve business models of increasing stability – and therefore rigidity. Doz and Kosonen (2010) suggest that strategic disruptions or discontinuities generally require changes in business models but, paradoxically, efficient firms continue to evolve the same business model and become more rigid and less able to change when necessary. According to Doz and Kosonen, this paradox or contradiction can be resolved by developing three core meta-capabilities to make an organization more agile: strategic sensitivity (intensity of focus on strategic developments), leadership unity (the ability of top management to make ‘‘bold’’ and quick decisions without regard to political ramifications), and resource fluidity (the ability of a firm to redeploy resources rapidly). To this end, other issues for future consideration should include:  Determining when is the most appropriate time to engage in exploration and/or exploitation. This chapter focuses more on how but when is also just as important and Posen and Levinthal (2012) use the analogy of ‘‘hitting a moving target.’’ Their basic premise is that the ‘‘conventional wisdom’’ is that there is a strong positive relationship between

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environmental change and organizational adaptation. However, they contend that in dynamic environments an overemphasis on a ‘‘bias-foraction’’ could have a negative effect and that more attention needs to be paid to understanding the mechanisms behind environmental change before deciding on an adaptation strategy.  Employing human resource management strategies to acquire and develop the appropriate human capital to execute both exploration and exploitation activities. Exploitation and exploration capabilities are different and implementing purposeful vacillation requires individuals who can handle such dynamic environments and explore and exploit when needed. Top management support for corporate entrepreneurship as a change effort is essential. Doz and Kosonen (2010) emphasize the importance for top management to make bold and quick decisions. Also, top management support has consistently been found to be an essential antecedent for a positive corporate entrepreneurial posture (Hornsby et al., 2009, 2013; Kuratko, Ireland, Hornsby, & Covin, 2005). This is especially the case when organizational resourcefulness is a major goal.

CONCLUSION The conceptual model delineated here provides an extension of existing research in that a particular form of ambidexterity, resource focus vacillation, has been identified as enabling organizations to enhance their ability to use their resources as well as increase their knowledge about different methods of using resources. Vacillation, as opposed to a balancing approach to resource utilization, offers organizations the ability to continue to build their managerial and organizational capabilities as they encounter and proactively manage new situations. The conceptual model, propositions, and related discussion also provided the impetus for future research ideas that we presented in order to provoke continuing research efforts in this area.

REFERENCES Alvarez, S. A., & Busenitz, L. W. (2001). The entrepreneurship of resource-based theory. Journal of Management, 27, 755–775. Amit, R., & Schoemaker, P. J. H. (1993). Strategic assets and organizational rent. Strategic Management Journal, 14, 33–46.

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REENACTING CONTEXTUAL BOUNDARIES – ENTREPRENEURIAL RESOURCEFULNESS IN CHALLENGING ENVIRONMENTS Friederike Welter and Mirela Xheneti ABSTRACT In this chapter, we advance an understanding of entrepreneurial resourcefulness in relation to context by focusing on challenging and sometimes outright hostile environments and the way they shape, and are shaped by, entrepreneurial resourcefulness. Drawing on selective evidence from several projects in post-socialist countries in both Central and Eastern Europe and Central Asia and other published research covering these countries, we argue for contextualized conceptualizations of resourcefulness. More specifically we emphasize that temporal, historical, socio-spatial, and institutional contexts are antecedents and boundaries for entrepreneurial behavior, while at the same time allowing for human agency. This is visible in individuals’ actions to negotiate, reenact, and

Entrepreneurial Resourcefulness: Competing with Constraints Advances in Entrepreneurship, Firm Emergence and Growth, Volume 15, 149–183 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1074-7540/doi:10.1108/S1074-7540(2013)0000015009

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cross these boundaries, and as a result, intentionally or inadvertently contributing to changing contexts. We suggest that resourcefulness is a dynamic concept encompassing multiple practices, which change over time, and it results from a close interplay of multiple contexts with entrepreneurial behavior. We also propose that from a theoretical point of view, resourcefulness not only needs to be contextualized, but it also needs to be explored together with its contextual outcomes – the value it creates and adds at different levels of society. Keywords: Entrepreneurial action; entrepreneurial behavior; context of entrepreneurial behavior; transition economies; post-Soviet countries

INTRODUCTION: RESOURCEFULNESS AND CONTEXTS In summer 1994, heading back to Germany from a holiday in the Baltic countries, one of the authors, together with a friend, boarded a train in Lithuania. The train was packed with a few Polish and many Lithuanian people, all hauling heavy bags and suitcases, obviously filled with goods they hoped to sell in Poland or further on.1 Shortly before the border crossing, individuals hectically began to unscrew compartment walls, seats and ceilings in each compartment, hiding cartons of cigarettes and bottles of spirit wherever possible, as well as redistributing bags and suitcases amongst themselves. The two of us were also asked to – legally – take over one each of their cartons of cigarettes and bottles of spirit, as neither of us had anything beyond our personal effects to bring into Poland. At the border crossing Lithuanian and Polish customs officers entered the train – and an interesting charade started: the officers examined one suitcase or bag per passenger, even when the individual obviously owned several, they shouted at individuals who were slow in showing their travel documents, asking them to step aside whilst at the same time they completely ignored us, once they had seen our red European Union (EU) passports. An hour later, the customs officers finished their visit, taking away a few unlucky travelers without valid passports and visas; and the train moved into Poland where everybody quickly started to recover their smuggled goods. When we asked why not all suitcases were examined, they told us that the head of their ‘‘brigade’’ – what they labeled their informal network consisting of several petty traders crossing the border at the same time – had negotiated with, and paid (in other words, bribed) these customs officers.

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What does resourcefulness mean in a situation as described above? Resourcefulness is reflected in individuals taking advantage of price differentials, by exporting (and smuggling) products across a border; all in order to earn or increase their incomes. Of particular importance is the context in which these individuals enacted resourcefulness: customs procedures, border regulations and controls restrict entrepreneurial endeavors and entrepreneurial people. The example also illustrates both the diversity of contexts and their intersections (Welter, 2011; Zahra & Wright, 2011): here it is the spatial context (the border), the institutional context (laws and customs regulating border crossings of individuals and products), together with the historical context (Soviet legacies of institutional distrust and of a ‘‘we against them’’-feeling, also extended to strangers) and temporal dimensions (this happened in 1994, i.e., in the early stages of the post-socialist transformation period). Bringing contexts and resourcefulness together we see individuals negotiating and reenacting these boundaries: they appear to acknowledge the power positions of border officers, by creating their own gatekeeper (the head of the brigade), while at the same time they find inventive ways to overcome regulations and restrictions such as redistributing their products, trusting in strangers, and collaborating closely with each other. In this chapter, we will explore in more detail the resourcefulness of individuals and entrepreneurs under turbulent and hostile conditions, showing what actions they use to overcome and to reenact contextual boundaries (e.g., regulatory, cultural, or spatial constraints). We draw on our own and other research on formerly Soviet countries which have undergone tremendous changes since their transition toward market-based economies started. Post-socialist contexts are challenging for various reasons. Depending on progress with their reforms (Smallbone & Welter, 2001b), these countries are characterized by institutional turbulence, which is reflected in frequently changing laws, regulations and policies, and in institutional voids arising from implementation gaps (Puffer, McCarthy, & Boisot, 2010; Smallbone & Welter, 2009b). Many post-Soviet entrepreneurial practices such as networking have strong roots in Soviet legacies which render them different from the same strategies in market economies (Welter & Smallbone, 2003). Moreover, it is nearly impossible to ‘‘disentangle the ‘economic’ from the ‘political’’’ (Humphrey, 2002, p. xxii) and from the ‘‘cultural’’ (Smith, 2002). Therefore, challenging environments represent a ‘‘specific interplay and balance between individual entrepreneur/ firm behavior and the external environment which itself changes as the process of market reforms unfolds’’ (Welter & Smallbone, 2011a, p. 121).

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It is this recursive interplay between contexts and behaviors we are interested in. The chapter will look at the actions which constitute resourcefulness in a post-socialist environment and also explore the question whether resourcefulness is a good or bad thing in these contexts. To explore entrepreneurial behavior empirically, we will use selective evidence from several projects in emerging market economies (in particular post-socialist countries in both Central and Eastern Europe and Central Asia), in which one or both authors have been involved,2 as well as draw on other published research covering these countries. We use these insights from empirical research to argue for an integration of concepts of contexts and entrepreneurial resourcefulness. Also, we contribute a conceptual perspective on resourcefulness in relation to contexts, suggesting that the scope for resourcefulness in a challenging environment is differentiated by where individuals/ entrepreneurs were located in socialist times and where they are located today, spatially, economically, and culturally. We finally suggest that in challenging environments resourcefulness has particular importance for individuals/entrepreneurs. We believe that we can gain novel insights into entrepreneurial behavior, by revisiting previous research on entrepreneurial behavior and resourcefulness from a contextual perspective. Context is important for resourceful behavior, because it simultaneously provides opportunities and restricts actions of individuals (Welter, 2011). It becomes ‘‘part of the story’’ (Zahra & Wright, 2011, p. 72), thus contributing to theory building. In our chapter, we build on the understanding of context as introduced by Welter (2011): we consider the where and when dimensions of context. The former is reflected in the manifold locations where entrepreneurship takes place: social, spatial, and institutional. Social context includes the relations of individuals, be they networks, families, households, or friends. The spatial context covers the physical and geographical environment, the institutional context the regulatory and normative environment. These contexts overlap; for example the social context (networks, family, households) and institutional contexts (laws, norms, regulations) both have a spatial dimension. The ‘‘when’’ dimension refers to historical and temporal contexts. Our view of the relationship between context and entrepreneurial behavior is dynamic and reciprocal: entrepreneurial behavior is affected by contexts as they exist today and as they have existed before, but entrepreneurial behavior also affects contexts and thus contributes to changing contexts overtime. The next section reviews conceptual and empirical evidence on entrepreneurial behavior in post-socialist environments, in order to illustrate

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resourcefulness in these contexts. We then proceed to explore various elements of context together with resourcefulness, before concluding and considering future research avenues.

REVIEWING ENTREPRENEURIAL BEHAVIOR IN CHALLENGING CONTEXTS In this section, we turn to examine what resourcefulness means in a postsocialist context. Resourcefulness generally has been defined as coping behavior that helps entrepreneurs to deal with resource-related constraints. Misra and Kumar (2000, p. 144) point to resourcefulness as proactive behavior, albeit restricted to opportunity recognition and exploitation. They define it as the ‘‘ability to identify opportunities in the environment and regulate and direct behaviour to successfully cope with the task of creating and managing an organisation to pursue the opportunity.’’ For developing countries, Bradley, McMullen, Atmadja, Simiyu, and Artz (2011) operationalize resourcefulness as a set of capabilities, consisting of specific actions and skills entrepreneurs use to deal with resource-related constraints on their business. The authors further distinguish between learned behavioral resourcefulness, financial and social resourcefulness. Similarly, Powell (2011, p. 29) defines resourcefulness as ‘‘patterned variations in making use of limited resources.’’ Although resourcefulness as such has not been explicitly researched in a post-socialist context, the actions used by entrepreneurs, in other words, their entrepreneurial behavior are by now a well-researched topic (among others, see, e.g., Doern & Goss, 2012; Manolova, Gyoshev, & Manev, 2007; Manolova & Yan, 2002; Round & Williams, 2010; Sauka & Welter, 2008b; Smallbone & Welter, 2009a; Tan & Peng, 2003; Welter & Smallbone, 2003; Williams, 2005; Yan & Manolova, 1998).3 Several types of entrepreneurial behavior in challenging institutional environments have been highlighted in the literature. All emphasize different forms of resourcefulness, namely behaviors which allow entrepreneurs to overcome constraints related to their contexts or to exploit institutional inefficiencies to their personal advantage.

