THE PROMISE OF ENTREPRENEURSHIP AS A
FIELD OF RESEARCH
SCOTT SHANE
University of Maryland
S. VENKATARAMAN
University of Virginia
To date, the phenomenon of entrepreneurship has lacked a conceptual framework. In
this note we draw upon previous research conducted in the different social science
disciplines and applied fields of business to create a conceptual framework for the
field. With this framework we explain a set of empirical phenomena and predict a set
of outcomes not explained or predicted by conceptual frameworks already in existence
in other fields.
For a field of social science to have usefulness,
it must have a conceptual framework that
explains and predicts a set of empirical phenomena
not explained or predicted by conceptual
frameworks already in existence in other
fields. To date, the phenomenon of entrepreneurship
has lacked such a conceptual framework.
Rather than explaining and predicting a
unique set of empirical phenomena, entrepreneurship
has become a broad label under which
a hodgepodge of research is housed. What appears
to constitute entrepreneurship research
today is some aspect of the setting (e.g., small
businesses or new firms), rather than a unique
conceptual domain. As a result, many people
have had trouble identifying the distinctive contribution
of the field to the broader domain of
business studies, undermining the field's legitimacy.
Researchers in other fields ask why entrepreneurship
research is necessary if it does
not explain or predict empirical phenomena beyond
what is known from work in other fields.
Moreover, the lack of a conceptual framework
has precluded the development of an understanding
of many important phenomena not adequately
explained by other fields.
One example of this problem is the focus in
the entrepreneurship literature on the relative
performance of individuals or firms in the context
of small or new businesses. Since strategic
management scholars examine the differences
in and sustainability of relative performance between
competitive firms, this approach is not
unique (Venkataraman, 1997). Moreover, the approach
does not provide an adequate test of
entrepreneurship, since entrepreneurship is
concerned with the discovery and exploitation
of profitable opportunities. A performance advantage
over other firms is not a sufficient measure
of entrepreneurial performance, because a
performance advantage may be insufficient to
compensate for the opportunity cost of other alternatives,
a liquidity premium for time and capital,
and a premium for uncertainty bearing.
Therefore, although a conceptual framework to
explain and predict relative performance between
firms is useful to strategic management,
it is not sufficient for entrepreneurship.
We attempt an integrating framework for the
entrepreneurship field in the form of this note.
We believe that this framework will help entrepreneurship
researchers recognize the relationship
among the multitude of necessary, but not
sufficient, factors that compose entrepreneurship,
and thereby advance the quality of empirical
and theoretical work in the field. By providing
a framework that both sheds light on
unexplained phenomena and enhances the
quality of research, we seek to enhance the
field's legitimacy and prevent its marginalization as only "a research setting" or "teaching
application."
The note proceeds as follows. First, we define
the domain of the field. Second, we explain why
organizational researchers should study entrepreneurship.
Third, we describe why entrepreneurial
opportunities exist and why some people,
and not others, discover and exploit those
opportunities. Fourth, we consider the different
modes of exploitation of entrepreneurial opportunities.
Finally, we conclude with brief reflections
on the potential value of the framework
presented here.

DEFINITION OF ENTREPRENEURSHIP
Perhaps the largest obstacle in creating a conceptual
framework for the entrepreneurship
field has been its definition. To date, most researchers
have defined the field solely in terms
of who the entrepreneur is and what he or she
does (Venkataraman, 1997). The problem with
this approach is that entrepreneurship involves
the nexus of two phenomena: the presence of
lucrative opportunities and the presence of enterprising
individuals (Venkataraman, 1997). By
defining the field in terms of the individual
alone, entrepreneurship researchers have generated
incomplete definitions that do not withstand
the scrutiny of other scholars (Gartner,
1988).
The definition of an entrepreneur as a person
who establishes a new organization is an example
of this problem. Because this definition does
not include consideration of the variation in the
quality of opportunities that different people
identify, it leads researchers to neglect to measure
opportunities. Consequently, empirical
support (or lack of support) for attributes that
differentiate entrepreneurs from other members
of society is often questionable, because these
attributes confound the influence of opportunities
and individuals.
