Venture Creation And The Enterprising Individual A Review And Synthesis

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Journal of Management 2003 29(3) 379–399
Venture Creation and the Enterprising Individual:
A Review and Synthesis
Christopher L. Shook
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Department of Management, The University of Texas, P.O. Box 19467, Arlington, TX 76019, USA
Richard L. Priem
School of Business Administration, Management and Organizations Area, The University of
Wisconsin-Milwaukee, P.O. Box 742, Milwaukee, WI 53201, USA
Jeffrey E. McGee
Department of Management, The University of Texas, P.O. Box 19467, Arlington, TX 76019, USA
Venture creation is at the heart of entrepreneurship. Enterprising individuals or groups start
new ventures and, thus, we must understand the role of individuals if we are to understand
venture creation. In this article, we review and critique the venture creation literature that has
examined the role of the individual, with an eye toward identifying under-researched topics and
improving research designs. We then highlight individual judgment as a particularly important
future direction for research on the role of enterprising individuals in venture creation. We also
discuss techniques for accessing entrepreneurs and for evaluating entrepreneurial judgments.
© 2003 Elsevier Science Inc. All rights reserved.
Entrepreneurship is maturing as a discipline. Until quite recently, there were few estab-
lished disciplinary boundaries for entrepreneurship research. Instead, it was distinguished
from other research primarily by the context of investigation—i.e., a setting in small busi-
nesses or corporate venture initiatives (Venkatraman, 1997). Shane andVenkatraman(2000),
however, have proposed a domain de?nition that emphasizes key research questions rather
than research context. They de?ne the ?eld of entrepreneurship as the “scholarly exami-
nation of how, by whom, and with what effects opportunities to create future goods and
services are discovered, evaluated, and exploited” (2000: 218). This de?nition focuses on
entrepreneurial individuals interacting with their environment and, more speci?cally, on
their actions in discovering, evaluating and exploiting opportunities. Shane and Venkatra-
man have suggested a path for future research on entrepreneurship.
?
Corresponding author. Tel.: +1-817-272-3858; fax: +1-817-272-3122.
E-mail addresses: [email protected] (C.L. Shook), [email protected] (R.L. Priem), [email protected]
(J.E. McGee).
0149-2063/03/$ – see front matter © 2003 Elsevier Science Inc. All rights reserved.
doi:10.1016/S0149-2063(03)00016-3
380 C.L. Shook et al. / Journal of Management 2003 29(3) 379–399
Venture creation—i.e., planning, organizing, andestablishingneworganizations (Gartner,
1985)—has long been an important topic for entrepreneurship researchers (e.g., Cooper,
1970). Venture creation is so central to the entrepreneurship research domain that Gartner
stated provocatively, “Entrepreneurship is the creation of organizations. What differenti-
ates entrepreneurs from non-entrepreneurs is that entrepreneurs create organizations, while
non-entrepreneurs do not” (1988: 11—emphasis added). Thus, venture creation is clearly
a key issue in entrepreneurship. The venture creation phenomenon involves interaction
between the environment and individuals. Entrepreneurship, and, thus, venture creation
stands at the nexus of lucrative opportunities and enterprising individuals (Venkatraman,
1997).
The role of the individual in creating ventures has been approached over many years from
many different perspectives (Shane, 2000). We have learned that entrepreneurial thoughts
and behaviors are not stable characteristics that differentiate some people fromothers across
all situations (Shane & Venkatraman, 2000). Instead, developing an understanding of how
the individual interacts withdifferent environments maybe keytounderstanding“why, when
and how different modes of action are used to exploit entrepreneurial opportunities” (Shane
&Venkatraman, 2000: 218). In this article we summarize and critique extant research about
the role of individuals in entrepreneurship, and we suggest directions for future research
on venture creation by enterprising individuals. Our goal is to suggest at least one path for
answering questions of why, when and how individuals use different modes of action in
creating ventures.
An Organizing Model
New ventures are neither coerced into being nor random, passive byproducts of environ-
mental conditions. Instead, new ventures are the direct outcome of individuals’ intentions
and consequent actions (Bird, 1992). The creation of an organization is not instantaneous; it
is evolutionary (Gartner, 1985). It is a process of conceptualization and execution. Figure 1
presents an organizing framework that guides our discussion. This framework draws on
the work of Learned (1992), and Shane and Venkatraman (2000). Environmental context
is noticeably absent from our framework. This does not imply that the environment is not
important as a source of opportunities (Gartner, 1985; Kirzner, 1973), or that there is not
an interaction between environmental context and the individual (Shane & Venkatraman,
2000), instead, our focus is on the individual’s role in the formation of entrepreneurial in-
tent, opportunity search and discovery, the decision to exploit, and the activities involved
in exploitation until the ?rst sale. While some have included activities occurring after the
founding of an organization in the study of venture creation (e.g., Forbes, 1999), we believe
doing so could blur the line between the activities of venture creation and those of an on-
going business. Thus, our model considers a new venture “created” upon its ?rst sale (e.g.,
Gatewood, Shaver & Gartner, 1995).
Our model starts with entrepreneurial intentions. This construct represents an individual’s
intent to start a new business (Krueger, 1993; Krueger & Brazeal, 1994). Such intention
is a conscious state of mind that precedes action but directs attention toward the goal of
establishing a new business (Bird, 1988, 1992; Gartner, 1985; Learned, 1992). The process
C.L. Shook et al. / Journal of Management 2003 29(3) 379–399 381
Figure 1. Organizing model.
of venture creationbegins whenanindividual develops intent; the placement of this construct
?rst in the model is consistent with the notion that an individual’s intent to create a venture
precedes the search for and discovery of new venture opportunities (Krueger, 1993).
