Origins of Entrepreneurial Discovery

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An Essay on the Origins

of Entrepreneurial Opportunity

Lawrence A. PlummerJ. Michael Haynie

Joy Godesiabois

ABSTRACT. In this article, we apply a process of logical

inference to draw conclusions about the origins of entrepre-

neurial opportunity from existing conversations in the field of

strategic management. We equate the execution of a competi-

tive strategy as described in the strategic management litera-

ture to the exploitation of an entrepreneurial opportunity as

described in the entrepreneurship literature. Given this

assumption, we survey five extant theories of strategy in an

attempt to categorize and describe the circumstances that definehow and with what consequence entrepreneurial opportunity

exploitation results in future opportunity. Given this review, we

characterize the outcomes of strategy execution as a function

of the match between strategy and environment in an effort to

extend and refine Holcombes [Holcombe, Randall, 2003,

Review of Austrian Economics 16(1), 2543] position that

entrepreneurial opportunity is born of prior entrepreneurial

action.

KEYWORDS: entrepreneurial opportunity, strategy,

uncertainty

JEL CLASSIFICATIONS: D80, L10, L26, M13.

Let your hook always be cast; in the poolwhere you least expect it, there will be a fish.

Ovid, A.D. 17

1. Introduction

Understanding why, when, and how opportu-nities come into existence is a fundamental focusof the field of entrepreneurship (Shane andVenkataraman, 2000). Although scholars widelyacknowledge that theoretical development of theopportunity construct

is central to entrepre-neurship as a domain of academic inquiry,

questions focused on the origins of opportunityremain largely unanswered to the satisfaction ofmany entrepreneurship scholars (Gaglio andKatz, 2001). Indeed, when considering the ori-gins of opportunity, the extant entrepreneurshipliterature seems to validate Ovids centauries oldinsight: that opportunity will be found in lots of

places and for lots of reasons.A notable lack of research focused on the

origins of opportunity, and the disparate nat-

ure of the propositions suggested in response tothe question of where opportunities originate,is not surprising. The ontological and episte-mological intricacies associated with opportu-nity research makes any direct, rigorousattempt to catalogue and describe the sourcesof opportunity a daunting proposition forscholars. As evidence of this fact, we note thatmany prominent entrepreneurship researchershave gone to great lengths to describe thecomplexity inherent in developing a compre-

hensive typology of the origins of entrepre-neurial opportunity (Eckhardt and Shane,2003; Shane and Venkataraman, 2000, 2001;Sarasvathy et al., 2003).

With such issues in mind, work on this essayoriginated on the assumption that understand-ing the exploitation of opportunity yieldsinsights as to its origin. By equating the execu-tion of competitive strategy as described in thestrategic management literature to the exploi-tation of entrepreneurial opportunity as

Final version accepted on November 2006.

Lawrence A. Plummer, Joy Godesiabois

Leeds School of Business

University of Colorado at Boulder

Boulder, CO, 80309-0419, USA

E-mail: [email protected]


J. Michael Haynie

Martin J. Whitman School of Management

Syracuse University

Syracuse, NY, 13244-2450, USA


Small Business Economics (2007) 28:363379 Springer 2007DOI 10.1007/s11187-006-9036-8


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described in the entrepreneurship literature wefollowed a process of inductive logic and infer-ence applied to a review of the strategy literaturesuspecting that it would reveal how the sources

of opportunity mapped to different theoreticalconceptions of strategy and the sources ofcompetitive advantage. Although the followingdiscussion does suggest some insights alongthese lines, our main finding is something wehad not expected: that many of the opportuni-ties exploited by entrepreneurs may not be newobjectively1 and that any theory of opportunityshould distinguish between those opportunitiesthat are new and those that are not.

Thus, our principal contribution is not atypology of the sources of entrepreneurialopportunity. Instead, we extend the discovery-evaluation-exploitation paradigm as conceptu-alized in the individual-opportunity nexus [ION]framework (Shane and Venkataraman, 2000) toincorporate a conceptualization of entrepre-neurial strategizing, very simply defined as theprocess through which the entrepreneur identi-fies the best strategy for exploitation underuncertainty, given concomitant consideration ofthe nature of the opportunity and the environ-ment in which the opportunity will be exploited.