In contrast to previous research, we define the
field of entrepreneurship as the scholarly examination
of how, by whom, and with what effects
opportunities to create future goods and services
are discovered, evaluated, and exploited
(Venkataraman, 1997). Consequently, the field
involves the study of sources of opportunities;
the processes of discovery, evaluation, and exploitation
of opportunities; and the set of individuals
who discover, evaluate, and exploit
them.
Although the phenomenon of entrepreneurship
provides research questions for many different
scholarly fields,' organization scholars
are fundamentally concerned with three sets of
research questions about entrepreneurship:
(1) why, when, and how opportunities for the
creation of goods and services come into existence;
(2) why, when, and how some people and
not others discover and exploit these opportunities;
and (3) why, when, and how different modes
of action are used to exploit entrepreneurial opportunities.
Before reviewing existing research to answer
these questions, we provide several caveats
about our approach. First, we take a disequilibrium
approach, which differs from equilibrium
approaches in economics (Khilstrom & Laffont,
1979) and social psychology (McClelland, 1961).
In equilibrium models, entrepreneurial opportunities
either do not exist or are assumed to be
randomly distributed across the population. Because
people in equilibrium models cannot discover
opportunities that differ in value from
those discovered by others, who becomes an
entrepreneur in these models depends solely on
the attributes of people. For example, in
Khilstrom and Laffont's (1979) equilibrium
model, entrepreneurs are people who prefer uncertainty.
Although we believe that some dimensions of
equilibrium models are useful for understanding
entrepreneurship, we argue that these models
are necessarily incomplete. Entrepreneurial
behavior is transitory (Carroll & Mosakowski,
1987). Moreover, estimates of the number of people
who engage in entrepreneurial behavior
range from 20 percent of the population (Reynolds
& White, 1997) to over 50 percent (Aldrich &
Zimmer, 1986). Since a large and diverse group
of people engage in the transitory process of
entrepreneurship, it is improbable that entrepreneurship
can be explained solely by reference to
a characteristic of certain people independent of
the situations in which they find themselves.
Therefore, when we argue that some people and
not others engage in entrepreneurial behavior,
we are describing the tendency of certain people
to respond to the situational cues of opportunities—
not a stable characteristic that differentiates
some people from others across all
situations.^
Second, we argue that entrepreneurship does
not require, but can include, the creation of new
organizations. As Amit, Glosten, and Mueller
(1993) and Casson (1982) explain, entrepreneurship
can also occur within an existing organization.
Moreover, opportunities can be sold to
other individuals or to existing organizations. In
this note we do not examine the creation of new
organizations per se but, rather, refer interested
readers to excellent reviews on firm creation in
organizational ecology (Aldrich, 1990; Singh &
Lumsden, 1990), economics (Caves, 1998;
Geroski, 1995), and organizational theory (Gartner,
1985; Katz & Gartner, 1988; Low & MacMillan,
1988).^
Third, our framework complements sociological
and economic work in which researchers
have examined the population-level factors that
influence firm creation. Stinchcombe (1965) identified
societal factors that enhance incentives to
organize and organizing ability. Aldrich (1990)
and Singh and Lumsden (1990) have provided
reviews of factors enhancing firm foundings and
have described the effects of such factors as
environmental carrying capacity, interpopulation
processes, and institutional factors. Similarly,
Baumol (1996) has related the institutional
environment to the supply of people who are
willing to create firms.
Although these other frameworks are valuable
to entrepreneurship scholars, they involve
a set of issues different from those with which
we are concerned. Our framework differs from
these in that (1) we focus on the existence, discovery,
and exploitation of opportunities; (2) we
examine the influence of individuals and opportunities,
rather than environmental antecedents
and consequences; and (3) we consider a framework
broader than firm creation.
Fourth, our framework also complements research
on the process of firm creation (e.g., Gartner,
1985; Katz & Gartner, 1988; Katz, 1993). Explaining
this process is important, but research
on it involves examining a different set of issues
from those we explore. Firm creation process
researchers examine resource mobilization, firm
organizing, and market making, starting with
the assumption that opportunities exist, have
been discovered, and will be exploited through
the creation of new firms. Since we lack the
space to review both the processes of entrepreneurship
through market mechanisms and
through firm creation, we limit our discussion to
the conditions under which entrepreneurial opportunities
are exploited through firms and markets,
and we refer readers to these other frameworks
for information on the process of firm
creation.