Once an entrepreneurial intention is formed, the search for and ultimate discovery of op-
portunities begins. The terms search and discovery may be somewhat misleading, because
382 C.L. Shook et al. / Journal of Management 2003 29(3) 379–399
the opportunity does not yet exist to be discovered; instead the entrepreneur has to imagine
or speculate about the likely market values of goods and services in the future (Kaish &
Gilad, 1991). Entrepreneurial opportunities are those situations in which new goods, ser-
vices, rawmaterials, and organizing methods can be introduced and sold for more than their
costs of production (Casson, 1982). These opportunities exist because individuals have dif-
ferent beliefs about the value of goods and services and their marginal cost of production
(Schumpeter, 1934). Researchers have proposed two reasons for these differences in be-
liefs among individuals. First, markets are composed of people who possess idiosyncratic
information, which leads individuals to assign different values to a given good or service
and to offer different prices to obtain it (Kirzner, 1973). Secondly, economies operate in a
constant state of disequilibrium; technological, political and social changes are constantly
changing resources’ values (Schumpeter, 1934).
Once an opportunity is discovered, a choice must be made whether or not to exploit the
opportunity (Shane & Venkatraman, 2000) and, if the choice is made to exploit it, another
decision involves how best to exploit it. There are two major institutional arrangements for
exploiting opportunities: (1) hierarchies—i.e., venture creation and (2) markets—i.e., the
sale of opportunities to existing ?rms (Shane & Venkatraman, 2000; Williamson, 1985).
Both venture creation and the sale of opportunities to existing ?rms are entrepreneurial
actions. Our focus, however, is on venture creation.
Once the decision to pursue a new venture is made, action must translate intent into
a new venture (Bird, 1988). The accumulation of proper resources is one key action. An
entrepreneur typically doesn’t initially control all the resources (e.g., location, facilities,
human resources, supplies) required to develop the market, to establish the value-chain
infrastructure, and eventually to pro?t from knowledge of the opportunity. Most of these
resources must come from other people and institutions (Venkatraman, 1997).
The last component of our organizing framework is the enterprising individual. Individ-
uals or groups of individuals create new ?rms. Clearly, new ventures cannot be created
without an individual or group of individuals. Early research examining enterprising in-
dividuals followed from neoclassical economics, which assumes perfect information and
markets that are in equilibrium (e.g., Kihlstrom & Laffont, 1979). The equilibrium frame-
work assumes that no individual could discover a misalignment that would generate an
entrepreneurial pro?t because, at any point in time, all opportunities have been recognized
and all transactions perfectly coordinated. Thus, neoclassical economic theories explain en-
trepreneurship by identifying those individuals who prefer to become entrepreneurs (Shane,
2000). Accordingly, work investigating the individual and entrepreneurship focused on psy-
chological variables that may distinguish entrepreneurs fromnon-entrepreneurs. Such work
examined personality factors such as: (1) need for achievement (e.g., McClelland, 1961;
McClelland & Winter, 1969); (2) locus of control (e.g., Brockhaus, 1980; Liles, 1974); and
(3) risk-taking propensity (e.g., Brockhaus, 1980; Liles, 1974).
This early work implicitly assumed that entrepreneurs possess unique personality char-
acteristics, and that these characteristics can be identi?ed (Romanelli, 1989). Another as-
sumption was that an entrepreneur is a “state of being” that doesn’t change (Gartner, 1988).
Accordingly, this earlyworkexaminedcharacteristics without linkingthemtoentrepreneurial
actions. The search for an entrepreneurial personality pro?le was largely unsuccessful, in
part because many of the investigated factors are common to successful individuals (Boyd &
C.L. Shook et al. / Journal of Management 2003 29(3) 379–399 383
Vozikis, 1994). Moreover, personality traits were not reliable predictors of future behavior
(Ajzen, 1987, 1988; Gartner, 1989). This literature has been reviewed by Gartner (1988),
and is not examined here.
Another aspect of the enterprising individual that has been studied is his or her demo-
graphic characteristics such as gender, age, education, and past experiences. Early work in
entrepreneurship also tried to establish a stable entrepreneurial pro?le along these individ-
ual characteristics, but again was largely unsuccessful (Cooper & Bruno, 1977; DeCarlo &
Lyons, 1979; Hornaday & Aboud, 1971; Roure & Maidique, 1986; Stuart & Abetti, 1990).
This early work also will not be reviewed this article. Instead, the scope of our review is
limited to individual characteristics as they pertain to venture creation.
Cognition is an important, yet understudied, aspect of the enterprising individual. In-
dividuals approach information processing in one of two dominant ways: “top-down” or
“theory-driven.” With top-down information processing, the current information guides the
information processing. In contrast, with theory-driven processing, previous experiences
in similar circumstances guide information processing (Walsh, 1995). Theory-driven infor-
mation processing is thought to be the dominant response in all but novel situations (Louis
& Sutton, 1991). In the following sections, we review and critique literature examining
entrepreneurs’ decisional roles in each step of venture creation.
Venture Creation Review and Critique
How does the individual impact the processes in venture creation? Individual differ-
ences (e.g., attitudes, predispositions, traits, skills and abilities, and cognitive differences)
in?uence the development of entrepreneurial intentions, opportunity search and discovery,
decision processes and subsequent action. In the following sections, we take each step in
the venture creation process and brie?y review the literature to synthesize what we know
about the individual’s role. We then offer a critique and suggestions for future research.
Entrepreneurs change their behaviors over time (e.g., information seeking—Kaish &
Gilad, 1991). Thus, the enterprising individual is likely changed by the experience of starting
a venture. Accordingly, although we have noted some studies that examined entrepreneurs
without linking the individual and entrepreneurial actions, the insights from such studies
are excluded from the following review.
1
Entrepreneurial Intent
Intention-basedmodels examine the intent, but not the timing, of venture creation(Krueger,
Reilly &Carsrud, 2000). It may be a relatively long or short time after intent develops before
a new venture opportunity is even identi?ed. Nonetheless, intention-based models contend
that venture creation must be preceded by the development of intentions to create a new
venture, and that by understanding intentions we can better predict venture creation.