Our survey of the strategy literature and asso-ciated theorizing suggests that Holcombes(2003) contention that entrepreneurial activityleads to the emergence of new entrepreneurialopportunity is a compelling position from whichto further investigate the origins of opportunity.We also will suggest that some opportunitiesborn of prior exploitation are not objectivelynew as Holcombe suggests. Specifically, weconsider how attempts to exploit a givenopportunity can be marginalized given a mis-

match between the mode of exploitation(strategy) and characteristics of the opportunitygiven environmental conditions. We define theresultant outcome to be an underexploitedopportunity, and suggest that, although suchopportunities may be seen as new by futureentrepreneurs, they are not objectively new atall.

In the section that follows we offer anoverview of the dominant theoretical frame-work applied to entrepreneurship research to-day: the individual-opportunity nexus (ION).

In the context of the ION, we then develop abasic framework that extends the entrepre-neurial process to accommodate strategic con-siderations as well as Holcombes (2003)

contention of the importance of prior entre-preneurial activity as a source of entrepre-neurial opportunity. From there, we considerthe strategy choice set of the dominant theo-retical paradigms applied in the strategy liter-ature. We consider each of these perspectives,in turn, so as to identify their underlyingassumptions and prescriptions relative to per-formance, strategy, and competitive advantage.For each strategy paradigm, we also drawinferences as to the conception of opportunitygiven each theorys fundamental assumptionsconcerning outcomes of strategy execution inthe face of uncertainty. Finally, we draw outsome of the insights from our discussion andreview of the literature and conclude the articlewith some brief remarks.

2. The challenge of identifying the sources

of opportunity

The field of economics has alternatively charac-terized the entrepreneur as an inter-market oper-

ator (Leibenstein, 1968), a bearer of uncertainty(Knight, 1921), an innovator (Schumpeter, 1934)and an arbitrageur (Kirzner, 1979, 1997). Notunlike the economists, entrepreneurship scholarsin the field of management have also character-ized the entrepreneur and his or her role in theentrepreneurial process in many different waysas the discipline has evolved over the last twodecades (Busenitz et al., 2003; Carland et al.,1988; Gartner, 1988). Recently, the dominantparadigm applied to entrepreneurship research by

management scholars has evolved into what hasbecome known as the Individual-OpportunityNexus (ION)(Shane and Venkataraman, 2000).

2.1. The individual-opportunity nexus

and the origins of opportunity

The ION framework anchors the study ofentrepreneurship to questions focused on how,by whom, and with what consequences oppor-tunities to produce future goods and services arediscovered, evaluated, and exploited (Shane

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and Venkataraman, 2000, p. 218). The logicalbasis for ION is the idea that entrepreneurialopportunities emerge from market disequilib-rium or, more specifically, from the differences

people have in their expectations, beliefs,awareness, and/or knowledge about the relative(future) value of resources (Kirzner, 1979, 1997;McMullen and Shepherd, 2006; Rumelt, 1987;Shane and Venkataraman, 2000). Shane andVenkataraman suggest that, because peoplepossess different beliefs (because of a luckyhunch, superior intuition, private information,etc.), they make different conjectures about theprice at which markets should clear, or aboutwhat possible new markets could be created inthe future (2000, p. 220).

Given this, proponents of the ION frameworkcontend that the study of entrepreneurshipinvolves the concomitant consideration of thesources of opportunities, andthe set of individualsengaged in their discovery, evaluation, andexploitation (Shane and Venkataraman, 2000).Central to this is the idea that entrepreneurialopportunities represent those situations wherenew or future goods, services, inputs, resources,and ways of organizing can be introduced to themarket and sold at prices above their cost of

production or assembly (Casson, 2003; Shane andVenkataraman, 2000). More specifically, IONdistinguishes entrepreneurial opportunities as asub-set of all opportunities for profit, becauseentrepreneurial opportunities necessitate the dis-covery of new means-ends relationships (Kirz-ner, 1997; Shane and Venkataraman, 2000). Thatsaid, it logically follows that when consideringentrepreneurship from the perspective of ION,entrepreneurship research should focus on threefundamental questions: (1) why, when, and how

opportunities for the creation of future goods andservices come into existence, (2) why, when, andhow some people and not others discover andexploit these opportunities, and (3) why, when,and how different modes of action are used toexploit entrepreneurial opportunities (Shane andVenkataraman, 2000).

Although the second and third questions havearguably received the bulk of research attentionto date, there have been fewer, neverthelessimportant, efforts to address why, when, andhow opportunities for the creation of future

goods and services come into existence. Eck-hardt and Shane (2003), suggest that the litera-ture identifies origins of opportunity as arisingfrom (1) information asymmetry (Kirzner,

1973), (2) exogenous shocks (Schumpeter, 1934),(3) changes in supply (i.e., new inputs, neworganizing methods, production processes, and/or products) (Schumpeter, 1934), and (4) chan-ges in demand (i.e., shifts in culture, perceptions,tastes, and preferences (Kirzner, 1979; Schum-peter, 1934). Similarly, Holcombe (2003) sug-gests that opportunities arise from (1) factorsthat disequilibrate the markets, (2) factors thatenhance production possibilities, and (3), mostimportantly, prior entrepreneurial activity.