WHY STUDY ENTREPRENEURSHIP?
Many scholars ask, either implicitly or explicitly,
why anyone should study entrepreneurship.
Data are difficult to obtain, theory is underdeveloped,
and many findings to date are the
same as those obtained in other areas of business.
In response, we offer three reasons for
studying the topic. First, much technical information
is ultimately embodied in products and
services (Arrow, 1962), and entrepreneurship is a
mechanism by which society converts technical
information into these products and services.
Second, entrepreneurship is a mechanism
through which temporal and spatial inefficiencies
in an economy are discovered and mitigated
(Kirzner, 1997). Finally, of the different
sources of change in a capitalist society, Schumpeter
(1934) isolated entrepreneurially driven innovation
in products and processes as the crucial
engine driving the change process.
Therefore, the absence of entrepreneurship from
our collective theories of markets, firms, organizations,
and change makes our understanding
of the business landscape incomplete. As Baumol
eloquently remarks, the study of business
without an understanding of entrepreneurship
is like the study of Shakespeare in which "the
Prince of Denmark has been expunged from the
discussion of Hamlet" (1989: 66).

THE EXISTENCE, DISCOVERY. AND
EXPLOITATION OF ENTREPRENEURIAL
OPPORTUNITIES
The Existence of Entrepreneurial Opportunities
To have entrepreneurship, you must first have
entrepreneurial opportunities. Entrepreneurial
opportunities are those situations in which new
goods, services, raw materials, and organizing
methods can be introduced and sold at greater
than their cost of production (Casson, 1982). Although
recognition of entrepreneurial opportunities
is a subjective process, the opportunities
themselves are objective phenomena that are
not known to all parties at all times. For example,
the discovery of the telephone created new
opportunities for communication, whether or not
people discovered those opportunities.
Entrepreneurial opportunities differ from the
larger set of all opportunities for profit, particularly
opportunities to enhance the efficiency of
existing goods, services, raw materials, and organizing
methods, because the former require
the discovery of new means-ends relationships,
whereas the latter involve optimization within
existing means-ends frameworks (Kirzner, 1997).
Because the range of options and the consequences
of exploiting new things are unknown,
entrepreneurial decisions cannot be made
through an optimization process in which mechanical
calculations are made in response to a
given set of alternatives (Baumol, 1993).
Entrepreneurial opportunities come in a variety
of forms. Although the focus in most prior
research has been on opportunities in product
markets (Venkataraman, 1997), opportunities
also exist in factor markets, as in the case of the
discovery of new materials (Schumpeter, 1934).
Moreover, within product market entrepreneurship,
Drucker (1985) has described three different
categories of opportunities: (1) the creation of
new information, as occurs with the invention of
new technologies; (2) the exploitation of market
inefficiencies that result from information asymmetry,
as occurs across time and geography;
and (3) the reaction to shifts in the relative costs
and benefits of alternative uses for resources, as
occurs with political, regulatory, or demographic
changes.
Previous researchers have argued that entrepreneurial
opportunities exist primarily because
different members of society have different
beliefs about the relative value of resources.
given the potential to transform them into a different
state (Kirzner, 1997). Because people possess
different beliefs (because of a lucky hunch,
superior intuition, or private information), they
make different conjectures about the price at
which markets should clear or about what possible
new markets could be created in the future.
When buyers and sellers have different beliefs
about the value of resources, both today and in
the future, goods and services can sell above or
below their marginal cost of production (Schumpeter,
1934). An entrepreneurial discovery occurs
when someone makes the conjecture that a set
of resources is not put to its "best use" (i.e., the
resources are priced "too low," given a belief
about the price at which the output frorti their
combination could be sold in another location,
at another time, or in another form). If the conjecture
is acted upon and is correct, the individual
will earn an entrepreneurial profit. If the
conjecture is acted upon and is incorrect, the
individual will incur an entrepreneurial loss
(Casson, 1982).