Our understanding of the role of psychological variables in the development of en-
trepreneurial intentions has been guided primarily by three models: (1) Bird’s (1988)
model of implementing entrepreneurial ideas (IEI); (2) Shapero’s (1982) model of the
entrepreneurial event (SEE); and (3) Ajzen’s (1987) theory of planned behavior (TPB). In
384 C.L. Shook et al. / Journal of Management 2003 29(3) 379–399
Bird’s IEI model, personal and social contexts interact with rational and intuitive think-
ing during the formation of entrepreneurial intentions, which are de?ned as either venture
creation or creating new values for existing ventures. Social contexts are comprised of an
individual’s social, political, and economic context, and personal context is conceptualized
as an individual’s personal history, personality and abilities. New venture intentions can be
the result of either rational, analytic, and cause-and-effect thinking processes or intuitive,
holistic, and contextual thinking. With the passage of time, entrepreneurial intent results in
entrepreneurial actions.
Bird’s (1988) IEI model has yet to be validated empirically. Nonetheless, Boyd and
Vozikis (1994) modi?ed the model to include the effects of self-ef?cacy, which they the-
orized to be in?uenced by previous career experiences, entrepreneurial role models and
social support. In turn, entrepreneurial self-ef?cacy in?uences the development of en-
trepreneurial intentions and moderates the relationship between entrepreneurial intentions
and entrepreneurial behaviors.
In the SEE model (Shapero, 1982), entrepreneurial intentions are derived from percep-
tions of feasibility and desirability, and a propensity to act upon opportunities. In this model,
inertia is assumed to guide human behavior until something (e.g., job loss, receiving an in-
heritance) occurs to interrupt the inertia. The interruption causes the decision maker to
seek the best opportunity available and to evaluate opportunities based on their feasibil-
ity and desirability. In addition to perceptions of feasibility and desirability, intentions are
in?uenced by an individual’s propensity to act. Shapero (1982) de?ned perceived desir-
ability as the attractiveness (both intra-personal and extra-personal) of starting a business,
and perceived feasibility as the degree to which an individual feels capable of starting a
business. He conceptualized propensity to act as the personal disposition to act on one’s
decisions.
Empirical evidence generally has supported the SEE model. Krueger (1993), for exam-
ple, found that perceived feasibility and desirability, and the propensity to act, explained
over half of the variance in intentions toward entrepreneurship, with feasibility perceptions
explaining most of the variance. Subsequently, Krueger and Brazeal (1994) used the SEE
model as a basis to develop a model of entrepreneurial potential. They suggest that per-
ceived desirability and feasibility affect credibility in entrepreneurship. In turn, credibility
and propensity to act determine entrepreneurial potential. Entrepreneurial potential does
not result in entrepreneurial intentions until a precipitating event triggers the intentions.
Ajzen’s TPB has received recent empirical attention. Whereas the SEE was developed
speci?cally to explain the impact of intentions on venture creation, the TPB was developed
to explain individual behavior in general, and was subsequently adapted by entrepreneurship
scholars. The TPB identi?es three attitudinal antecedents of intention: (1) attitude toward
the act; (2) subjective norms; and (3) perceived feasibility. Attitude toward the act re?ects
the individual’s assessment of the personal desirability of creating a newventure. Subjective
norms re?ect an individual’s perceptions of what important people in an individual’s life
think about venture creation. Finally, perceived feasibility re?ects the individual’s percep-
tion of his or her ability to successfully initiate a new venture, which is largely synonymous
with entrepreneurial self-ef?cacy (Boyd & Vozikis, 1994). Empirical testing has supported
this model. Kolvereid (1996b), for example, found that attitude toward the act, favorable
social norms, and entrepreneurial self-ef?cacy positively in?uenced the intention to be
C.L. Shook et al. / Journal of Management 2003 29(3) 379–399 385
self-employed. Moreover, Krueger et al. (2000) tested both the TPB and SEE, and found
support for both models.
Several other, less theoretically integrated constructs have also been employed to pre-
dict entrepreneurial intent. Individual motives, for example, have received some attention.
Herron and Sapienza (1992) theorized that individual motivation is an important determi-
nant of venture creation, and that motivation is affected by individual values and traits.
They suggested that the desire for autonomy interacts with skills to initiate search behavior.
Security, workload, and autonomy are the most important drivers for those intending to be
self-employed (Kolvereid, 1996a).
Demographic characteristics may relate indirectly to entrepreneurial intentions. Having
a successful entrepreneurial parent is associated with entrepreneurial intent (Crant, 1996),
likely because it leads to a higher entrepreneurial self-ef?cacy (Scherer, Adams, Carley &
Wiebe, 1989). Kolvereid (1996b) found that demographic characteristics in?uence employ-
ment status choice indirectly, through the effects of those characteristics on attitudes, norms
and self-ef?cacy. Crant (1996) found that males are more likely to have entrepreneurial
intent.
Finally, the role of individual cognition in forming entrepreneurial intent has received
limited attention. Busenitz and Lau (1996) proposed that cognitions precede entrepreneurial
start-up intentions and that entrepreneurs and non-entrepreneurs have different schemas
regarding venture creation. They also theorized that entrepreneurs make greater use of biases
and heuristics, which allows for quicker information processing, and that cultural values,
socio-economic factors and personal variables are related to entrepreneurial cognitions.
In summary, the bulk of empirical work on entrepreneurial intentions has focused on
individual perceptions of feasibility, desirability and social support as determinants of en-
trepreneurial intentions. Entrepreneurial self-ef?cacy is widely regarded as a moderator
of the relationship between individual perceptions and the development of entrepreneurial
intent. Demographic characteristics appear to in?uence perceptions of feasibility, desirabil-
ity and social support, and entrepreneurial self-ef?cacy. Recently, the role of individual
cognition has received theoretical attention, but empirical work has yet to be done.
Critique and future directions. Research on entrepreneurial intent has suffered from
both methodological and theoretical limitations. First, extant empirical research has relied
generally on student samples and cross-sectional data. As a result, both generalizability and
validity remain less than desirable. Future research should establish the generalizability
of the ?ndings to actual creators of new ventures by studying new venture creators rather
than students. Because the majority of the empirical literature on entrepreneurial intent
has used cross-sectional data, future researchers must obtain longitudinal data to establish
causal order (Gartner, Shaver, Gatewood & Katz, 1994). Entrepreneurial intentions have
not been empirically linked to opportunity search or to subsequent venture creation; thus,
this research stream’s validity remains untested.