Forms of Resourcefulness in a Transition Context Peng (2000) suggests a threefold typology, consisting of prospecting, networking, and boundary blurring. In his understanding, prospecting

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points to continuous change, innovation, and flexibility within new and small firms (Peng, 2000, p. 178). Especially during early transition years, prospecting was a common response to institutional turbulence that forced many entrepreneurs into oftentimes unintended changes of their market focus (Welter & Smallbone, 2011a, p. 110). However, as we will illustrate further below, our empirical evidence also illustrates that prospecting, with its constant emphasis on ‘‘getting-by,’’ was more of a reaction required for business survival rather than a pro-active resourceful behavior. Networking, which is of general importance for new and small firms, reflects social resourcefulness (Bradley et al., 2011) with entrepreneurs demonstrating the ‘‘ability to coordinate and work with others outside the firm to solve problems.’’ In transition countries, this form of resourcefulness also refers to a ‘‘unique set of networks’’ that entrepreneurs have to cultivate, namely contacts to government officials (Peng, 2000). As seen in the example given in the introduction, in our own research (Smallbone & Welter, 2009b), and in other studies (e.g., Manolova & Yan, 2002), contacts to government officials, at national and local level, were a requirement without which entrepreneurs were not able to start and develop a business. Boundary blurring involves two subsets of strategies: first, blurring the public–private boundary and second, blurring the legal–illegal boundaries. When blurring the public–private boundary, entrepreneurs choose to coown a firm, often with public entities or collectively with their employees. Peng (2000, p. 190) suggests that this behavior represents ‘‘an interesting and previously unencountered phenomenon in entrepreneurship research and practice’’ with its own logic. Moreover, this type of boundary blurring can occur in two directions, either moving ownership away from the public toward the private or vice versa (Peng, 2000, p. 188):  Moving ownership away from the state occurred in the phase of wild privatization characterizing many transition countries during the early 1990s (Welter & Smallbone, 2011b). It also happened during official privatization campaigns. One such example concerns collective ownership, which was made possible through privatization schemes that distributed ownership across each employee in a state-owned enterprise. This presented one of the easiest options for individuals to privatize ‘‘their’’ firms by registering for collective ownership and, over time, buying out other owners. The historical context plays a role because those successful in buying out their companies often had either held management positions in the state-owned firm or benefited from connections or positions in the communist party. For example, the former manager of

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a now privately owned supermarket in Moscow took an active role in privatizing her workplace in the early 1990s (Smallbone & Welter, 2009b, p. 74): in 1991, she persuaded the workers’ collective to register as a limited partnership; in 1993, with privatization starting, she further persuaded the employees to buy enough vouchers to take over the store.  Moving ownership toward the state happened in environments where a hostile government policy toward new firms and entrepreneurship, together with ongoing subsidies for state-owned enterprises, encouraged entrepreneurs to keep or reinstall some state-ownership. This has been illustrated for Hungary (Voszka, 1993), where in the early 1990s entrepreneurs were quick to ‘‘escape from the state,’’ as indicated by wild and spontaneous (and sometimes illegal) privatization efforts, which was followed by a period of ‘‘escaping to the state.’’ Blurring the legal–illegal boundary encompasses the variety of semi-legal, illegal, and outright criminal organizations to be observed in many transition economies. While illegal activities existed prior to 1989 (Dallago, 1990), the end of communism provided ‘‘greater and increased opportunities’’ for other than ‘‘getting by’’ illegal activities. This is evidenced by a wide range of activities, including ‘‘theft, smuggling, and black market sale of alcohol, cigarettes, jewelry, weapons, cars, and drugs, as well as prostitution and illegal immigration’’ that were under the control of ‘‘professionally developed’’ and well networked criminal organizations in post-socialist countries (Hignett, 2010, p. 78). The ineffective state enforcement of new contract/property laws also opened up spaces for criminal enterprises to engage in protection racketeering and extortion especially at the beginning of the transformation period (Hignett, 2010). Boundary blurring is also visible in strategies entrepreneurs employ to deal with institutional deficiencies. Tracey and Phillips (2011) suggest three mechanisms entrepreneurs can employ to reduce institutional uncertainty in emerging markets, portraying entrepreneurs as active change agents.  Entrepreneurs employ institutional brokering when they set up ventures which reduce institutional uncertainty for other actors. This draws attention to new organizational forms or business models which are implemented in the emerging market context and which are understood as an institution.  Entrepreneurs bridge institutional distances when they transpose and adapt institutions (either organizational forms or practices) to a new country context.

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 In spanning institutional voids, entrepreneurs search for creative solutions to institutional deficiencies, which, the authors suggest, results in protoinstitutions, thus fostering institutional change.

The Multiplicity of Resourcefulness in Challenging Environments Our own empirical research has evidenced prospecting, networking, and boundary blurring as forms of resourcefulness that cover a broad repertoire of conforming and nonconforming behavior in post-socialist countries (Smallbone & Welter, 2009a; Welter & Smallbone, 2003, 2011a). For example, serial entrepreneurship and seemingly unrelated diversification or portfolio entrepreneurship are common mechanisms used to mobilize the financial resources for entrepreneurship in challenging environments (Box 1). They may seem like typical market-based business strategies, but they take on different meaning in transition environments. All reflect – legal and illegal – mechanisms of accumulating sufficient capital in an environment where banks are not willing or capable of providing financial capital to small businesses and new entrepreneurs or where the institutional environment offers incentives for unproductive entrepreneurial behavior. In this regard, these actions can be considered elements of financial resourcefulness, which is a broader concept than financial bootstrapping and covers an individual’s ability to ‘‘creatively acquire and manage money where there is scarcity’’ (Bradley et al., 2011). Combined with evasive actions (frequently illegal) entrepreneurs draw on to avoid or reduce tax liabilities or to exploit institutional voids (Box 2), all these actions are important in securing business survival and development. Individuals demonstrate ingenuity in combining access to networks, diversification strategies, and a range of evasive and non-evasive behavior to cope with the problems faced in starting and running a business. This also becomes evident in – legal – part-time entrepreneurship (Smallbone & Welter, 2001a; Stoica, 2004). Stoica (2004) shows that such behavior spans not only legal – illegal boundaries but also moral boundaries with implications for the value of resourcefulness. This applies where part-time entrepreneurs use their main jobs in the state sector as a strategy to siphon off resources from the state and divert them to running their private business. These resources could be time dedicated to pursuing private interests during usual working hours or in-kind benefits illegally derived from their workplace. In dealing with institutional voids, entrepreneurs may not be overly concerned with institutional change, as assumed by Tracey and Phillips

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Box 1. Examples of Financial Resourcefulness in a Transition Context. This case of serial entrepreneurship, where a small Polish central heating engineering enterprise was built with capital generated by – semi-legal – shuttle trade (Smallbone & Welter, 2001a, p. 258) shows the role and importance of diversification in a challenging environment: In 1991, the entrepreneur started with a simple trading activity, buying toys in Belarus, taking them in suitcases across Poland to Germany to sell. The cash generated was reinvested in a small retail shop, followed by another one, and over time, the owner progressed to his current small business. Similarly, a small Czech construction enterprise set up in 1991 by two construction engineers and a foreman previously employed in the same state enterprise still keeps its initial retailing activities as ‘‘this is an activity where we know that we can earn money’’ (Lageman et al., 1994). Soon after transition began, they started with importing and retailing clothes, using the income from their initial trading activities to set up the more substantial construction business later. Another example is that of an entrepreneur who privatized a state optics company in an Uzbek region because she perceived a niche market (Welter & Smallbone, 2008): She started with wholesale and retail trade in medicines, generating capital from these activities to privatize her previous workplace in optics. But, once the Uzbek government imposed severe import regulations, she had to discontinue the medicine trade and the optics business. In order to earn income and to survive, she started selling products from her own farm, however, already considering new possibilities such as to diversify into buying her own livestock. Or take the example of the Belarusian entrepreneur owning a micro advertising agency, who, fearing ‘‘unwelcome’’ attention by government officials and criminals alike, considered opening an upmarket coffee shop instead of attempting to grow her core business (Smallbone & Welter, 2009b, p. 124).

(2011), who portray entrepreneurs as active change agents with reference to institutional strategies they employ to deliberately reduce institutional uncertainty in emerging markets. On the contrary, our empirical evidence as well as other studies suggest that, while resourcefulness plays a particular

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Box 2. Examples of Exploiting Institutional Voids in a Transition Context. This Ukrainian entrepreneur developed a specialized accounting system for small firms, customized for each company. In some cases, this included a system of ‘‘double accounting,’’ used for real and shadow calculations of the financial flows within the customer’s firm (Smallbone & Welter, 2009b, p. 144). Another example concerns the case of a business service provider in Ukraine (Smallbone, Welter, Voytovich, & Egorov, 2010). In the 1990s, frequent changes in laws, together with overly excessive business regulations created a demand for consultants, who could not only solve particular operational problems, but also assist with licenses, permits, and planning permissions required for starting or expanding a business. An innovative business service provider in Odessa exploited this institutional void by offering ‘‘full service’’ packages which included the necessary connections to officials. Other examples of actions exploiting institutional voids include: a second ‘‘shell enterprise’’ officially registered by a small business owner in Belarus who channeled part of his high profits through the second firm and returned them later in cash to his main business (Smallbone & Welter, 2009b, p. 120); the ‘‘envelope wages’’ (Williams, 2008) where Russian entrepreneurs officially pay minimum wages to their employees and unofficially add non-registered cash in ‘‘an envelope’’ (Smallbone & Welter, 2009b, p. 91); the Moldovan entrepreneur owning a knitwear business who initially engaged in a variety of activities, including food and beverage retailing, alongside his core clothing business, and who kept onto his shuttle trade, buying and selling shirts imported from Ukraine and Poland, in order to overcome seasonal shortages of working capital, in times when demand for his knitwear products was lower (Smallbone & Welter, 2003).

important role for entrepreneurs in challenging environments, actions of resourcefulness seem to resemble more of a short-term and reactive behavior to cope with massive environmental constraints, such as a lack of start or working capital, a need to evade government regulation, or the necessity to ensure personal income and business survival (Welter & Smallbone, 2003).

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Institutional change, nevertheless, could happen as an unintended byproduct of their entrepreneurial actions (Welter & Smallbone, 2011a), often informed by a legacy of economies of favors from Soviet times (Ledeneva, 2006: also see the discussion further below).

The Role of Context All these forms of entrepreneurial resourcefulness have implications for the role of context. As Peng (2000, p. 191) suggested, with reference to boundary blurring, these types of behavior ‘‘may be a natural, albeit undesirable, byproduct of economic transition.’’ While most forms of entrepreneurial resourcefulness emphasize the importance of the institutional context, because they result from its deficiencies, they also indicate a temporal dimension of resourcefulness as such behavior has been assumed to vanish once institutional uncertainty decreases over time. For example, network-relations have also been expected to be substituted by marketbased relations (Peng, 2003). However, it might also be the case that history, in the form of a Soviet ‘‘legacy of noncompliant’’ behavior (Feige, 1997) may contribute to persistent boundary blurring or network relations. Other implications for the role of context in our review come from a distinction between conformity to and avoidance of institutional settings. This draws attention to the differing socio-spatial and institutional contexts in which entrepreneurial behavior happens and the changing boundaries between what constitutes conformity and what constitutes avoidance in each, both over time as well as within and across countries. Thus, context matters for entrepreneurial behavior and it could and should influence our interpretation of concepts. In this regard, the next section turns to explore the intersection of contexts and resourcefulness.