2.2. Prior entrepreneurial activity

and the emergence of new opportunity

The perspectives offered by Eckhardt and Shane(2003) and Holcombe (2003) generally agree tothe extent that information asymmetry, exoge-nous shocks, and changes in supply or demandmap to Holcombes conception of disequili-brating factors and factors that enhance pro-duction possibilities. The exception to thisoverlap, and the one that stands out to us as an

unexplored, yet important precursor to devel-oping an acceptable theory of entrepreneurialopportunity (Bacharach, 1989), is Holcombessuggestion that the most important source of newopportunity is the prior action of entrepreneurs:

To see how entrepreneurship can createadditional entrepreneurial opportunities, con-sider an example in one of the most entrepre-neurial industries at the end of the twentiethcentury: microcomputers. Somebody had the

idea that rather than have the microcomputermouse tethered to the computer with a cord, themouse could transmit an infrared signal to thecomputer, enabling the mouse to be wireless.Why had nobody acted on this entrepreneurialopportunity before? The answer is that it hadnot existed long before it was exploited. Theopportunity had not been lying in wait fordecades; rather, shortly after the mousebecame a popular device, this opportunity wasobserved and acted upon. The opportunity wascreated by the development of the computer

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mouse, itself an earlier act of entrepreneurship,and computer users know that point sticks,trackballs, and touch-pads are other devicesdeveloped by entrepreneurs. But this particular

pool of entrepreneurial opportunities onlyexisted after the development of the mouse asan input device. The entrepreneurial activity ofthe developer of the mouse did not use up anentrepreneurial opportunity, it created manymore entrepreneurial opportunities. (Hol-combe, 2003, p. 34, emphasis added)

Holcombe (2003) suggests that prior entrepre-neurial action to exploit a previously discoveredopportunity is an important source of newentrepreneurial opportunities. Holcombe right-fully highlights the personal computer as anexcellent example; its introduction to the con-sumer market in the 1970s triggered a particu-larly significant period of related entrepreneurialactivity (the mouse, software, various peripher-als, etc.) that continues even today. Implied inHolcombes theorizing, however, is the sugges-tion that, once a given opportunity is discovered,evaluated, and exploited, it ceases to exist as anopportunity for other entrepreneurs now or inthe future. That is, there seems to be one

opportunity per entrepreneur while their exploi-tation of the opportunity creates new andseparate opportunities for others to pursue.

Given Holcombes (2003) example of the per-sonal computer and the implied assumption of oneopportunity per entrepreneur, it is interesting toconsider the case of Michael Dell in light of thenotion that new opportunities arise from priorentrepreneurial activity. Was the opportunity thatDell exploited with great success objectively new?One could reasonably argue that, as an entrepre-neur, Dell did not pursue one of the new oppor-tunities arising from the personal computer; ratherhe successfully pursued the original opportunitypreviously exploited by the likes of IBM, Compaq,and Apple. What was novel about Dells approach,however, was the way in which he produced cus-tomized machines and distributed them directly toconsumers. So how does Dell fit into Holcombesframework? The answer, we contend, depends on asubtly in the semantics of the expression newmeans-ends relationship.

From at least one point of view, Dells effortsdid not result in a new means-ends relation-ship (Shane and Venkataraman, 2000) sincethe manufacture and sale of personal computers

was a well-established economic activity at thetime Dell started his venture. In fact, we contendthat the opportunity exploited by Dell may bedefined as new only if the term means isinclusive of his novel business model. Theproblem with a broad conception of means orends, for that matter is that it seems to lead toa conception of entrepreneurship that poten-tially overreaches; if the notion of means, forexample, includes every novel element of anactivity, many (perhaps, too many) activities canbe defined as entrepreneurial no matter howimitative or commonplace the acts might be. Onthe other hand, if Dells opportunity was notnew (i.e., the definition of means excludes anovel business model), then Holcombes (2003)framework needs some refinement since it doesnot explicitly address the exploitation of anopportunity already in existence.