Although not unique to this step of the venture creation process, the majority of the
studies reviewed here were gathered using surveys. While surveys are a valuable tool in
the entrepreneurship researcher’s toolbox, it appears that entrepreneurship researchers may
be relying too much on this method of gathering data, possibly to the detriment of knowledge
accumulation. Being involved in venture creation changes people (Gartner, 1989). Thus, the
386 C.L. Shook et al. / Journal of Management 2003 29(3) 379–399
retrospective accounts provided by surveys may differ from “during the process” accounts.
We encourage the use of more simulations, scenarios and laboratory experiments. Given that
?eld research methods have different strengths and weaknesses (Snow & Thomas, 1994),
we encourage entrepreneurship researchers to triangulate their ?ndings with multimethod
studies.
With regard to theoretical limitations, the entrepreneurial intent literature has not resulted
in cumulative knowledge because the various perspectives have been pursued in isolation
from the other perspectives. Scienti?c progress is made when the number of alternative
explanations is reduced (Kuhn, 1962). Future work on entrepreneurial intentions should
attempt to integrate and reduce the number of alternative intention models. Krueger et al.
(2000) took an important ?rst step in consolidating the theories of intention by testing both
the TPB and SEE models, but, unfortunately, they did not integrate the two models.
Another issue is the inconsistent de?nition of entrepreneurial intent across studies. In
some studies, entrepreneurial intent was de?ned as intent to own one’s own business (Crant,
1996; Kolvereid, 1996a, 1996b), while in other studies, entrepreneurial intent was de?ned as
intent to start a business (Bird, 1992; Krueger et al., 2000; Scherer et al., 1989). Other studies
never clearly de?ned what they meant by entrepreneurial intent, but instead hinted at their
conceptualization by citing previous works (e.g., Boyd &Vozikis, 1994; Krueger &Brazeal,
1994). The intent to own one’s own business is clearly a more encompassing concept than
just the intention to create a new venture. Indeed, one can purchase an ongoing concern and
still own one’s own business. Given that purchasing an ongoing concern may involve less
risk than creating a new venture, our subsequent understanding of the individual’s role in
either venture creation or existing business purchase is blurred when entrepreneurial intent
is not clearly de?ned.
One approach to disentangling the intent of those who wish to purchase an existing
business vs. those whowishtostart a newventure wouldbe touse causal mappingtechniques
to identify consistent differences in attitudes across the two groups. Markóczy’s (1997)
study of managers’ attitudes is one example of how this might be done. She performed a
multistep study that evaluated the causal beliefs of 91 international managers in Hungary.
She ?rst identi?ed 49 constructs important to success in Hungary by interviewing a separate
sample of 30 Hungarian managers. The 91 participating managers then, via a grouping
technique, individually selected the 10 constructs that they believed were most important
to the performance of their ?rms. Each manager then developed a cause map by a pair-wise
comparison process wherein a causal direction was identi?ed for each construct pair. The
resulting causal maps were then compared across managers through a distance algorithm
to identify “like-thinking” managers (i.e., managers whose judgments of “how the world
works” were similar). Asimilar study of potential entrepreneurs could, for example, identify
cause maps that favor new ventures vs. existing business purchase, and vice versa, and
subsequently test for cause map differences for those who actually implement their plans
vs. those who do not.
Opportunity Search and Discovery
The role of the entrepreneurial individual in opportunity search and discovery is contro-
versial. On one hand, the intentions models posit that entrepreneurs intend to be
C.L. Shook et al. / Journal of Management 2003 29(3) 379–399 387
entrepreneurs before theylocate opportunities (Krueger, 1993). Thus, potential entrepreneurs
must search for and discover opportunities. Indeed, opportunities are seized by those pre-
pared to seize them (Krueger & Brazeal, 1994). On the other hand, Austrian economists
assume that markets are composed of people who possess different information (Hayek,
1945). The possession of this idiosyncratic information may allow some people, even if
they are not actively searching for opportunities, to see particular opportunities others can-
not see. This discovery of opportunities without actively searching for them is an integral
part of the Austrian framework, because it explains why entrepreneurship is not solely a
function of differences in human abilities or willingness to take action (Kirzner, 1997).
According to the Austrian perspective, it is information about opportunities, rather than
fundamental attributes of people, that determines who becomes an entrepreneur (Shane,
2000).
There is relatively little extant research on opportunity search and discovery. Both the
opportunity search and opportunity discovery perspectives, however, have received empir-
ical attention. First, individuals’ alertness to new opportunities and their past experiences
have been studied as predictors of opportunity search. Kaish and Gilad (1991), for example,
found that managers and entrepreneurs search for opportunities differently. In comparison
to managers, entrepreneurs exhibit more general alertness and read and introspect more.
Over time, however, entrepreneurs search less for information. Busenitz (1996) replicated
the ?nding that entrepreneurs spend more non-business time searching for opportunities
and ideas than do managers.
Second, Shane (2000) applied insights from the Austrian framework to eight case studies
of technology-oriented newventures fromthe discovery perspective. He found that individ-
uals can and do discover entrepreneurial opportunities without searching for them, and that
all individuals are not equally likely to recognize a given opportunity. Shane also found ev-
idence of theory-driven information processing (Walsh, 1995). More speci?cally, he found
that an individual’s prior knowledge about: (1) markets in?uences his or her discovery of
which markets to enter to exploit a new technology; (2) how to serve markets in?uences an
individual’s discovery of how to use a new technology to serve a market; and (3) customer
problems will in?uence an individual’s discovery of products and services to exploit a new
technology.