Entrepreneurship requires that people hold
different beliefs about the value of resources for
two reasons. First, entrepreneurship involves
joint production, where several different resources
have to be brought together to create the
new product or service. For the entrepreneur to
obtain control over these resources in a way that
makes the opportunity profitable, his or her conjecture
about the accuracy of resource prices
must differ from those of resource owners and
other potential entrepreneurs (Casson, 1982). If
resource owners had the same conjectures as
the entrepreneur, they would seek to appropriate
the profit from the opportunity by pricing the
resources so that the entrepreneur's profit approached
zero. Therefore, for entrepreneurship
to occur, the resource owners must not share
completely the entrepreneur's conjectures. Second,
if all people (potential entrepreneurs) possessed
the same entrepreneurial conjectures,
they would compete to capture the same entrepreneurial
profit, dividing it to the point that the
incentive to pursue the opportunity was eliminated
(Schumpeter, 1934).
But why should people possess different beliefs
about the prices at which markets should
clear? Two answers have been offered. First, as
Kirzner (1973) has observed, the process of discovery
in a market setting requires the participants
to guess each other's expectations about a
wide variety of things. People make decisions
on the basis of hunches, intuition, heuristics,
and accurate and inaccurate information, causing
their decisions to be incorrect some of the
time. Since decisions are not always correct, this
process leads to "errors" that create shortages,
surpluses, and misallocated resources. An individual
alert to the presence of an "error" may
buy resources where prices are "too low," recombine
them, and sell the outputs where prices are
"too high."
Second, as Schumpeter (1934) explained, economies
operate in a constant state of disequilibrium.
Technological, political, social, regulatory,
and other types of change offer a continuous
supply of new information about different ways
to use resources to enhance wealth. By making it
possible to transform resources into a more
valuable form, the new information alters the
value of resources and, therefore, the resources'
proper equilibrium price. Because information is
imperfectly distributed, all economic actors do
not receive new information at the same time.
Consequently, some people obtain information
before others about resources lying fallow, new
discoveries being made, or new markets opening
up. If economic actors obtain new information
before others, they can purchase resources
at below their equilibrium value and earn an
entrepreneurial profit by recombining the resources
and then selling them (Schumpeter,
1934).
The informational sources of opportunity may
be easier to see in the case of new technology,
but they need not be restricted to technological
developments. For example, the production of
the movie Titanic generated new information
about who was a desirable teen idol. An entrepreneur
could respond to this new information
by acting on the conjecture that posters of Leonardo
DeCaprio would sell for greater than their
cost of production.
Because entrepreneurial opportunities depend
on asymmetries of information and beliefs,
eventually, entrepreneurial opportunities become
cost inefficient to pursue. First, the opportunity
to earn entrepreneurial profit will provide
an incentive to many economic actors. As opportunities
are exploited, information diffuses to
other members of society who can imitate the
innovator and appropriate some of the innovator's
entrepreneurial profit. Although the entry of
imitating entrepreneurs initially may validate
the opportunity and increase overall demand,
competition eventually begins to dominate
(Hannan & Freeman, 1984). When the entry of
additional entrepreneurs reaches a rate at
which the benefits from new entrants exceeds
the costs, the incentive for people to pursue the
opportunity is reduced, because the entrepreneurial
profit becomes divided among more and
more actors (Schumpeter, 1934).
Second, the exploitation of opportunity provides
information to resource providers about
the value of the resources that they possess and
leads them to raise resource prices over time, in
order to capture some of the entrepreneur's
profit for themselves (Kirzner, 1997). In short, the
diffusion of information and learning about the
accuracy of decisions over time, combined with
the lure of profit, will reduce the incentive for
people to pursue any given opportunity.
The duration of any given opportunity depends
on a variety of factors. The provision of
monopoly rights, as occurs with patent protection
or an exclusive contract, increases the duration.