CONTEXTUALIZING RESOURCEFULNESS We will now take a closer look at resourcefulness and contexts. In the previous section, we have seen that entrepreneurs in challenging environments use a broad variety of actions to overcome, counter, avoid, or even exploit constraints, be those resource constraints at individual or firm level or resource constraints in the form of institutional deficiencies. In the following, we will explore the interplay of spatial, social, and institutional

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contexts, together with time and history, in shaping entrepreneurial resourcefulness in challenging environments. Temporality cuts across various dimensions reflecting the changes in the contextual conditions overtime. Thus, for the clarity of discussion, we explore all contextual dimensions, but the temporal, as separate constructs. With this, we also emphasize that certain dimensions of contexts might be more prominent at different points in time in facilitating or inhibiting different forms of entrepreneurial behaviour, and encouraging the involvement of, or empowering, different groups of people (Xheneti et al., 2012).

The Historical Context – Resourcefulness between Continuity and Discontinuity Several studies in post-socialist countries have explored the tensions between the requirements of the market economy and the patterns of behaviors inherited from Soviet times (Ledeneva, 1998, 2006). Thus, the ways in which the past influences the present, if at all, are at the core of discussions of continuity and discontinuity as we illustrate next, drawing on the examples of Soviet and post-Soviet coping practices and gender orders. Soviet and Post-Soviet Coping Practices Resourcefulness in post-socialist countries did not simply emerge out of the blue with the collapse of socialism, but it has its roots in socialism (e.g., Polese & Rodgers, 2011; Rasanayagam, 2011; Rehn & Taalas, 2004). In other words, coping strategies that developed during Soviet times are but one element of today’s entrepreneurial resourcefulness. Socialist resourcefulness encompassed both public and private coping practices which emerged to overcome the constraints of a planned economy, frequently with an illegal or semi-legal touch (for an in-depth review see Welter & Smallbone, 2011b). Directors of state-owned enterprises needed to behave entrepreneurially in order to meet planning targets which in a shortage economy involved having the ‘‘right’’ connections in administration and government (Box 3). Rehn and Taalas (2004) have emphasized how entrepreneurial action, illegal, but tolerated, flourished in the daily lives of individuals during the Soviet period, positioning Soviet society as an excellent example for what the authors label ‘‘mundane entrepreneurship.’’ Similarly, Gerasimova and Chuikina (2009) portray Soviet society as a ‘‘repair society’’ fostering a ‘‘bricolage’’ mindset and lifestyle in its people which allowed individuals to adapt the Soviet system to their own comfort.

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Box 3. Soviet Coping Practices in Public and Private Life. In state-owned enterprises, parallel circuits were a common practice in order to secure access to resources, assisting the enterprise directors to fulfill plan targets (Kerblay, 1977). These were informal networks set up by the tolkach (pusher) who officially was employed in state-owned firms. He traveled around the Soviet Union and its satellite states, negotiating, bartering, shifting, and securing resources needed for production and fulfillment of planning targets. Of course, such activities were illegal, but the Soviet state tolerated them in the same way as it tolerated the initiative and creativity used by individuals in order to secure their daily life in a shortage economy. Individual resourcefulness was enacted at the work place in state enterprises. It included pilfering and moonlighting respectively the clandestine use of state property such as machinery, materials, and labor, for private entrepreneurial activities (Dallago, 1990). Individual resourcefulness also was visible in everyday life: buying whatever product was available and ‘‘up for grabs’’ (Gerasimova & Chuikina, 2009, p. 67) and using it for barter later on; and informal ‘‘neighborhood-based subsistence production’’ (Grabher, 1994, p. 9), where the surplus was sold at ad hoc stalls at markets or railway stations, were omnipresent in socialist countries. The latter still exists today, as pensioners try to top up their oftentimes meager pensions. The so-called ‘‘suitcase trade’’ reflects another instance of Soviet resourcefulness. When international holiday travels within Soviet Bloc countries became a mass phenomenon in the early 1970s this created an upsurge in illegal and small-scale trading across Soviet borders (Morawska, 1999; Williams & Balaz, 2002).

Socialist resourcefulness would not have been possible without blat; and in those post-socialist countries where institutions are deficient and not working properly, resourcefulness still encompasses a very strong reliance on blat (Ledeneva, 2006; Lovell, Ledeneva, & Rogachevskii, 2000). Ledeneva (1998, p. 37) defined blat as an exchange of favors of access to whatever was needed under conditions of shortage. Blat oftentimes has been equaled with networking, but it used to have a wider and different meaning, providing access to public resources through individual and personalized

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relations. In other words, it implied belonging to a circle and having a wide network of contacts; it reflected an individual’s standing in the socialist society and consequently their access to goods or services. Furthermore, blat relied on cooperation and mutual support, both with a long-term perspective, and it was not necessarily dyadic but blat relations could be circular. Thus, blat not only differs from networking as known and applied by entrepreneurs in market economies, but it also is different from bribing: ‘‘With good contacts bribery may not be necessary at all, everything can be decided by blat’’ (Ledeneva, 1998, p. 41). However, blat practices have changed throughout transition, so much so that blat mostly lost its meaning and relevance (Ledeneva, 2008), with individuals, instead having to resort to bribing. Bribing is used in a variety of different situations of business (and daily) life as evidenced by the examples in Box 4. Despite an oftentimes temptation of (entrepreneurship) researchers to portray countries such as Russia as corrupt at all levels of society and economy, Humphrey (2002) argues for a culturally sensitive understanding of what constitutes bribing behavior. Based on Russian concepts, she outlines three features of bribes: a bribe is an improperly accepted payment

Box 4. Examples of Post-Soviet Coping Practices. A woman entrepreneur in Moldova, running a minibus between the Moldovan capital Chisinau and a city in the Central region, vividly recalled her difficulties when setting up the business and in her daily operations, with clerks expecting her to either bring presents or pay for their services, and nowadays with her drivers regularly having to pay ‘‘penalties.’’ She also has to pay her ‘‘roof’’ which offers protection to her business against other, mafia-like structures, as well as continue bribing state authorities (Welter & Smallbone, 2010). A female entrepreneur starting a detergent company in Uzbekistan, had to ‘‘oil the wheels’’ in order to obtain all required licenses, laboratory tests, and certificates from the Standard Office (Welter, 2005). She speeded up the process by bringing presents such as flowers or candy for female officials or brandy for male officials. She perceives such shadow expenditures as part of doing business, but also pointed out that it was never openly suggested to her what and how much to ‘‘pay’’ because she was a woman.

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for public duties which are meant to be offered for free; it is offered intentionally and voluntarily; and it results in a short-lived and negatively implicated relation between those who bribe and those who accept the bribe. In a post-Soviet context, with its institutional voids, bribes with which individuals try to speed up official decision but which do not involve illegal actions, such as ‘‘the box of chocolates, flowers, bottle of vodka, or the envelope with a few rubles, for the nurse, accountants, teacher’’ are ‘‘too much part of everyday necessity to be seen as a fully fledged bribe.’’ While in-kind payments allow entrepreneurs to interpret their behavior as something different from bribing which would imply stepping out of their community into ‘‘an asocial, monetized world’’ (Humphrey, 2002, p. 138), the fact that individuals are discreet about such payments also suggests these actions are considered slightly dodgy (ibid., p. 130). Soviet and Post-Soviet Gender Orders and Resourcefulness The socialist period, albeit officially propagating gender equality, left a legacy of gendered institutions with implications for resourcefulness. In the socialist period, women faced different institutional realities compared to men (Kiblitskaya, 2000; Zhurzhenko, 1999, 2001). They experienced a double or triple burden of having to combine wage-employment, negotiating the daily life and its shortages and taking care of all family needs. Also, they were by no means equally represented in power positions in the party or state enterprises, thus lacking access to ‘‘old’’ socialist networks during transition. Together with a widespread resurge of traditional values most post-socialist societies experienced (Ashwin, 2000), this has implications for the entrepreneurial behavior of women and the actions they pursue to cope with resource constraints. Some research on Soviet women argues that women are very resourceful, maybe even to a larger extent than men. Their resourcefulness reflects continuity, because of their daily life experiences in coping with shortages under socialism (Rehn & Taalas, 2004) which in the late years of socialism often resulted in them becoming involved in informal trading (Heyat, 2002). At the same time, in a post-Soviet environment, they needed to be more resourceful because they oftentimes lacked access to strategically required resources such as blat and were less able than men to privatize ‘‘their’’ workplace (Welter & Smallbone, 2008). In this regard, their resourcefulness builds on discontinuity because they need to find novel ways of accessing resources. One such method refers to noncompliant or evasive behavior, such as bribing, which itself has a pronounced gender dimension. In many cases, women were asked to provide gifts instead of monetary payments (Box 4).

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Our own research (Welter & Smallbone, 2008, 2010) also shows that women could circumvent bribes when spouses or family possessed the required blat, thus making up for a lack of access of women to ‘‘old’’ socialist networks. In a few cases, women simply refused to pay, using their gender to engage in playful coping with, and sometimes outright embarrassing of, male officials (Box 5). Similarly, Bruno (1997, pp. 63–64) shows how women entrepreneurs reinterpreted the predominant male image of entrepreneurship by emphasizing ‘‘their ‘natural’ feminine attitudes when engaging in business and turning them into the central principle behind their work activities.’’ Educational levels, together with previous professional experience, appear to be enabling factors for those women who voluntarily defy traditional gender roles and values and are even proud of their ‘‘outsider status.’’ To sum up, resourcefulness seems to have a wider role to play for women entrepreneurs in challenging environments, going beyond its function of coping with or circumventing constraints in the external environment. Instead, resourcefulness is a necessity for many women in an environment which redefined their gender role. Their resourcefulness reflects both continuity (in the sense of building on Soviet coping practices) and discontinuity (in the sense of using novel ways to access resources, including their gender). In this regard, their resourcefulness can contribute to institutional change over time, because, encouraged by their entrepreneurial actions, women extend resourcefulness to, and enact it in, other spheres of life. They openly break with societal norms ascribing traditional gender roles or they defy the male norm of entrepreneurship by playing with gender stereotypes as illustrated above. Thus, women push, break, or cross contextual boundaries of resourcefulness.

Box 5. Playing Gendered Stereotypes. A Ukrainian entrepreneur involved in importing and retailing clothes stated that the tax inspector saw her as a weak woman, feeling pity for her: ‘‘He did not ask for bribes and sometimes even confined himself to minimal fines for my mistakes’’ (Welter & Smallbone, 2010, p. 112). An Uzbek entrepreneur described how she used the image of being a weak and inexperienced woman, trying to find her way in a man’s world, to get the tax inspector to lower her taxes.