Critique and future directions. Despite its obvious importance and some promising ?nd-
ings, relatively little theoretical or empirical work has examined either opportunity search
or discovery in venture creation. Thus, this area of study has considerable promise for future
research. There appears to be an important research opportunity in reconciling the disparate
views regarding opportunity search and discovery. Whereas some view opportunity search
as a natural activity of entrepreneurs (e.g., Busenitz, 1996; Kaish & Gilad, 1991), others
follow the Austrian school of economics in viewing search as unnecessary (e.g., Shane,
2000). Future research should examine the conditions in which potential entrepreneurs ac-
tively search for opportunities vs. the conditions where potential entrepreneurs discover
opportunities without an active search. Shane’s case studies all involved new technology.
This may be a clue to a theoretical boundary on opportunity discovery without search, but
there may be other important contextual factors as well. Future research is necessary to test
the generalizability of Shane’s ?ndings to other settings.
388 C.L. Shook et al. / Journal of Management 2003 29(3) 379–399
Psychological variables and individual characteristics are generally absent from our un-
derstanding of opportunity search and discovery. The dialogue to date appears to have
ignored subjects such as previous training, education, and abilities. Indeed, although educa-
tion has been found to increase entrepreneurial intentions (Clark, Davis & Harnisch, 1984;
Crant, 1996), and presumably opportunity search, the effects of speci?c, entrepreneurial
education warrant detailed examination.
Managerial cognitions research on information processing and sense-making suggests
a number of directions for future research on venture creation. Managerial information
processing research examines howorganization members—including top managers—scan,
interpret and extract meanings from the environment (Meindl, Stubbart & Porac 1996;
Thomas, Gioia & Ketchen, 1997). Studies from this perspective have included themes such
as biases affecting decision-making (Busenitz & Barney, 1997; Tversky & Kahnemann,
1974); information processing (Daft & Weick, 1984; Milliken, 1990); strategic issue di-
agnosis (Dutton, Fahey & Narayanan, 1983; Dutton & Jackson, 1987); and the mental
structures of managers and causal mapping (Barr, Stimpert & Huff, 1992; Huff, 1990).
Each of these example studies asked questions and used techniques that could be help-
ful in evaluating the questions of whether potential entrepreneurs actively search for op-
portunities, or whether anyone can become an entrepreneur if presented with the right
opportunity.
The Decision to Exploit by Venture Creation
Research on the decision to exploit an entrepreneurial opportunity through venture cre-
ation has emphasized individuals’ psychological attributes and cognitive processes. In this
section, our attention ?rst is focused on psychological attributes, and then on cognitive
processes.
The psychological attributes that have been examined as possible in?uences on the de-
cision to exploit an entrepreneurial opportunity include: (1) risk propensity, (2) motives,
and (3) attitudes. The ?ndings on risk preferences of entrepreneurs have been inconsistent.
BegleyandBoyd(1987) determinedthat organizationfounders exhibit a stronger risk-taking
propensity, as well as a higher tolerance for ambiguity, than do non-entrepreneurial indi-
viduals. In contrast, Forlani and Mullins (2000) found that entrepreneurs tend to choose
ventures with low degrees of variability, but are more willing to accept downside risk.
Simon, Houghton and Aquino (1999), on the other hand, found that enterprising individu-
als start ventures not because they knowingly accept high levels of risk, but because they
do not accurately perceive the risk involved in venture creations. Thus, individuals who
decide to exploit opportunities may possess cognitive biases, but overall the results of risk
preferences research are equivocal.
Only two studies have examined the role of motives in the decision to create a newventure.
Shane, Kolvereid and Westhead (1991) examined the motives of new venture initiators
across three countries and found that motivations differed by country. Entrepreneurs from
New Zealand and Britain were motivated by the status and prestige associated with venture
creation. In contrast, Norwegians were motivated by a desire to develop an idea and continue
learning. Zapalska (1997) examined venture creation motives across gender, and found
similar motivations for male and female entrepreneurs in Poland.
C.L. Shook et al. / Journal of Management 2003 29(3) 379–399 389
Attitudes also have received empirical attention. Robinson, Stimpson, Huefner and Hunt
(1991) developed an attitudinal approach to predicting venture creation. They learned that
attitudes regarding: the desirability of innovation in business, perceived personal control
over business outcomes, and perceived self-esteem in business (i.e., self-con?dence and
perceived competency) distinguish those who have created a new venture from those who
have not. Optimism is another attitude that has received attention. Entrepreneurs perceive
that their prospects are better than other similar businesses, even though they have no
apparent objective reasons for such optimism (Cooper, Woo & Dunkelberg, 1988).
Research on cognitive processes in the decision to exploit opportunities through venture
creation has focused on the decision process in general or on speci?c biases of the deci-
sion maker. We ?rst direct our attention toward the decision process research. Data-driven
information processing is used only in novel decision situations (Louis & Sutton, 1991;
Walsh, 1995). Moreover, the decision to create a new venture is a novel situation for most
individuals. Thus, enterprising individuals use a data-driven decision-making process in
decisions to exploit opportunities. Learned (1992), for example, theorized that the decision
to create a new venture is triggered by the accumulation of con?rming or discon?rming
evidence. Cooper, Folta and Woo’s (1995) ?ndings also are consistent with data-driven
decision-making processes. They found that inexperienced entrepreneurs search more in-
tensively for information than do experienced entrepreneurs, and search more intensively
when in unfamiliar domains than when in familiar domains. In contrast, more recent re-
search has focused on a theory-driven decision-making approach. Minniti and Bygrave
(1999) theorized that entrepreneurs draw heavily on their past experiences. More speci?-
cally, they argued that entrepreneurs either branch out in markets closely related to ones in
which they already operate or start ventures in different markets, but in either case they use
existing knowledge (i.e., theory) of a speci?c market or existing knowledge of how to be
entrepreneurial.
Other researchers have focused on the speci?c biases that entrepreneurs exhibit in their
decision-making. Baron (1998) theorized that entrepreneurs think differently than non-
entrepreneurs because of their unique context. As a result of the unique context, Baron
(1998) posited that entrepreneurs are more likely to: engage in counterfactual thinking;
experience greater regret over missed opportunities; be impacted by affect infusion; and be
prone to attribution biases, the planning fallacy, and escalation of commitment. Subsequent
empirical testing, however, found that entrepreneurs engage in counterfactual thinking less
and experience less regret than non-entrepreneurs (Baron, 2000). Other biases exhibited
by entrepreneurs include the belief in the law of small numbers and the illusion of control
(Simon et al., 1999).