Similarly, the slowness of information
diffusion or the lags in the timeliness with
which others recognize information also increase
the duration, particularly if time provides
reinforcing advantages, such as occur with the
adoption of technical standards or learning
curves. Finally, the "inability of others (due to
various isolating mechanisms) to imitate, substitute,
trade for or acquire the rare resources
required to drive down the surplus" (Venkataraman,
1997: 133) increases the duration.

The Discovery of Entrepreneurial Opportunities
Although an opportunity for entrepreneurial
profit might exist, an individual can earn this
profit only if he or she recognizes that the opportunity
exists and has value. Given that an asymmetry
of beliefs is a precondition for the existence
of entrepreneurial opportunities, all
opportunities must not be obvious to everyone
all of the time (Hayek, 1945). At any point in time,
only some subset of the population will discover
a given opportunity (Kirzner, 1973).
Why do some people and not others discover
particular entrepreneurial opportunities? Although
the null hypothesis is blind luck, research
has suggested two broad categories of
factors that influence the probability that particular
people will discover particular opportunities:
(1) the possession of the prior information
necessary to identify an opportunity and (2) the
cognitive properties necessary to value it.
Information corridors. Human beings all possess
different stocks of information, and these
stocks of information influence their ability to recognize
particular opportunities. Stocks of information
create mental schemas, which provide a
framework for recognizing new information. To
recognize an opportunity, an entrepreneur has to
have prior information that is complementary with
the new infonnation, which triggers an entrepreneurial
conjecture (Kaish & Gilad, 1987). This prior
information might be about user needs (Von Hippel,
1986) or specific aspects of the production
function (Bruderl, Preisendorfer, & Ziegler, 1992).
The information necessary to recognize any
given opportunity is not widely distributed
across the population because of the specialization
of information in society (Hayek, 1945). People
specialize in information because specialized
information is more useful than general
information for most activities (Becker & Murphy,
1992). As a result, no two people share all of
the same information at the same time. Rather,
information about underutilized resources, new
technology, unsated demand, and political and
regulatory shifts is distributed according to the
idiosyncratic life circumstances of each person
in the population (Venkataraman, 1997).
The development of the Internet provides a
useful example. Only a subset of the population
has had entrepreneurial conjectures in response
to the development of this technology. Some
people still do not know what the Internet is or
that profitable opportunities exist to exploit it.
Cognitive properties. Since the discovery of
entrepreneurial opportunities is not an optimization
process by which people make mechanical
calculations in response to a given a set of
alternatives imposed upon them (Baumol, 1993),
people must be able to identify new means-ends
relationships that are generated by a given
change in order to discover entrepreneurial opportunities.
Even if a person possesses the prior
information necessary to discover an opportunity,
he or she may fail to do so because of an
inability to see new means-ends relationships.
Unfortunately, visualizing these relationships is
difficult. Rosenberg (1994) points out that history
is rife with examples in which inventors failed
to see commercial opportunities (new meansends
relationships) that resulted from the inveninvention
of important technologies—from the telegraph
to the laser.
Prior research has shown that people differ in
their ability to identify such relationships. For
example, research in the field of cognitive science
has shown that people vary in their abilities
to combine existing concepts and information
into new ideas (see Ward, Smith, & Vaid,
1997, for several review articles). Recently, a few
researchers have begun to evaluate empirically
the role that cognitive properties play in the
discovery of entrepreneurial opportunities (see
Busenitz & Barney, 1996; Kaish & Gilad, 1991;
Shaver & Scott, 1991). For example, Sarasvathy,
Simon, and Lave (1998) have shown that successful
entrepreneurs see opportunities in situations
in which other people tend to see risks, whereas
Baron (in press) has found that entrepreneurs
may be more likely than other persons to discover
opportunities because they are less likely
to engage in counterfactual thinking (i.e., less
likely to invest time and effort imaging what
"might have been" in a given situation), less
likely to experience regret over missed opportunities,
and are less susceptible to inaction inertia.

The Decision to Exploit Entrepreneurial
Opportunities
Although the discovery of an opportunity is a
necessary condition for entrepreneurship, it is
not sufficient. Subsequent to the discovery of an
opportunity, a potential entrepreneur must decide
to exploit the opportunity. We do not have
precise figures on the aborting of discovered
opportunities, but we do know that not all discovered
opportunities are brought to fruition.