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The Role of History and Time As becomes apparent from the empirical evidence presented here, entrepreneurial resourcefulness in challenging environments is shaped by its historical context and by time. Despite its socialist roots, post-socialist resourcefulness is not static, but develops in relation to, and together with, its specific context. Soviet legacies of noncompliance and coping have contributed to continuity in resourceful behavior because the recourse to familiar, even if nowadays unwanted – or illegal – actions offers stability in an environment where turbulence and change dominate. At the same time, individuals need to continuously adapt their actions to an ever changing environment. In this regard, resourcefulness builds on discontinuity, with individuals displaying enormous creativity in finding ways to act entrepreneurially. Thus, we suggest that in challenging environments, resourcefulness is characterized by both continuity and discontinuity. Moreover, we propose that there is a gendered dimension of resourcefulness which needs to be taken into account. Proposition 1. In challenging environments, entrepreneurial resourcefulness, as coping behavior, reflects both historical continuity that provides stability and discontinuity that allows for adaptability. Proposition 2. In challenging environments, entrepreneurial resourcefulness is a gendered practice, whereby women’s scope for resourcefulness is constrained by the historical and current gender orders, rendering the enactment of resourcefulness in contesting and circumventing existing gender orders a necessity to start a business.

The Socio-Spatial Context – Places of Resourcefulness Resourcefulness is not only embedded in history, but also is a social and spatial phenomenon. In the simplest way, spatial contexts for entrepreneurship can be defined by geography, for example, national, regional, and/or local spaces such as the border in the introductory example. We define place, however, in broader terms than geography alone, to also account for economic or sociocultural (i.e., institutional) factors that bound certain geographical spaces. Thornton and Flynn (2005) emphasize that each place has institutional boundaries. For example, neighborhoods and local communities are shaped by local culture, reflected in shared meanings and understandings as well as in place-specific behavior.

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One place that has received particular attention recently in discussions of entrepreneurial behavior in post-socialist contexts is the household setting that allows for unique forms of entrepreneurial resourcefulness. The household setting is often conceptualized as a networked place (other households, workplaces, community venues, the housing block, the street) within which family members perform their entrepreneurial activities (Smith & Stenning, 2006). Households participate in various livelihood strategies, in order to ease the burdens of post-socialist transformation and to take advantage of opportunities in the private sector (Konstantinov, 1996; Round & Williams, 2010; Smith & Rochovska´, 2007; Smith & Stenning, 2006). A livelihood has been defined as ‘‘the activities, the assets, and the access that together determine the living gained by the individual or household’’ (Ellis, 2001, p. 231). The definition of household strategies as livelihood strategies is wide – encompassing not only the different (and changing) motivations for engaging in these strategies but also the variety of forms they take as well as the economic and social realms they are part of, and influenced by. One distinctive literature, with significant insights into the entrepreneurial resourcefulness of households is the literature on diverse and multiple economies (Pavlovskaya, 2004; Round, Williams, & Rodgers, 2010; Smith & Rochovska´, 2007; Smith & Stenning, 2006). Inspired by the work of GibsonGraham (1996, 2008), this literature has drawn attention to nonmarket forms of economic practices and their coexistence with market forms. Several categorizations of these diverse economies have been proposed.  Gibson-Graham (1996), for example, suggested three subcategories for economic and labor practices, respectively: market, alternative market (off-the-books, barter), and nonmarket (gift-giving, subsistence); and waged, alternative paid (cash-in-hand, reciprocal), and unpaid (family care, self-provisioning) (see also Smith & Stenning, 2006).  Similarly, Pavlovskaya (2004) sketches a model of diverse economies, distinguishing between formal and informal, private and state, as well as between monetized and non-monetized spheres with the latter based more upon affective relations of obligation and love (i.e., care work for children or the elderly; house repairs or cleaning and cooking) or upon informal exchange reciprocities that are not monetized (Wallace & Latcheva, 2006). Despite these categorizations, scholars also recognize that there are no clear-cut boundaries between categories of economic practices. The role played by economic practices can be multidimensional reflecting the life circumstances of the individuals and households but also the particular

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socio-spatial places where these activities are performed (Smith & Stenning, 2006; Welter et al., 2012; Williams & Round, 2010). In a post-socialist household context, entrepreneurial resourcefulness involves not only the labor (paid or unpaid) of several members of the family but also the use of their networks and connections in the market or nonmarket realms and private and public spheres. Resourcefulness draws from these networks, while simultaneously sustaining them. One prominent example is household food production which has been studied extensively in a post-socialist context (Pickup & White, 2003; Round et al., 2010; Smith, 2002; Smith & Stenning, 2006). It mainly refers to food growing, using the free labor of various members of the household in urban allotments, gardens, and/or private rural land plots (dachas). Household food production is used not only for personal consumption (as survival means) but also for sustaining social networks through reciprocity, or food sale for additional household income (Round et al., 2010; Smith, 2002; Smith & Stenning, 2006). Food production was performed during socialist times too, facilitated by the provision of land plots by governments as a way to escape the overcrowded cities (Round et al., 2010). Production was used for personal consumption within the extended family network or could be used as a mean of exchange for other goods and services, a reflection of the shortage economies of Soviet times (Round et al., 2010). Yet again, this example is encompassing of the plurality of resourceful practices in post-socialism and their interaction with historical and temporal dimensions of the contexts where they happen. Overall, resourcefulness is a widely evidenced feature of post-socialist households, both contributing to, as well as resulting from, multiple and diverse places. The forms it takes, however, change over time (Welter & Smallbone, 2009) and the groups of people involved are quite diverse because it is not always the poorest but those with access to human, financial, and better social networks or family links that effectively deploy these strategies (Smith & Stenning, 2006; Stoica, 2004; Williams & Round, 2008). Based on this discussion, an emphasis should be placed on avoiding overly simplistic characterizations of entrepreneurial activity and behavior under transition conditions, particularly where several members of a family are involved. Moreover, the literature on households and diverse economies again demonstrates that individuals have often adapted already established informal socialist practices such as their social capital accumulated through work or other networks to their new reality (Pickles, 2010; Polese & Rodgers, 2011; Round et al., 2010; Stenning & Hoerschelmann, 2008).

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Summing up, the focus on household resourcefulness as a socio-spatial space of resourcefulness is important in understanding everyday entrepreneurial behavior as part of individuals’ ‘‘struggles’’ to make sense of, and contest, their new institutional order. Moreover, a household perspective also emphasizes that it is the interplay between time, history, and sociospatial contexts, which influence the prevalence of household resourcefulness and shape its nature in the form of social repertoires and actions, networks and resources individuals can draw upon. But, resourcefulness also shapes contexts as becomes apparent in the emergence of multiple economies in post-socialist countries, thus emphasizing the dynamic relationship between the socio-spatial context and resourceful behavior in challenging environments. Proposition 3. In challenging socio-spatial environments, entrepreneurial resourcefulness is enacted in the creation of multiple economies, enabled by the household setting. The Institutional Context – Contesting Institutional Boundaries As the opening example in this chapter indicated, important insights into boundaries and resourcefulness can be provided by studies of entrepreneurial behavior in borderlands. Borders, besides their role in demarcating the physical boundaries between countries, recently have been conceptualized as transformative and evolving processes, politically, economically, and socially embedded (Diener & Hagen, 2009; Paasi, 2009; Van Houtum, 2010). In other words, it is at the borders where the interaction of the sociospatial and institutional contextual dimensions is more pronounced, simultaneously affecting, and being enacted by, entrepreneurial behavior in interesting and diverse ways. The use of the border as an economic resource through shuttle trading, whereby individuals take advantage of the differences in the variety and prices of goods and services across the border to survive and to sustain a decent livelihood has been well documented in the literature in post-socialist countries (e.g., Bruns, Miggelbrink, & Mu¨ller, 2011; Egbert, 2006; Welter & Smallbone, 2009; Xheneti et al., 2012) and border regions across the world, for example, African borders (Fadahunsi & Rosa, 2002; Peberdy, 2000) or the US–Mexico border (Pisani & Richardson, 2012). More specifically, the resourcefulness of individuals in borderlands has been closely linked to the mobilization of practical knowledge on price differences across the border

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(in other words, arbitrage), differences in taxation, etc. which, very often, are accompanied by the adaptation of the ‘‘portfolio’’ of trading goods and services accordingly. Individuals have engaged in a variety of semi-legal or illegal activities such as importing second-hand clothes, exporting foodstuffs, alcohol, or diesel fuel or the informal use of labor as nurse, hairdresser, tailor, or housekeeper in regions bordering more affluent states. They secured additional income; increased the living standards of themselves and their families; and most importantly, have been able to cope with the high levels of unemployment experienced especially after the collapse of many old industrial areas (Welter & Smallbone, 2009). Yet, the border is also a political and social institution, determining the legality and legitimacy of entrepreneurial border activities (Bruns et al., 2011). Borders change, both over time and place (Berg & Ehin, 2006), enabling or constraining various types of, and strategies for, cross-border activities. Borders also have historical, social, and cultural dimensions embodying memories and symbolic representations (Delanty, 2006), with the ethnic and cultural links between the populations on both sides of the border, or other social networks constructed over the years leveling out the effects of the physical boundaries. Kalantaridis (2007) pointed out localized interpretations of institutions which lead to differing micro-level solutions, or, in other words, result in different entrepreneurial behavior and strategies depending on place. In a border context, research has shown that individual resourcefulness has been manifested in an ability to take advantage of the inefficiency of formal rules and the corruption of custom officials, thus making use of institutional voids. Social networks and, yet again, the household and family settings, have offered access to capital necessary to trade across the borders and cope with government policies or custom impediments (Egbert, 2006; Wallace, Shmulyar, & Bedzir, 1999). One prominent example of the interaction of bordering processes with entrepreneurial behavior in post-socialist border regions refers to EU enlargement, which can demonstrate in which ways individuals enact and contest borders at the same time. Where borders have changed with the Eastern enlargement of the EU, the intensity of such activities has decreased as soon as price differentials have narrowed and the border regime has become stricter or softer (Bruns et al., 2011; Egbert, 2006; Xheneti et al., 2012). Research has also concluded that enlargement has had variable effects on the forms and intensity of entrepreneurial activities, mainly because of the different interactions of the economic, political, and sociocultural dimensions of the borders. While enlargement has had immediate effects on the institutional aspects of the border, the deployed resourcefulness also is

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influenced by economic conditions and cultural proximity or distance at both sides of the border (Xheneti et al., 2012). More specifically, in less developed areas along the Eastern borders of the EU, cross-border entrepreneurial activities are performed by individuals and households out of necessity, often as a reactive or defensive strategy (Welter & Smallbone, 2009). The examples outlined in Box 6 all highlight the close sociocultural proximity as a sustainer of resourcefulness, again indicating its continuity dimension amid discontinuity and turbulence. Here, this refers to the tradition of intergenerational solidarity in Central and Eastern Europe, similar hardships of the socialist period and the long experience with economies of exchange and ‘‘favors’’ (Ledeneva, 1998; Wallace & Latcheva, 2006). Those endowed with this type of social capital – the traditional network of friends, family, or other ethnic links but also shared historical

Box 6. Contesting Institutional Boundaries – The Example of CrossBorder Entrepreneurship. Crossing the border several times a day was a practice particularly used by pensioners and unemployed individuals for whom cross-border activities were an important source of income. This strategy enabled them to cope with official limits imposed on the quantities of goods that can cross the border, thus eventually maintaining similar levels of trading activity and making ends meet by buying cheaper goods across the border for personal consumption or for friends and relatives. Individuals also responded collectively to the border limitations, as was randomly the case in Estonian regions where several individuals jointly crossed the border by bus; everyone buying a particular good and jointly selling them afterwards to customers. Informal taxi drivers at the Greek–Macedonian border and petty traders at the Greek– Bulgarian border would have their clients pretend they were all friends to conceal the illegal taxi activities (Xheneti et al., 2012). In other cases, individuals could be more proactive in challenging border institutional practices. Ethnic populations living in European external border regions who gained access to visas on favorable terms or double citizenship were in the position to cross the border more often at no additional cost and in turn, earn a higher income from cross-border trade, having thus realized its benefits.