Critique and future direction. Despite receiving signi?cant attention, much remains to
be learned about the role of the enterprising individual in the decision to exploit opportunity
by venture creation. Although decision-making processes and speci?c biases have received
attention, research on entrepreneurial schemas (i.e., knowledge structures) is sparse. En-
trepreneurial schemas are the cognitive structures, generated from past experiences, that
individuals use to interpret new information (Walsh, 1995). Extant research has hinted at
the impact of past experiences (e.g., Krueger, 1993; Shane, 2000), but has not explicitly tied
them to entrepreneurial schemas. An extension of this research would be to ascertain when
390 C.L. Shook et al. / Journal of Management 2003 29(3) 379–399
entrepreneurial schemas accurately mirror the information environment. Researchers need
to understand how entrepreneurial knowledge structures develop, so that they can guide
training or remedial change efforts if the use of a particular knowledge structure is found
to promote either bene?cial or deleterious consequences (Walsh, 1995). Finally, feedback
loops between entrepreneurial outcomes and subsequent knowledge structures should be
studied. Minniti and Bygrave (2001) have provided a good start by modeling the impact of
entrepreneurial outcomes on learning. However, empirical work and further development
of the research topic is needed.
Priem and Rosenstein (2000) conducted a study that may be a useful exemplar for future
studies examining the opportunity exploitation decision. Their study linked CEO-perceived
relationships between strategy–structure–environment “?t” and ?rm performance. This
study built upon a previous study (Priem, 1994) that had found associations between 33
manufacturing ?rm CEOs’ strategy–structure–environment “?t” judgment policies, their
?rms’ realized ?t, and their ?rms’ performance. Priem and Rosenstein compared the judg-
ment policies of those 33 CEOs to the judgment policies of graduating MBAs, to the
judgment policies of a liberal arts graduate students (i.e., educated “lay persons”), and to
the prescriptions of business level contingency theory (e.g., Miller, 1987).
The Priemand Rosenstein study found that the judgment policies of the graduating MBAs
most closely followed the prescriptions of business level contingency theory. The judgment
policies of the practicing CEOs and the liberal arts graduate students were much less consis-
tent with the prescribed contingencies than were those of the graduating MBAs. Thus, Priem
and Rosenstein (2000) showed that the prescriptions of at least one well-known organiza-
tion theory are not already “obvious” to, or widely known by, practicing CEOs. Clearly,
similar studies could evaluate those factors and ?t relationships associated with venture
opportunities selected for exploitation by successful entrepreneurs vs. those common to
opportunities that are ultimately unsuccessful.
Opportunity Exploitation Activities
Most work on the activities involved in venture creation has centered on the activities
themselves (e.g., planning, networking, selling, ?nding resources), rather than on the role
of the individual in carrying out the activities (e.g., Cooper, 1993; Duchesneau & Gartner,
1992; Van de Ven, Hudson & Schroeder, 1984; Vesper, 1990). One exception is a study
by Gatewood et al. (1995). They found an interaction between gender and motivation for
starting a business on the performance of opportunity exploitation activities. Women with
stable internal attributions for starting their own business were more likely to persist in
venture creation activities. In contrast, men with stable external attributions were more
likely to persist in venture creation activities. Gatewood et al. (1995) also examined the
impact of locus of control (personal ef?cacy), but found no relationship between locus of
control and opportunity exploitation activities.
Critique and future directions. Perhaps the most under-researched aspect of the indi-
vidual and venture creation is exploitation activities. We know very little about the role of
the individual in acquiring resources and organizing the company. For example, how do an
individual’s characteristics (e.g., gender, age, education) affect acquisition of resources?
C.L. Shook et al. / Journal of Management 2003 29(3) 379–399 391
Another research opportunity regarding the decision to exploit opportunities by venture
creation is to examine the role of individual factors on choice between markets and hier-
archies. More speci?cally, do individual factors help to explain why individuals choose to
create a new venture instead of selling the innovation to an existing organization? This is
why linking enterprising individuals’ judgment differences, through organization design
outcomes (i.e., exploitation activities), to new venture performance (e.g., Markóczy, 1997;
Melone, 1994; Priem, 1994) may be especially worthwhile. Applied work in entrepreneurs’
new venture cognitions must emphasize individual differences for maximum usefulness to
building researchers’ understanding of venture-creating individuals. Stimpert (1999) has
insisted, for example, that the worthwhile questions in cognitive research relate to “how
cognitive tools will allow managers to analyze and alter their beliefs to improve real time
strategy-making efforts” (p. 362). We agree, and believe that the same comment applies
equally well to cognitive research on enterprising individuals. Perhaps a good ?rst step
simply would be more effort toward directly measuring the causal beliefs of enterprising
individuals who are actively contemplating venture creation.
Alternative or hybrid methods of opportunity exploitation also should be examined.
Extant research has considered markets and hierarchies as the primary mechanisms for
exploiting opportunities (Shane & Venkatraman, 2000). However, alternative mechanisms
such as venture acquisition and subsequent transformation may exist. As a way to reduce the
perceived risks involved in creating a venture, an entrepreneur might intentionally acquire
an existing business to transform the business to exploit a new opportunity. Hence, the role
of the individual and this alternative method of opportunity exploitation could be a fruitful
avenue for future research.