Why, when, and how do some people and not
others exploit the opportunities that they discover?
The answer again appears to be a function
of the joint characteristics of the opportunity
and the nature of the individual (Venkataraman,
1997).
Nature of the opportunity. The characteristics
of opportunities themselves influence the willingness
of people to exploit them. Entrepreneurial
opportunities vary on several dimensions,
which influences their expected value. For example,
a cure for lung cancer has greater expected
value than does a solution to students'
need for snacks at a local high school. The exploitation
of an entrepreneurial opportunity requires the entrepreneur to believe that the expected
value of the entrepreneurial profit will be
large enough to compensate for the opportunity
cost of other alternatives (including the loss of
leisure), the lack of liquidity of the investment of
time and money, and a premium for bearing
uncertainty (Kirzner, 1973; Schumpeter, 1934).
To date, research has shown that, on average,
entrepreneurs exploit opportunities having
higher expected value. In particular, exploitation
is more common when expected demand is
large (Schmookler, 1966; Schumpeter, 1934), industry
profit margins are high (Dunne, Roberts,
& Samuelson, 1988), the technology life cycle is
young (Utterback, 1994), the density of competition
in a particular opportunity space is neither
too low nor too high (Hannan & Freeman, 1984),
the cost of capital is low (Shane, 1996), and population-
level learning from other entrants is
available (Aldrich & Wiedenmeyer, 1993).
Individual differences. Not all potential entrepreneurs
will exploit opportunities with the
same expected value. The decision to exploit an
opportunity involves weighing the value of the
opportunity against the costs to generate that
value and the costs to generate value in other
ways. Thus, people consider the opportunity
cost of pursuing alternative activities in making
the decision whether or not to exploit opportunities
and pursue opportunities when their opportunity
cost is lower (Amit, Mueller, & Cockburn,
1995; Reynolds, 1987). In addition, people consider
their costs for obtaining the resources necessary
to exploit the opportunity. For example,
Evans and Leighton (1991) showed that the exploitation
of opportunities is more common
when people have greater financial capital.
Similarly, Aldrich and Zimmer (1986) reviewed
research findings that showed that stronger social
ties to resource providers facilitate the acquisition
of resources and enhance the probability
of opportunity exploitation. Furthermore,
Cooper, Woo, and Dunkelberg (1989) found that
people are more likely to exploit opportunities if
they have developed useful information for entrepreneurship
from their previous employment,
presumably because such information reduces
the cost of opportunity exploitation. Finally, the
transferability of information from the prior experience
to the opportunity (Cooper et al., 1989),
as well as prior entrepreneurial experience
(Carroll & Mosakowski, 1987), increases the
probability of exploitation of entrepreneurial
opportunity because learning reduces its cost.
The decision to exploit an entrepreneurial opportunity
is also influenced by individual differences
in perceptions. The creation of new products
and markets involves downside risk,
because time, effort, and money must be invested
before the distribution of the returns is
known (Knight, 1921; Venkataraman, 1997). Several
researchers have argued that individual
differences in the willingness to bear this risk
influence the decision to exploit entrepreneurial
opportunities (Khilstrom & Laffont, 1979; Knight,
1921). For example, people who exploit opportunities
tend to frame information more positively
and then respond to these positive perceptions
(Palich & Bagby, 1995).
The decision to exploit entrepreneurial opportunities
is also influenced by individual differences
in optimism. People who exploit opportunities
typically perceive their chances of
success as much higher than they really are—
and much higher than those of others in their
industry (Cooper, Woo, & Dunkelberg, 1988).
Moreover, when these people create new firms,
they often enter industries in which scale economies
play an important role at less than minimum
efficient scale (Audretsch, 1991), and they
enter industries at rates exceeding the equilibrium
number of firms (Gort & Klepper, 1982).'*
However, in most industries, at most points in
time, most new firms fail (Dunne et al., 1988), and
few firms ever displace incumbents (Audretsch,
1991), suggesting that people who exploit opportunities,
on average, are overly optimistic about
the value of the opportunities they discover. This
overoptimism motivates the exploitation of opportunity
by limiting information, stimulating
rosy forecasts of the future (Kahneman &
Lovallo, 1994), triggering the search for relatively
small amounts of information (Kaish &
Gilad, 1991), and leading people to act first and
analyze later (Busenitz & Barney, 1997).