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experiences and hardships during the transformation period – continue to capitalize on the border location. Overall, these examples show that coping with changes in the nature of borders, as political institutions, or challenging them, both reflects and requires resourcefulness and adaptability. Equally importantly, the forms this resourcefulness takes are informed by the social dimension of the border, that is, social networks and connection on both sides of the border. Challenging the institutional dimension of the border is often a reactive strategy individuals use to ensure their livelihoods. It also plays an important role in preserving community values and networks that could eventually enable future resourcefulness of individuals or households in a challenging environment. Proposition 4. In challenging institutional environments, entrepreneurial resourcefulness is enacted in contesting formal institutional change, and it is supported by the historical and social dimension of the context.

THE VALUE OF ENTREPRENEURIAL RESOURCEFULNESS In the previous section, we highlighted different sets of entrepreneurial behavior in challenging environments and their interaction with a range of contextual dimensions. We demonstrated a diversity of ways in which entrepreneurial resourcefulness is manifested without considering their value for the individuals engaged in these types of behaviors and for the societies where these entrepreneurial activities are performed. To a certain extent, these practices also perpetuate informal economies of Soviet times and a culture of noncompliance that in some cases might have detrimental effects, in particular at societal level (Coyne, Sobel, & Dove, 2010; Sauka & Welter, 2007). Thus, we suggest that resourcefulness also needs to be explored together with its outcomes – the value it creates and adds at different levels of society. To date, most discussions about the value or the contributions of entrepreneurial behavior have been concerned with the economic value of entrepreneurial activities, framed within the seminal work of Baumol (1990). He distinguishes between productive, unproductive, and destructive entrepreneurial activities, which are defined by the institutional set up of a country and have respectively positive, zero, and negative value to the society.

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His work has proven invaluable in highlighting the role of institutions, in exposing the darker or less virtuous sides of entrepreneurship and in supporting our understanding of the economic effects of entrepreneurial activity (Douhan & Henrekson, 2010). Empirical evidence in several contexts has also supported these theorizations of the value of entrepreneurship (e.g., Harbi & Anderson, 2010; Sauka & Welter, 2008a; Sobel, 2008). Recent literature, however, considers this typology limited when accounting for the institutional work conducted by individuals in countries with inefficient or changing institutional arrangements (Douhan & Henrekson, 2010; Henrekson & Sanandaji, 2011), suggesting that some unproductive (even criminal) activities might be followed by productive outcomes especially when they improve the efficiency of existing institutions (Davidsson & Wiklund, 2001). Webb, Bruton, Tihanyi, and Ireland (2013), for example, suggest a curvilinear, inverted-U shaped relationship between the informal economy and overall economic stability and development. Entrepreneurial resourcefulness, in most of the examples provided in this chapter, has been beneficial to the individuals engaged in these activities and their local communities. Individual survival and well-being, business entry, survival, and growth, as well as job creation and institutional and social change, have been some of the positive effects of these activities. Other studies have also suggested that: (i) resourcefulness, acquired in relation to the second economy in Soviet times has been valuable in supporting business entry and development (Aidis & van Praag, 2007; Earle & Sakova, 2000; Stoica, 2004); (ii) using entrepreneurial resourcefulness to substitute informal institutions, such as using corruption to cope with institutional voids, has supported business growth and development (Hashi & Krasniqi, 2011; Xheneti & Bartlett, 2012). Arguably, this type of resourcefulness places an additional burden on those that play by the rules by creating an anti-competitive environment in which some market players operate outside the law while those operating within the legal boundaries face increased costs of compliance (Douhan & Henrekson, 2010; Hashi & Krasniqi, 2011; Webb, Tihanyi, Ireland, & Sirmon, 2009). Also, some forms of resourcefulness might have very high opportunity costs (Douhan & Henrekson, 2010) and evasive and criminal behavior might have multiplier effects (Coyne et al., 2010), with detrimental consequences for a society. The case of the highly educated individuals in post-socialist contexts, who as a result of the collapse of old industrial areas, engage in petty trading as the only alternative, might suggest that the society is losing value in the longer term since these individuals’ skills are not properly utilized. Additionally, most studies of evasive behavior illustrate its

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positive short-term effects, without any explanation about the degree of business growth and development that could have been experienced in the absence of evasive behavior, or about the effect that eliminating evasive behavior and corruption would have on these economies as a whole. Other dimensions of societal value, which we believe to be rather underresearched (Anderson & Smith, 2007; Korsgaard & Anderson, 2011), possibly because of a focus of entrepreneurship studies on the economic outputs of entrepreneurial activities, are the social legitimacy of, and the social value derived from, entrepreneurial resourcefulness. As we discussed, social context both shapes and is shaped by entrepreneurial behavior. As part of this process, entrepreneurial resourcefulness relies on social mechanisms that might be illegal but yet socially acceptable and that might result in outcomes which can be conceptualized more than just in economic terms, because individuals, households, or even whole communities nurture family and social relations through their engagement in different forms of entrepreneurial behavior (monetized or non-monetized; in the public or private realms). Social value creation might also have implications for further research on the development of community entrepreneurship in post-socialist contexts, by investigating how such sociocultural repertoires could be used to preserve community values and to enhance its economic and social well-being. Overall, we believe that the value of resourcefulness is another aspect where boundaries are blurred, if not in continuous change. Our broad range of examples of resourcefulness and the range of contextual dimensions lead us to suggest that discussions of the value of resourcefulness should be framed within the specific contextual conditions where value as a social construct is embedded.

A ROADMAP FOR THE FUTURE Why Contextualize Resourcefulness This chapter has reviewed entrepreneurial behavior, drawing on the examples of post-socialist countries in Central and Eastern Europe and Central Asia in order to illustrate what entrepreneurial resourcefulness means in a challenging environment. The evidence on entrepreneurial behavior in challenging environments presented in this chapter highlights the recursive interplay between contexts and behaviors, as well as features of the process of being resourceful. What becomes clearly visible is the

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inventiveness and creativity of individuals in dealing with a challenging and sometimes outright hostile environment. Our review emphasizes temporal, historical, socio-spatial, and institutional contexts, all of which are antecedents and boundaries for entrepreneurial behavior while at the same time allowing for the agency of individuals, as visible in their actions to negotiate, reenact, and cross contextual boundaries. It is through this agency, that individuals also contribute to changing contexts, whether intentionally or as an unintended by-product of their actions. In being resourceful, individuals draw on a wide repertoire of actions, which, depending on the respective context, frequently reflect short-term and reactive behaviors to cope with contextual boundaries and constraints. This adds another dimension to the current understanding of resourcefulness. In a challenging environment it includes actions such as diversification, portfolio, and serial entrepreneurship or extended networking that, at a first glance, seem to resemble strategic behavior. In relation to the turbulent environment in which their entrepreneurial activities happen, these actions, however, reflect reactions to deal with environmental constraints, at least initially, often within the blurred boundaries of the legal – illegal, market/ nonmarket, and public – private realms. Moreover, and contrary to what one might expect, in some contexts it is those with access to all kinds of resources, both from socialist and post-socialist times, who are most effective in deploying resourcefulness. Also, resourcefulness is a gendered practice, and women can be constrained in the actions they can deploy to be resourceful while at the same time using their resourcefulness to break out of contextual boundaries.

Where to Go from Here The review in this chapter surfaced some interesting themes which constitute building blocks for a roadmap on future research on entrepreneurial behavior and resourcefulness. Below, we briefly explore themes for future research: Theorizing contexts and resourcefulness: We believe that we need further theory work on contextualizing entrepreneurial behavior and resourcefulness. In particular, theorizing contexts and resourcefulness from an evolutionary/process perspective may be worth pursuing because of the recursive and dynamic interplay between contexts and resourcefulness. The concept of emergence could be of use here, as it emphasizes coevolutionary processes (Welter, 2011) on different levels. In this regard, Anderson,

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Drakopoulou Dodd, and Jack (2012, p. 964) suggest that a systems view, in particular a complexity perspective, could go ‘‘some way to understanding how the micro actions of individual entrepreneurs, combine and coordinate change.’’ Such theory work also would benefit from studying the antecedents of resourcefulness. In addition to gender and social position, it may be worthwhile studying race and ethnicity. Our own research on cross-border contexts has shown ethnicity as an enabler of resourcefulness where ethnic populations living on both sides of border regions are able to contest institutional boundaries on their own terms, because their ethnicity gives them access to the border through simplified visa procedures or double citizenship. Also, it would be of equal interest to look at the type of resources individuals/entrepreneurs can mobilize by taking advantage of their ethnicity in a variety of contexts. Agency and resourcefulness is another interesting research avenue. We believe that our discussion on contextualizing resourcefulness can add some insights with regard to why some individuals are institutional change agents and others are not. Above, we elaborated that in a challenging environment resourcefulness is not per se a proactive behavior, but frequently an ‘‘adaptive’’ response (Harmeling, 2010, 2011; Harmeling, Sarasvathy, & Freeman, 2009). However, there is more to an adaptive response than can be seen at first glance. As the evidence presented throughout this chapter shows, individuals respond differently to contexts – some are enabled by contextual constraints and their resourcefulness consequently encompasses both adaptive responses and actions that push and break contextual boundaries. For them, contexts are a resource in themselves, enabling them ‘‘to be an active agent of change in the world’’ (Harmeling, 2011, p. 296). Here, contextual discontinuity and boundary crossing, related to all facets of contexts, are part of the explanation why some entrepreneurs are able to exploit contexts as resources and others are not (Mutch, 2007; Welter, 2012); and it is their resourceful behavior which also – in the longer run – impacts on contexts. In this regard, the notion of mundane entrepreneurship, or the everydayness of entrepreneurship (Steyaert & Katz, 2004) is worth exploring in relation to resourcefulness and its sources. The chapter demonstrated the role of everyday practices arising out of the economy of shortages during socialism for today’s resourcefulness. In other words, it is also the everyday behavior of individuals which is evidenced in their entrepreneurial activities, and which, over time, contributes to changing contexts. This has interesting implications for the emerging discussion on institutional entrepreneurship,

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by drawing our attention to the real-life messiness of entrepreneurial activities, which are not captured in the concept of institutional entrepreneurship. While the concept of institutional entrepreneurship aims to incorporate the ‘‘lived experiences’’ of actors (Lawrence, Suddaby, & Leca, 2011, p. 52), it has been increasingly criticized for its focus on ‘‘a few champions of change and neglects the wider social fabric in which they are embedded’’ (Clegg, 2010, p. 5). Potential dark sides of resourcefulness: Also, rereading the literature on entrepreneurial behavior in post-socialist countries, one must ask whether resourcefulness is per se perceived as something good. Without resourcefulness entrepreneurs in a challenging environment may not be able to start and grow a business. Our examples in this chapter, however, also illustrate the boundary blurring nature of many resourceful actions. Yet, the social acceptability and outcomes of resourceful behavior are less frequently discussed in the literature. Examples include references to the ethical and moral dimension of evasion behavior during transition (Smallbone & Welter, 2009a) or to the ‘‘antistate everyday morality’’ of coping behavior during Soviet times (Gerasimova & Chuikina, 2009, p. 71). Examining them more closely could provide insights on the social legitimacy of resourcefulness along temporal and other contextual dimensions, as well as the longer term implications of relying on these practices. For example, where trust in the state does not exist, as is the case in many post-socialist countries, entrepreneurs draw on a close circle of known and trusted persons for doing business, although this behavior ultimately constrains business development and growth. Other examples relate to criminal activities such as smuggling operations and capital flight that have been facilitated by changes in border regimes across post-socialist countries (Hignett, 2010), drawing attention not only to the dynamic and adaptive nature of criminal resourcefulness but also its manifestation in destructive activities for the society. This suggests the dark sides of entrepreneurial behavior and resourcefulness as an interesting future research avenue (Welter & Smallbone, 2011a). Future research might also focus on noneconomic outcomes of entrepreneurial resourcefulness, instead placing attention on how sociocultural repertoires could be strategically deployed as assets to preserve community values and to enhance local economic and social well-being through, for example, community entrepreneurship. We could discuss the temporal value of resourcefulness, its positive versus negative economic and social value to society, and the opportunity costs of different types of resourcefulness, as well as the moral boundaries in appropriating value through resourcefulness.