2
More Future Directions
Although there is much to be learned about the individual and venture creation within
the context of the United States, future research also should examine the generalizability of
?ndings to other countries. McGrath and MacMillan (1992) demonstrated that entrepreneurs
across countries with Anglo, Nordic and Chinese cultures varied signi?cantly on their psy-
chological characteristics (e.g., beliefs, values, attitudes). It is also likely that demographics
(e.g., education, past experiences, abilities) and cognitions (i.e., content and process) vary
among cultural contexts. Hence, enterprising individuals may be impacted differently by
their national context. Indeed, we believe that a country’s cultural context may impact all
four “steps” of the venture creation process (i.e., entrepreneurial intent, opportunity search
and discovery, the decision to exploit by new venture creation, and opportunity exploitation
activities). Busenitz and Lau (1996) developed a theoretical model that relates social con-
ditions, cultural values, and personal variables to individual cognitions and entrepreneurial
intent. Astudy by Vincent (1996) hints at the explanatory power of culture on the decision to
exploit an opportunity by venture creation. It shows that Mexican-American entrepreneurs’
decision-making policies may differ fromthose of entrepreneurs in general (Vincent, 1996).
Thus, cross-cultural research may show that insights gained solely from American samples
may not be applicable to venture creation in other countries. Incorporating the cultural
contexts as they relate to psychological characteristics (e.g., beliefs, values, and needs),
392 C.L. Shook et al. / Journal of Management 2003 29(3) 379–399
demographic characteristics (e.g., education, past experiences), and cognition (i.e., content
and process) appears to be a fruitful avenue for future research.
We would like to see more integration between the psychological, individual characteris-
tics and cognitions of the enterprising individual. For example, although studies may have
explored both psychological and individual characteristics within the same study, there has
not been an attempt to describe how individual characteristics (e.g., education) may in-
?uence individual entrepreneurial cognitions. We suspect that individual cognitions may
intervene in the relationships of psychological variables to venture creation processes, and
of individual characteristics to the venture creation process.
Finally, we encourage entrepreneurship researchers to explore the role of individuals’
judgments in venture creation. The role of judgment in new venture decisions has been
examined from the perspective of venture capitalists (Hisrich & Jankowicz, 1990). The
role of judgment has not been examined, however, from the perspective of the individual
who is most directly engaged in new venture decision-making: the entrepreneur. Yet, sound
entrepreneurial judgment is required in each phase of venture creation process. Therefore,
we identify in the next section aspects of entrepreneurial judgments in venture creation, and
review some techniques for examining such individual judgments.
Analyzing Individuals’ Venture Creation Judgments
Priem and Cycyota de?ne strategic judgment as: “the ability to identify, perceive, and
attend to [important] variables, to form objective opinions about the present quantities (or
levels) of the variables, to identify the likely form and strength of simple bivariate rela-
tionships that may exist among these variables, and to estimate the effects that multivariate
contingencies (i.e., con?gurations) of these variables would likely have on performance in
the context of a particular ?rm (i.e., a speci?c though uncertain view of ‘how the world
works’)” (Priem & Cycyota, 2001: 494). Potential entrepreneurs considering venture cre-
ation must make similar judgments (i.e., of which factors are important, their levels, causal
relationships, and so on) in each phase of the venture creation process. Moreover, their
perceptions and cognitive schemas may in?uence both: whether or not they pursue a new
venture; and whether or not that new venture is ultimately successful. Thus, examining
judgments made during the venture creation process may help us to understand key issues
associated with starting and succeeding in a new venture.
The literature in management on quantitative approaches to studying individuals’ judg-
ments is growing rapidly. Priemand Harrison (1994), for example, described decomposition
methods and composition methods for analyzing strategic judgments. Decomposition meth-
ods focus on an individual’s choices in responding to a series of decision scenarios (i.e.,
behavioral simulations). The variance in the individual’s choices is evaluated against the
factors of interest in the study, which are manipulated across scenarios, using the error
theory of analysis of variance. Decomposition methods include axiomatic conjoint analy-
sis, non-metric conjoint analysis, metric conjoint analysis, and policy capturing. For these
methods, an individual’s judgment policy (or “rule for decision”) is determined by “backing
it out” from a series of decision scenarios.
Composition methods, on the other hand, focus on the process an individual goes through
in forming a judgment. In these methods, the individual is presented with a behavioral
C.L. Shook et al. / Journal of Management 2003 29(3) 379–399 393
scenario, and her thinking is tracked (via her verbalizations, actions, or self-reports) as she
moves toward a decision concerning that scenario. Composition methods include verbal pro-
tocol analysis, information search, and cause mapping. For these methods, an individual’s
judgment process is determined by “following along” while the judgment is being made.
Other management scholars have suggestedstill more approaches for studyingmanagerial
judgments. Markóczy and Goldberg (1995), for example, presented a conjoint-based tech-
nique for eliciting executives’ beliefs. Gist, Hopper and Daniels (1998) suggested steps for
designing simulations, and criteria for effective use of simulation techniques. Mohammed,
Klimoski and Rentsch (2000) evaluated four additional techniques for measuring team
mental models—path?nder, multidimensional scaling, interactively elicited cognitive map-
ping, and text-based cognitive mapping—some of which could be applied to enterprising
individuals.
Thus, established quantitative techniques are available for the applied study of individual
judgment and, more speci?cally, for the study of judgments associated with venture creation.
Moreover, some type of judgment is involved in each phase of the venture creation process:
in developing entrepreneurial intent, in opportunity search and discovery, in the decision
to exploit an opportunity, and in the activities required for exploitation (i.e., actual venture
creation).
Accessing Entrepreneurs
There is one important caveat concerning the study of entrepreneurial judgment. En-
trepreneurs clearly are the most knowledgeable sources of information about their own
venture creation intentions and activities; student samples are insuf?cient and inappropriate
proxies. We believe that primary data, gathered via direct contacts with entrepreneurs, are
far preferable for determining the cognitive processes of enterprising individuals.
Organizational researchers clearlyface obstacles, however, whencontemplatingthe direct
study of entrepreneurs. One is access. Like top executives, entrepreneurs are often assumed
to be dif?cult to access due to the demands on their time (Mintzberg, 1973) or reluctance
to discuss proprietary operating strategies (D’Aveni, 1995).