Other individual differences may be important
in explaining the willingness to exploit opportunities.
Researchers have argued that people
with greater self-efficacy and more internal
locus of control are more likely to exploit opportunities,
because exploitation requires people to
act in the face of skepticism of others (Chen,
Greene, & Crick, 1998). Similarly, opportunity exploitation
involves ambiguity, and people who
have a greater tolerance for ambiguity may be
more likely to exploit opportunities (Begley &
Boyd, 1987). Finally, the exploitation of opportunity
is a setting in which people can achieve,
providing a valuable cue for those who possess
a high need for achievement (McClelland, 1961).
Consequently, those who are high in need for
achievement may be more likely than other
members of society to exploit opportunities.
Readers should note that the attributes that
increase the probability of opportunity exploitation
do not necessarily increase the probability
of success. For example, overoptimism might be
associated with a higher probability of both exploitation
and failure. Of the population of individuals
who discover opportunities in a given
industry, those who are pessimistic may choose
not to exploit discovered opportunities because
they more accurately estimate what it will take
to compete and how many other people will try
to do similar things. Overoptimistic individuals
do not stop themselves from exploiting these
opportunities, because their overoptimism limits
information and motivates rosy forecasts of
the future.

MODES OF EXPLOITATION
Another critical question concerns how the exploitation
of entrepreneurial opportunities is organized
in the economy. Two major institutional
arrangements for the exploitation of these
opportunities exist—the creation of new firms
(hierarchies) and the sale of opportunities to existing
firms (markets)—but the common assumption
is that most entrepreneurial activity
occurs through de novo startups. However, people
within organizations who discover opportunities
sometimes pursue those opportunities on
behalf of their existing organizations and sometimes
establish new organizations, whereas
independent actors sometimes sell their opportunities
to existing organizations and sometimes
establish new organizations to pursue the
opportunities.
Research shows that the choice of mode depends
on the nature of the industrial organization,
the opportunity, and the appropriability regime.
Research in industrial organization has
shown that entrepreneurship is less likely to
take the form of de novo startups when capital
market imperfections make it difficult for independent
entrepreneurs to secure financing (Cohen
& Levin, 1989). Entrepreneurship is more
likely when the pursuit of entrepreneurial opportunity
requires the effort of individuals who
lack incentives to do so in large organizations;
when scale economies, first mover advantages,
and learning curves do not provide advantages
to existing firms (Cohen & Levin, 1989); and
when industries have low barriers to entry (Acs
& Audretsch, 1987). Research on the appropriability
of information has shown that entrepreneurship
is more likely to take the form of de
novo startups when information cannot be protected
well by intellectual property laws, inhibiting
the sale of entrepreneurial opportunities
(Cohen & Levin, 1989). Finally, research on the
nature of opportunities has shown that entrepreneurship
is more likely to take the form of de
novo startups when opportunities are more uncertain
(Casson, 1982), when opportunities do
not require complementary assets (Teece, 1986),
and when opportunities destroy competence
(Tushman & Anderson, 1986).

CONCLUSION
Entrepreneurship is an important and relevant
field of study. Although those in the field
face many difficult questions, we have presented
a framework for exploring them. We recognize
that we may have offered some uncertain
assumptions, potentially flawed logical arguments,
or have made statements that will prove,
ultimately, to be inconsistent with data yet to be
collected. Nevertheless, this framework provides
a starting point. Since it incorporates information
gained from many disciplinary vantage
points and explored through many
different methodologies, we hope that it will
prod scholars from many different fields to join
us in the quest to create a systematic body of
information about entrepreneurship. Many
skeptics claim that the creation of such a body of
theory and the subsequent assembly of empirical
support for it are impossible. We hope that
other scholars will join our effort to prove those
skeptics wrong.