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This chapter has shown that resourcefulness is a widely evidenced feature in challenging environments, highlighting that we can extend our understanding of what constitutes resourcefulness by incorporating different dimensions of contexts. Resourcefulness encompasses multiple practices, although the forms it takes change over time, and it results from a close interplay of multiple contexts with – adaptive and proactive – entrepreneurial behavior. We believe that opening up for empirical study of the ‘‘nontraditional’’ and less researched contexts of entrepreneurship enriches our understanding of what constitutes entrepreneurial behavior and resourcefulness.

NOTES 1. Irek (1998) studied a similar phenomenon on the German–Polish border, on board the Berlin–Warsaw express, which was labeled ‘‘smuggler train’’ during the early 1990s. After 1994, due to Poland’s preparations for joining the EU, fewer and fewer Polish people acted as cross-border ‘‘entrepreneurs’’ in a wider sense. Instead, the cross-border entrepreneurial trading patterns shifted east. Also cf. Xheneti, Smallbone, and Welter (2012). 2. For a detailed description of our research projects (topic, methodology and data, teams) conducted 1993–2004 see the appendix in Smallbone and Welter (2009b), for two research projects on cross-border entrepreneurship, conducted 2004–2008 see Welter and Smallbone (2009) and Xheneti et al. (2012). 3. Much of this research builds on institutional theories (North, 1990). This is not surprising, given the huge impact the environment had on entrepreneurship and entrepreneurial behavior in transition economies, which rendered institutional theory an obvious choice to study entrepreneurship because it allows us to emphasize various contextual influences on entrepreneurship (Hoskisson, Eden, Lau, & Wright, 2000).

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KNOWLEDGE FLOWS AND CONSTRAINTS TO THE ENTREPRENEURIAL PROCESS Thomas D. Craig, Patrick G. Maggitti and Kevin D. Clark ABSTRACT As a critical component in the entrepreneurial process, knowledge is essential to the study of how entrepreneurs compete under constraints. Research in this area is challenged by the unobservable and imprecise nature of knowledge which inhibits advanced theory building and testing, and we explore this problem by analyzing the relationship between the entrepreneurial process, constraints to the process, and knowledge flows. We apply and extend a systems-theoretic framework that identifies the knowledge system in entrepreneurial organizations, and develop an integrative model to guide future research. Keywords: Entrepreneurial process; knowledge flows; constraints; discovery; idea implementation; knowledge models

Entrepreneurial Resourcefulness: Competing with Constraints Advances in Entrepreneurship, Firm Emergence and Growth, Volume 15, 185–205 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1074-7540/doi:10.1108/S1074-7540(2013)0000015010

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INTRODUCTION This chapter examines the crucial yet perplexing link between knowledge flows and entrepreneurial constraints. Entrepreneurs compete under conditions of uncertainty, limited resources, and internal and external constraints that restrict their ability to engage in the entrepreneurial process, which involves the discovery, evaluation, and exploitation of opportunities (Shane & Venkataraman, 2000). Knowledge is both a central component of the entrepreneurial process (Kirzner, 1997; Simsek & Heavey, 2011; Venkataraman, 1997; Zahra, Sapienza, & Davidsson, 2006) and a strategically critical resource essential to creating competitive advantage (Conner & Prahalad, 1996; Grant, 1996; Kogut & Zander, 1992). Product, process, and service innovations are driven by new knowledge, which is created through a dynamic learning cycle of acquiring, exchanging, and combining existing knowledge (Nonaka, 1994; Smith, Collins, & Clark, 2005). Knowledge can also constrain entrepreneurial activities, as core capabilities developed from prior innovation and learning become core rigidities in the form of cognitive predispositions, patterns of interpretation, and change-resistant behaviors (Leonard-Barton, 1992). Moreover, knowledge is simultaneously ‘‘sticky’’ and ‘‘leaky,’’ requiring significant efforts to reduce resistance to its flow within the organization while preventing its undesirable transfer and loss to competitors across organizational boundaries (Brown & Duguid, 2001). Policies implemented by managers can both enhance and impede the flow of knowledge (Collins & Smith, 2006; Nahapiet & Ghoshal, 1998), therefore an organization’s ability to innovate and successfully compete under constraints should be positively associated with its effectiveness at understanding and managing knowledge flows that are (a) fundamental to the entrepreneurial process and (b) associated with the specific constraints faced at any given time. However, despite increasing acceptance of the importance of knowledge management in entrepreneurship and related fields of study (Liebeskind, 1996; Smith et al., 2005; Tsai, 2001), our understanding of knowledge types and flows in the entrepreneurial process remains abstract and lacking the precision needed for advanced empirical research. The literature provides only a rudimentary understanding of the organizational processes associated with the treatment of knowledge, and we have very limited insight on how different types of knowledge are managed (Turner & Makhija, 2006) and what types of knowledge are utilized at different stages of the entrepreneurial process (Davidsson & Honig, 2003). A primary impediment to research in this area is that knowledge is inherently unobservable

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(Argote & Ingram, 2000), making it difficult to distinguish knowledge and its flows in an unambiguous manner (Spender, 1996; Szulanski, 2000). Lacking a more precise understanding, the processes by which organizations develop, maintain, and use their distinct knowledge for competitive and entrepreneurial advantage remain obscured inside a knowledge-based ‘‘black box’’ (Davidsson & Honig, 2003; Spender, 1996; Turner & Makhija, 2006). To address the problem of knowledge ambiguity in entrepreneurship research, Craig and Winston Smith (2012) adapt a general systems model by Klir (1969) to develop a framework of knowledge flows in entrepreneurial organizations. This framework reconceptualizes the process of entrepreneurship and identifies three main structural components (entrepreneurial activity, ideas and inspiration, and organizational memory) and eleven distinct interconnecting channels through which knowledge is transmitted within and across organizational boundaries. In this chapter, we apply this framework to clarify the murky relationship between organizational knowledge and entrepreneurial constraints. Specifically, we extend the framework and propose four main dimensions along which the distinct entrepreneurial knowledge flows can be grouped, based on their relationship to entrepreneurial activity. The proposed dimensions are source, destination, direction, and timing, and we use these to develop a new integrative model that links specific dimensions of knowledge flows with specific constraints to the discovery, evaluation, and exploitation of opportunities. The model we present suggests that different types of constraints are more relevant than others at different stages in the entrepreneurial process, and therefore specific constraint-related flows of knowledge can be managed to mitigate the effects of specific stage-related constraints. In other words, our model suggests that entrepreneurs at different stages in the process of discovery, evaluation, and exploitation should focus on managing the flows of knowledge that are associated with the constraints they are facing or are soon to face. Thus our analysis and discussion contribute to the entrepreneurship literature by building on the framework proposed by Craig and Winston Smith, demonstrating its applicability for generating theory, and providing support from a constraints perspective for the argument that effective knowledge management is required for successful entrepreneurship. Our principle goals in this chapter are to advance a more precise and organized understanding of the role of knowledge in the entrepreneurial process, and to expand the conceptual foundation for future theoretical and empirical research on how entrepreneurs compete under knowledge-based constraints. To accomplish these goals, we begin by examining the literature

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on the process view of entrepreneurship and constraints faced by entrepreneurs as they engage in this process. Recognizing that entrepreneurs cope with many different constraints, for exploratory purposes we focus our discussion and model on four types of constraints that are prevalent in the literature and yet quite different in how they are affected by knowledge flows: human capital, financial capital, legitimacy, and appropriability. We then review the role of organizational knowledge in the entrepreneurial process, consider limitations in the current treatment of knowledge in this context, and describe the framework proposed by Craig and Winston Smith in concise but relevant detail. In the final section we organize knowledge flows into the four proposed dimensions, and present the integrative model that ties the process, constraints, and knowledge flows together.

ENTREPRENEURSHIP: PROCESS AND CONTRAINTS The Process Perspective In the past decade, scholars in the field of entrepreneurship have largely adopted a behavioral or process perspective, shifting away from equilibrium and trait-based perspectives that emphasize the characteristics of individual entrepreneurs, settings in which new ventures emerge, and other antecedent conditions (Landstro¨m, Harirchi, & A˚stro¨m, 2012; Shane, 2012). Deeply rooted in the economics literature, the process perspective’s origins and relevance are found in Schumpeter’s (1934) theory of the market-disrupting cycles of creative destruction initiated by entrepreneurs, Kirzner’s (1973, 1985) emphasis on the alertness of individuals that drives the discovery of market imbalances and subsequent moves toward new equilibrium points, and Casson’s (2005) recognition of the entrepreneur’s role in market creation and intermediation resulting from superior judgment during different stages of information processing. The process approach has been advocated by many scholars (e.g., Eckhardt & Shane, 2003; Gartner, 1988; Miller, 1983), who assert that the field is better served by studying the entrepreneurial process itself and the organizational factors which foster and impede it, rather than the traits and performance of individual entrepreneurs. In Shane and Venkataraman’s (2000) domain-defining article, they argue that entrepreneurship should be studied as a transitory process that is performed at different times by a large and diverse group of people, and not as the embodiment of a particular type of person.

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Moreover, by learning the nature of the entrepreneurial process, scholars can make use of findings of previous research to gain insights on a critical issue: how to foster entrepreneurship (Stevenson & Jarillo, 1990). Many studies have used a process-oriented approach in a variety of contexts, including corporate and strategic entrepreneurship (Burgelman, 1983; Stevenson & Jarillo, 1990), international entrepreneurship (Baker, Gedajlovic, & Lubatkin, 2005; Coviello & Jones, 2004), and end-user entrepreneurship (Shah & Tripsas, 2007). However, despite the transformational shift in the research agenda from an individual/trait focus to a behavioral/process focus (Landstro¨m et al., 2012), and an apparent consensus around the core idea that entrepreneurship is a process, our understanding of the process in many contexts is incomplete and clearly requires more research (Shane, 2012).