Researchers have suggested ways to overcome barriers to access to top executives,
and many of these may also be useful for accessing entrepreneurs. They include: contact
through industry, trade, or professional groups; university contact with visiting professors
and alumnae (Thomas, 1993); and personal and professional contacts (Hirsch, 1995). Some
researchers have found the salience of the research topic, particularly when framed to appeal
to “hot topics” relevant to the executive, to be especially useful in gaining access (Heberlein
& Baumgartner, 1978; Yeager & Kram, 1990). The same is likely true for entrepreneurs.
Anthropology researchers have provided considerable insight and “how to” information on
the study of “elite” groups such as entrepreneurs (Hertz & Imber, 1995). For venture cre-
ation entrepreneurs speci?cally, Service Corps of Retired Executives (SCORE) workshops
or newventure “expos” may be good sources for locating individuals who are contemplating
venture creation.
Our experience is that a salient topic, an introductory letter promising results that will
show how the entrepreneur’s venture compares to similar ventures on the particular topic,
phone calls several days later to schedule a short meeting, aggressive follow-up phone calls,
394 C.L. Shook et al. / Journal of Management 2003 29(3) 379–399
a second letter to non-respondents, and a willingness to meet “anywhere, anytime,” combine
to produce success. Response rates between 30 percent and 40 percent are achievable.
Conclusion
Our review has demonstrated that important research has been done over the last two
decades on the role of the individual in venture creation. Still, this research has been fo-
cused on certain samples and methods, while inadvertently neglecting others. We have
offered a friendly critique, and have provided some suggestions for future research on
venture-creating individuals that we hope will expand the variety of research approaches in
this area. Table 1 serves as a summary of our ideas.
Clearly, the enterprising individual is a critical component of venture creation. Thus,
understanding the effects of individuals’ psychological characteristics, demographic char-
Table 1
Summary of suggestions for future research
Step Suggestion
Entrepreneurial intent • Study venture creators rather than students.
• Use longitudinal samples to empirically link intentions to opportunty search and
subsequent venture creation.
• Integrate and reduce the number of alternative intention models.
• Utilize a consistent de?nition of entrepeneurial intent.
• Utilize causal mapping techniques to: (1) identify differences between those
desiring to create a venture and those desiring to purchase an existing business
and (2) identify those who implement their plans and those who don’t.
Opportunity search and
discovery
• Reconcile disparate views regarding opportunity search and discovery by
investigating theoretical boundaries of opportunity discovery.
• Incroporate psychological variables and individual characteristics as in?uences
on opportunity search and discovery.
• Apply managerial cognition research on information processing and
sense-making to the investigation of opportunity search and discovery.
Decision to exploit by
new venture creation
• Investigate the development and impact of entrepreneurial schemas on the
decision to create new ventures.
• Investigate feedback loops between entrepeneurial outcomes and subsequent
entrepreneurial schemas.
• Examine judgment policies of successful and unsuccessful entrepreneurs.
Opportunity exploitation
activities
• Examine in?uence of individual characteristics on resource acquisition and other
exploitation activities.
• Examine role of individual factors in choice between markets and hierarchies.
• Link individual judgment differences through exploitation activities to new
venture performance.
• Explore altenative or hybrid methods of opportunity exploitation.
All steps • Use simulations, scenarios and laboratory experiments.
• Examine cultural in?uences on individuals and venture creation.
• Integrate psychological, individual characteristics and cognitions.
C.L. Shook et al. / Journal of Management 2003 29(3) 379–399 395
acteristics and, especially, their causal beliefs is key to furthering our understanding of
venture creation. Although much has been learned, much remains to be learned. New study
designs and methods, and particularly those related to individual judgments, are critical to
future success. The importance of the topic is well worth the effort.
Notes
1. For example, Allinson, Chell and Hayes (2000) found that Scottish entrepreneurs are
more intuitive than managers in general, but equally intuitive to upper managers. We
eschewconsideration of those insights, however, because that study did not specify the
situations under which entrepreneurs were expected to be more intuitive. The conun-
drum of how to apply the results of Allinson et al. (2000) to the new venture situation
is exacerbated by the fact that their sample of entrepreneurs had been in business for
an average of 8.7 years. Thus, the applicability of the insights from the Allinson et al.
sample to venture creation or entrepreneurship is questionable. We agree with Gartner
(1988), who encouraged entrepreneurship researchers to ensure that their samples re-
?ect their theory and major constructs. He also cautioned that the characteristics of
the sample might say more about the researcher’s idea of entrepreneurship than any
a priori de?nition (Gartner, 1989). Thus, we encourage researchers to be extremely
cautious and explicit about their de?nition of entrepreneurs and the step of venture
creation they are examining in future research.
2. We wish to thank an anonymous reviewer for this insight.
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Christopher L. Shook is an Assistant Professor at the University of Texas at Arlington. He
received his Ph.D. in strategic management from Louisiana State University. His research
interests include research methods in strategic management, the reciprocal relationship of
C.L. Shook et al. / Journal of Management 2003 29(3) 379–399 399
strategy and performance, and decision-making processes in the context of small and en-
trepreneurial businesses.
Richard L. Priem is the Robert L. and Sally S. Manegold Professor of Management and
Strategic Planning at the University of Wisconsin-Milwaukee. He received his Ph.D. in
strategic management fromthe University of Texas at Arlington. He was a Fulbright Scholar
at the University College of Belize (Central America), and has been a visiting professor at
the Hong Kong University of Science and Technology, the Hong Kong Polytechnic Uni-
versity, and Groupe ESCEM-Tours, France. His research interests include chief executive
decision-making and top management team processes.
Jeffrey E. McGee is an Associate Professor and the Chair of the Management Depart-
ment of the University of Texas at Arlington. He teaches courses in strategic management,
entrepreneurship, and small business management. His research interests include new busi-
ness development and the strategic management of small businesses. Dr. McGee holds a
Ph.D. in strategic management and entrepreneurship from the University of Georgia. His
work has been published in Management Science, Journal of Business Venturing, Strategic
Management Journal, Entrepreneurship: Theory and Practice, Journal of Small Business
Management, Journal of Applied Business Research, Journal of Small Business Strategy,
and Journal of Business & Entrepreneurship.

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