Knowledge and the Entrepreneurial Process Among the many frameworks developed to advance the process perspective, one of the most widely used is from Shane and Venkataraman’s seminal article (2000) which defines entrepreneurship as the discovery, evaluation, and exploitation of opportunities. This framework extends the work of Schumpeter, Kirzner, and others and has gained prominence by providing a mechanism for integrating various schools of thought in the entrepreneurship literature (Baker et al., 2005). Acknowledging that various (and in some cases, unintended) interpretations by scholars have emerged since the original framework was introduced, Shane (2012) reasserts the point that entrepreneurship should be defined and studied as a process with subprocesses, although the process is not necessarily rational, planned, strategic, or even temporally ordered. Discovery Opportunity discovery is the perception by individuals, acting alone or within firms, of a previously unseen or unknown means-ends relationship (Eckhardt & Shane, 2003; Shane & Venkataraman, 2000). Perception of opportunities is a function of asymmetric distribution of knowledge1 in society, and the alertness of the entrepreneur to that asymmetry (Kirzner, 1997). Stocks of knowledge possessed by individuals (e.g., regarding underutilized resources, new technologies, customer demand, and environmental shifts) are idiosyncratic and influence an individual’s ability to combine existing knowledge with new knowledge from inside and outside

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the organization, and thus to recognize new opportunities (Cohen & Levinthal, 1990). Knowledge related to the process of discovery typically flows into and among units within the organization. Evaluation Once an opportunity is discovered, the entrepreneur must screen the untried idea on multiple dimensions including technical feasibility, correspondence to market demand, legality, and patentability; even promising ideas can be unprofitable if they fail on one of these dimensions (Biais & Perotti, 2008). The evaluation process involves weighing the potential value of the opportunity against the costs and risks to generate that value, and the costs and risks to generate value in other ways (Shane & Venkataraman, 2000). Calculating potential value, costs, and risks requires knowledge similar to that used in the discovery process, obtained from sources inside and outside the organization. Also similar to the process of discovery, knowledge related to the evaluation process typically flows into and within the organization, although screening may at times require transferring details of the opportunity to relevant experts outside the organization (Biais & Perotti, 2008). Exploitation While the discovery and evaluation processes predominantly involve cognitive activities occurring within the organization, exploiting an opportunity requires a transition to physical action that converts the idea into a marketable product or service. The entrepreneur must perform, or cause others inside and outside the organization to perform, activities involving the movement, combination, or conversion of venture-related resources. These activities include seeking and securing financial capital, hiring employees, acquiring materials and equipment, and producing and selling innovative products and services. Like the other processes, exploitation requires knowledge flows into and within the organization to facilitate the activity of innovation. However, unlike the discovery and evaluation subprocesses, the exploitation of opportunities also involves flows of knowledge directed externally including those needed to inform potential customers and suppliers (Eckhardt & Shane, 2003), signal value to investors and creditors (Carpenter & Petersen, 2002a) and to build cognitive and sociopolitical legitimacy for the new venture (Aldrich & Fiol, 1994). Additionally, when entrepreneurs exploit opportunities, knowledge about the opportunity and how to exploit it is transferred outside the organization (Eckhardt & Shane, 2003).

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Knowledge and Constraints to the Entrepreneurial Process In launching and growing new ventures, individual and corporate entrepreneurs face multiple constraints that restrict their ability or willingness to engage in the entrepreneurial process. We focus our analysis on four types of constraints that are prevalent in the literature and yet distinct in how they are affected by knowledge flows: human capital, financial capital, legitimacy, and appropriability. Human Capital Constraints Organizations innovate by acquiring, exchanging, and combining existing knowledge to create new knowledge in a dynamic cycle of learning (Nonaka, 1994; Smith et al., 2005). An organization’s knowledge is primarily embedded within human capital, which includes the knowledge, skills, and experience of its members, and can be conceptualized as stocks and flows (Dierickx & Cool, 1989; Simsek & Heavey, 2011). Stocks are the accumulated knowledge assets internal to the firm, and flows are the streams into the firm or various parts of the firm which may be assimilated and converted to stocks of knowledge (DeCarolis & Deeds, 1999). The ability to discover, evaluate and exploit opportunities is constrained by the organization’s initial stocks of human capital, that is, the founders’ knowledge (Colombo & Grilli, 2005), and the ability to continually acquire and assimilate new and diverse knowledge to enable future innovations (Miller, Fern, & Cardinal, 2007). Human capital constraints to entrepreneurship are therefore largely based on flows of knowledge into the organization and within its boundaries. Financial Capital Constraints To exploit opportunities, entrepreneurs almost invariably require external funds to supplement founders’ personal wealth and internally generated finance (Carpenter & Petersen, 2002b; de Bettignies, 2008). Limited access to seed and startup capital often hinders the creation, growth, and survival of new ventures (Colombo & Grilli, 2007; Evans & Jovanovic, 1989), and the provision of external finance is particularly challenging due to information opacity which causes adverse selection and moral hazard problems. Entrepreneurs seeking to pursue promising opportunities may be blocked from doing so because potential providers of external finance cannot readily verify the quality of the venture, or ensure the funds will not be diverted to alternative projects. Financial constraints to opportunity exploitation are therefore linked to externally directed flows of knowledge

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and the ‘‘informational wedge’’ between insiders and outsiders (Berger & Udell, 2002). Legitimacy Constraints In addition to the challenges of identifying viable new opportunities and securing adequate funding to pursue them, entrepreneurs are faced with the critical problem of building legitimacy for the new product, process, or service which has no prior or objective evidence of its value. Entrepreneurs must frame the unknown in such a way that it becomes believable (Aldrich & Fiol, 1994), and ‘‘engineer consent, using powers of persuasion and influence to overcome the skepticism and resistance of guardians of the status quo’’ (Dees & Starr, 1992, p. 96). New ventures, and particularly those in industries that are in the formative stage, are challenged to quickly reach the stage where they are (a) well-known and taken for granted, thereby achieving cognitive legitimacy and (b) accepted by key stakeholders, the general public, key opinion leaders, and government officials as appropriate and right given existing norms and laws, achieving sociopolitical legitimacy (Aldrich & Fiol, 1994). Cognitive and sociopolitical legitimation requires developing trust among institutional stakeholders and establishing a well-informed customer and supplier base, and therefore primarily involves externally directed flows of knowledge. Appropriability Constraints The goal of entrepreneurs is to create value through their innovations, often in the form of wealth for themselves and their organizations (Burgelman & Hitt, 2007). To sustain the economic returns of their efforts, barriers to the diffusion of knowledge regarding their value-creating process must be erected to prevent or delay imitation by competitors once the innovations are introduced to the market (Teece, 1986). Indeed, the risk of proprietary knowledge loss is also present when the new idea is being evaluated, prior to market introduction, when relevant experts outside the organization are needed for feasibility screening (Biais & Perotti, 2008) as discussed above. Engaging in the entrepreneurial process is a less attractive option when operating in environments in which the appropriability regime is weak and proprietary knowledge is difficult to protect. Therefore, when competing under appropriability constraints, the importance of managing externally directed flows of knowledge increases significantly. To summarize, the process perspective of entrepreneurship identifies the discovery, evaluation, and exploitation of opportunities as distinct

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subprocesses that require functionally different types of knowledge that flow within and across organizational boundaries. Entrepreneurs operate under different types of constraints that are associated with specific flows of knowledge. The challenge to integrating these ideas for future research lies in the ambiguous nature of knowledge and our limited understanding of its flows, to which we now turn our attention.

KNOWLEDGE IN THE LITERATURE: NATURE, UNDERSTANDING, AND LIMITATIONS Knowledge has become a focal point of intersection in the study of organizations, strategy, innovation, organizational learning, and entrepreneurship. Knowledge generation and transmission are the central activities of organizing: firms are information processing systems structured to remove equivocality from the informational environment via the processes of enactment, selection, and retention (Weick, 1969). As an extension of strategic management’s resource-based view of the firm, the knowledgebased view (KBV) holds that an organization’s knowledge assets are the primary strategic resource that contributes to new value creation, heterogeneity, and competitive advantage (Barney, 1991; Grant, 1996). Knowledge is arguably the most important intangible asset that firms possess (Liebeskind, 1996; Rosenkopf & Almeida, 2003), and building competitive advantage involves creating and acquiring new knowledge, disseminating it to appropriate parts of the firm, interpreting and integrating it with existing knowledge, and ultimately using it to achieve superior performance (Cohen & Levinthal, 1990; Kogut & Zander, 1992; Nonaka, 1994). Similarly, knowledge is recognized as the principle input to the processes examined by scholars in the innovation and organizational learning domains (Hargadon & Fanelli, 2002). The innovation process involves the interchange of technical knowledge of a need and the feasible means to meet the need, within the organization and between the organization and its environment (Utterback, 1971). Organizations innovate through combinations of new and existing knowledge (Rosenkopf & Almeida, 2003) which become routinized in the products, processes and structures that comprise the core capabilities of the firm. Organizational learning is a dynamic process that occurs over time and across levels as stocks and flows of knowledge combine to create new knowledge, and as inferences

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from history are encoded into routines that guide behavior (Levitt & March, 1988). Entrepreneurship scholars have also identified knowledge as a key input that drives the process of discovery (Kirzner, 1997; Venkataraman, 1997), and as an output that augments the organization’s human, social and organizational capital which enables further opportunity discovery and exploitation (Simsek & Heavey, 2011; Zahra et al., 2006). Having adopted the process perspective, most scholars acknowledge the critical importance of knowledge stocks and flows to the process (Dutta & Crossan, 2005; Shane, 2012; Zahra et al., 2006). Given its importance to the theoretical foundation of entrepreneurship research, understanding the nature of knowledge and how it is shared, used and stored in an entrepreneurial context is an important goal for advancing the field (Harrison & Leitch, 2005). Collectively, scholars in these related fields recognize that the creation of new knowledge, which enables organizations to innovate and outperform rivals in dynamic environments, results from a process of knowledge exchange and combination occurring within and across the boundary of the organization (Nahapiet & Ghoshal, 1998). However, research efforts to develop a more complete understanding of the knowledge exchange and combination process are hindered by the inherently unobservable and ambiguous nature of knowledge (Argote & Ingram, 2000; Spender, 1996; Szulanski, 1996). We have limited insight into the nature, mechanics, and timing of knowledge use within the firm (Davidsson & Honig, 2003; Turner & Makhija, 2006), which yields an imprecise understanding of which flows can be managed for the improvement of a particular competence (Palacios, Gil, & Garrigos, 2009). Moreover, the relationship between past learning and future actions is complex (Hargadon & Fanelli, 2002). For example, core capabilities developed from prior experience can become core rigidities (Leonard-Barton, 1992) that limit the imagination and pursuit of new opportunities. Therefore, in addition to managing the acquisition, diffusion, and replication of knowledge that enables the creation of new knowledge, managers must also address the challenges arising from the obscure and conflicting nature of knowledge itself to achieve and maintain competitive, innovative, and entrepreneurial advantage. To better understand its enabling and constraining qualities, Hargadon and Fanelli (2002) suggest that knowledge be viewed as an ongoing and recursive process of interaction (or duality) between empirical knowledge (existing in the actions and outputs of the organization which replicate existing knowledge) and latent knowledge (existing as the possibility to

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perform new organizational actions that produce new knowledge where it had not existed before). These distinct types of knowledge continuously interact to enable or constrain the innovation and learning processes of the organization: negatively as core rigidities emerge to increasingly restrict the ability to recognize and exploit opportunities (Leonard-Barton, 1992), or positively as existing knowledge combines to generate new knowledge that is converted to existing knowledge in a continuing stream of innovative products and services (Smith et al., 2005). The cyclical and compounding nature of knowledge flows has been theorized in the models developed to understand product innovation (Dougherty, 1992), tacit and explicit knowledge creation (Nonaka, 1994), and feed-forward and feedback processes in the ‘‘4I’’ framework of organizational learning (Crossan, Lane, & White, 1999). In the spirit of these earlier models, Craig and Winston Smith (2012) have proposed a systems-based approach to entrepreneurship research that includes a detailed schematic of knowledge flows in the entrepreneurial process.

A FRAMEWORK OF KNOWLEDGE FLOWS The framework of knowledge flows developed by Craig and Winston Smith (2012) adapts a general systems model by Klir (1969) to provide a systemsbased topographic view of knowledge flows in the entrepreneurial process (Fig. 1). While most studies consolidate and distinguish knowledge stocks and flows using simplified and dichotomous representations (e.g., tacit vs. explicit, internal vs. external, simple vs. complex), this framework specifies structural components of the process and 11 distinct interconnecting channels though which knowledge is transmitted and combined in the organization. As a detailed schematic of entrepreneurial knowledge stocks and flows, the framework offers finer-grained insight into how knowledge is used in the process of entrepreneurship, and how managerial decisions may foster or impede the exchange, combination, and creation of opportunitybased knowledge in an organization. The primary strength of this framework is that it comprehensively identifies and distinguishes the flows of knowledge that surround and support an organization’s entrepreneurial process. By revealing the underlying circuitry of the process, this framework offers a finer-grained, schematic representation of the stocks and flows of knowledge that are aggregated in earlier works, for example, the dynamic spiral of

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Organization 1

3 9

10 Λ

4

Entrepreneurial Activity V

5

Ideas & Inspiration

W Organizational Memory

11

7 8

6 Z’

Z”

Fig. 1. A Systems View of Knowledge Flows in the Entrepreneurial Process (Craig & Winston Smith, 2012). Source: Adapted from the generalized paradigm of complex probabilistic systems (Klir, 1969, p. 163).

organizational knowledge creation (Nonaka, 1994), the 4I dynamic process model of organizational learning (Crossan et al., 1999), and the process model of knowledge transfer offered by Szulanski (2000). Indeed, the framework can be integrated with these and other theories of organizational learning to develop a more complete understanding of knowledge-based constraints that entrepreneurs face.

Dimensions of Entrepreneurial Knowledge Flows The eleven distinct knowledge flows depicted in the framework can be examined individually, but we focus here on consolidating these flows into logical groupings to build upon the preceding discussion of constraints, and to facilitate the integration of the framework with other models and theories of organizational knowledge, innovation, and learning. By visually bisecting the framework, horizontally and vertically, logical subsets of related knowledge flows begin to emerge. We propose four dimensions of knowledge flows based on the relationship between each flow and the

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entrepreneurial activity component, which can be seen to represent (collectively or individually) the distinct processes of opportunity discovery, evaluation, and exploitation. The four dimensions of entrepreneurial knowledge flows, summarized in Table 1 and described below, are source, destination, direction, and timing: Source of Knowledge Flows (Internal vs. External): Knowledge used in entrepreneurial activity is acquired from sources inside and outside the boundaries of the organization. Internal sources are represented in the framework by channels 3, 4, 5, and 9; external sources are represented by channel 1. Destination of Knowledge Flows (Internal vs. External): Knowledge generated by entrepreneurial activity is transmitted to users inside and outside the boundaries of the organization. Knowledge flowing to internal users is represented in the framework by channels 4, 5, 7, and 8; flows to external users are represented by channels 6 and 11. Direction of Knowledge Flows (Input vs. Output): Knowledge is both an input and an output of entrepreneurial activity. Knowledge inputs to entrepreneurial activity are represented in the framework by channels 1, 3, 4, 5, and 9; knowledge outputs from entrepreneurial activity are represented by channels 4, 5, 6, 7, and 8. Timing of Knowledge Flows (Immediate vs. Delayed): Knowledge is used immediately and directly in entrepreneurial activity, and is subsequently and indirectly used after being combined with other knowledge in organizational memory. Immediate knowledge flows are represented in the framework by channels 1, 3, 4, 5, and 9; delayed knowledge flows to entrepreneurial activity (via channel 3) are represented by channels 2, 7, 8, and 10.

Table 1.

Dimensions of Knowledge Flows Related to Entrepreneurial Activity.

Knowledge Dimensions Source Destination Direction Timing

Knowledge Flows Internal External Internal External Input Output Immediate Delayed

3, 4, 5, 9 1 4, 5, 7, 8 6, 11 1, 3, 4, 5, 9 4, 5, 6, 7, 8 1, 3, 4, 5, 9 2, 7, 8, 10

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INTEGRATING PROCESS, CONSTRAINTS, AND KNOWLEDGE FLOWS: A PROPOSED MODEL In the discussion above, we draw upon the literature to establish the following points: (a) that entrepreneurship is a process of opportunity discovery, evaluation, and exploitation; (b) that entrepreneurs’ ability and willingness to engage in the process are impacted by different types of constraints; and (c) that knowledge flows play a pivotal role in the process and related constraints. By organizing the knowledge flows of the Craig and Winston Smith framework into four logical dimensions and linking them to the process, we resolve some of the major hurdles that frustrate research in this area as described above. Additionally, identifying these distinct dimensions of knowledge flows allows us to integrate the discussion on process, constraints and knowledge flows in a model that depicts and clarifies this complex but important relationship for use in future studies (Fig. 2). Fig. 2 identifies the links between the different dimensions of knowledge flows and each type of constraints, and between each type of constraints and the stages of the entrepreneurial process. Consistent with the preceding discussion, our model allows the following general observations to be made. First, the stages of the entrepreneurial process are impacted by different but overlapping constraints. As the ‘‘earliest’’ stage in the process, opportunity discovery is predominantly constrained by human capital. For example, the ideation of a new technology, product, or market-serving opportunity is a result of the entrepreneur’s alertness and knowledge of underutilized resources, customer preferences and demand, and shifts in

Source – Internal (Channels 3, 4, 5, 9) Source – External (Channel 1) Destination – Internal (Channels 4, 5, 7, 8) Destination – External (Channels 6, 11) Direction – Input (Channels 1, 3, 4, 5, 9) Direction – Output (Channels 4, 5, 6, 7, 8) Timing–Immediate (Channels 1, 3, 4, 5, 9) Timing–Delayed (Channels 2, 7, 8, 10)

Fig. 2.

Human Capital Constraints Discovery of Opportunities Financial Capital Constraints Evaluation of Opportunities Legitimacy Constraints Exploitation of Opportunities Appropriability Constraints

An Integrative Model of Knowledge Flows and Constraints to the Entrepreneurial Process.

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the technological and competitive environments (Kirzner, 1997). The evaluation of the costs and risks of creating value from such opportunities is also constrained by human capital (Shane & Venkataraman, 2000), and to the extent that external experts are needed for feasibility screening (Biais & Perotti, 2008), appropriability constraints may also impact the entrepreneur’s ability or willingness to evaluate opportunities that have been discovered. Financial capital and legitimacy constraints are of lesser importance to the pre-exploitation processes of opportunity discovery and evaluation. The process of opportunity exploitation, which requires actions by parties inside and outside the organization (e.g., securing financing, acquiring resources, production, and marketing) is impacted by all four types of constraints and is potentially the most challenging aspect of entrepreneurial competition (Aldrich & Fiol, 1994; Carpenter & Petersen, 2002b). Collectively, these observations are aligned with the evidence that ‘‘many are called but few are chosen’’ – the universal constant that no matter how many entrepreneurs emerge after opportunities are identified, most do not succeed in creating lasting organizations due to the expanding sets of constraints faced and almost limitless pitfalls associated with starting a new venture (Aldrich & Martinez, 2001). P1: As they progress through the stages of the opportunity discovery, evaluation, and exploitation, entrepreneurs compete under different and more complex sets of constraints. Human capital is necessary but increasingly not sufficient as entrepreneurs move beyond the opportunity discovery stage.

Additionally, the model reveals that while financial, legitimacy, and appropriability constraints can be addressed by effectively managing the flows of externally directed knowledge, overcoming human capital constraints requires the entrepreneur to manage a different and more diverse set of knowledge flows related to dimensions of source, destination, direction, and timing. P2: As entrepreneurs move through the stages of discovery, evaluation, and exploitation, the management of knowledge flows into and within the organization to address human capital constraints remains critical, while the management of externally-directed knowledge flows to address financial, legitimacy, appropriability, and other types of constraints becomes increasingly important to continuing the entrepreneurial process.

And finally, while each stage of the entrepreneurial process involves different flows of knowledge based on the particular constraints faced, our model indicates that engaging in the entire process of opportunity discovery, evaluation, and exploitation requires effective and holistic management of

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all flows in the organization’s knowledge system (Craig & Winston Smith, 2012). P3: Entrepreneurs that effectively manage the entire system of knowledge flowing into, within, and out of their organizations will outperform entrepreneurs that are less effective at managing the entire system of knowledge, competing under the same types of constraints.

FUTURE RESEARCH DIRECTIONS The preceding discussion and integrative model are intended to provide an initial conceptual foundation on which future related theoretical and empirical studies can be based. While entrepreneurs compete under numerous types of constraints beyond those covered here, our purpose is to build upon a systems-theoretic framework of knowledge flows and prompt new questions about the role of knowledge management in alleviating constraints and thereby improving the performance of entrepreneurial organizations. The constraints we focus on here represent core issues in discussions of liability of newness and smallness, and the intellectual property rights of new technology ventures. Investigation of how the model can be extended and applied using other types of constraints (e.g., cultural, legal, and technological) is a viable line of inquiry, and will have broad relevance to scholars, managers, and policy makers. Future research may also seek to determine which dimensions and subdimensions of knowledge flows (e.g., internally sourced, externally sourced, immediate vs. delayed) have a greater impact on each type of constraints, and thus deserve increased managerial attention depending on the stage of the process the firm is in. An important goal is to understand the factors that facilitate or impede the different knowledge flows that comprise each dimension, and to understand the underlying processes that drive the existence and magnitude of these factors in the organization. The transfer of organizational knowledge and memory out of the firm (which may be due to deliberate or unintentional spillovers, and/or the loss of knowledge due to knowledge attrition or organizational forgetting) is also an important avenue to explore using the model we present. Research on the mechanisms and contextual factors that affect the flow and content of knowledge-based resources within and across organizational boundaries – for example, organizational learning (Fiol & Lyles, 1985), social capital (Tsai & Ghoshal, 1998), and innovation networks (Dhanaraj & Parkhe, 2006) – can undoubtedly be extended in new directions by incorporating

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these important dimensional distinctions. And finally, the model we have described can also be integrated with prior knowledge models, for example, the enactment-selection-retention model of organizing (Weick, 1969), the dynamic spiral of organizational knowledge creation (Nonaka, 1994), the 4I dynamic process model of organizational learning (Crossan et al., 1999), and the process model of knowledge transfer offered by Szulanski (2000) to develop a more complete understanding of knowledge-based constraints under which entrepreneurs compete.

CONCLUSION How do entrepreneurs successfully compete under constraints? The literature resoundingly identifies effective knowledge management as a major contributing factor to successful entrepreneurship, but the ambiguous nature of knowledge and its flows have limited research to imprecise definitions and abstract theorizing. The challenge for advanced research is to develop a clearer picture of knowledge flows and their relationship to constraints in the entrepreneurial process. The framework described herein offers a new approach to holistically viewing the knowledge system of an organization, and by integrating its fine-grained conceptualization of knowledge flows with extant theories of entrepreneurial constraints, our model builds a solid foundation for future theory development, testing, and debate.

NOTE 1. Throughout the literature the terms ‘‘information’’ and ‘‘knowledge’’ are often used interchangeably, although some scholars have stressed the distinct nature of each. For purposes of discussion, we assume that when considered in a specific context, information possessed or able to be possessed by an individual is indeed knowledge. Therefore, we use the term ‘‘knowledge’’ throughout this chapter unless a specific distinction is appropriate.

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