With this in mind, we now turn to extendingHolcombes (2003) framework by consideringhis discussion in the context of the strategicmanagement literature. We suggest that, to

understand the extent to which prior entrepre-neurial action begets new opportunity into arobust conceptualization of the origins ofopportunity, we must more fully investigate thenotion of how entrepreneurial action is manifestin the context of a competitive, economic con-text. For this we focus our attention to theextant strategy literature. Indeed, one aspect ofHolcombes (2003) discussion we find particu-larly intriguing is the notion that fully graspingthe exploitation of opportunity provides insights

as to the origins of opportunity. Thus, if weassume that the execution of strategy equates tothe exploitation of opportunity in an entrepre-neurial context, we not only gain the insights ofover 30 years of strategy research, we can alsointegrate the strategy perspective within thecontext of the entrepreneurial process per theION framework (Meyer et al., 2002). In doingso, we make a particular effort to refine theone-opportunity-per-entrepreneur assumptionimplied in Holcombes (2003) discussion byaddressing how the exploitation process may



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leave the original opportunity available toothers to pursue.

3. A basic framework of entrepreneurialstrategy2

Although Holcombe (2003) does not addressspecifically the notion that entrepreneurs mightexploit opportunities that are not objectivelynew, his discussion does not exclude the possi-bility. In arguing that the pool of opportunities inany economy expands as the result of priorentrepreneurial activity, for example, Holcombeoffers that prior entrepreneurial activity doesnot use up an entrepreneurial opportunity butthat entrepreneurial action serves to actuallycreate many more entrepreneurial opportuni-ties (2003, p. 34, emphasis added). His turn ofphrase captures our essential conjecture thatsome opportunities, even when exploited, remainavailable to other entrepreneurs to pursue.

How is it, then, that entrepreneurial activitydoes not use up an entrepreneurial opportu-nity? The answer we propose is that the processby which some means are engaged for givenends in an entrepreneurial context arguably

includes the strategy (e.g., a novel businessmodel) employed by the entrepreneur forexploiting the opportunity; to be clear, here weare conceptualizing strategy (e.g., Dells businessmodel), means (e.g., the sale of personal com-puters), and ends (e.g., consumer need forpersonal computers) as separate constructs.More importantly, we have in mind somethingbeyond the mode of exploitation typicallyaddressed in the entrepreneurship literature; in-stead, we posit that in addition to selecting the

mode of exploitation that is, exploiting theopportunity either through a new firm or anestablished firm our entrepreneur also makesdecisions about how best to exploit the oppor-tunity in order to maximize its value (i.e., theprofits or returns) (Kirzner, 1979). In essence,we make the assumption that the exploitationphase of the entrepreneurial process includes aset of choices that equates to the execution ofcompetitive strategy. Thus, in this section, wedevelop a simple framework that allows us tointegrate competitive strategy considerations

into the essential elements of the IONframework.

To illustrate our framework, consider thisscenario: To highlight the essence of the entre-

preneurial process, Kirzner uses an allegoricalaccount of Robinson Crusoes realization thathis time is more valuable spent in building afishing boat than in catching fish uneconomi-cally by hand (Kirzner, 1979, p. 161). Throughthe lens of the individual-opportunity nexusperspective (Shane and Venkataraman, 2000),Crusoe discovers the opportunity to fish by boat,evaluates the opportunity by considering thetime and effort needed for building a boat, andexploits the opportunity by proceeding with theboats construction. Although it is not readilyapparent in Kirzners (1979) account, Crusoealso selects the mode of exploitation: He buildshis own boat since, presumably, there is no otherindividual on his remote island to whom Crusoecan sell the opportunity. Crusoes decisions andactions, according to Kirzner, are entrepreneur-ialsince they result in a new means (a boat) for agiven end (catching fish). Indeed, hisreallocation of his labor time from fishing toboat-building is an entrepreneurial decision,and, assuming his decision to be a correct one,

yields pure profit in the form of additional valuediscovered to be forthcoming from the labortime applied (Kirzner, 1979, p. 162). In thiscontext, such pure profit is arguably thenumber of fish Crusoe catches by boat in excessof the number he once caught by hand.

It occurs to us that Crusoe has also madechoices regarding the characteristics of the boathe will build with the intent of maximizing hispure profit. These characteristics such as theboats shape, size, and other specifications are

evidence of decisions made in the exploitationprocess that go beyond the mode of exploitation.In other words, regardless of whether Crusoebuilt his own boat or sold the opportunity tosomeone else, additional decisions were made toensure that the characteristics of the boat bestfits the opportunity. Do the fish to be caught, forexample, always stay close to shore? Are theybest caught by lure or by net? What are theweather conditions that need to be considered?And so on. These choices regarding the type,size, and shape of the boat to be built are



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strategic in the sense they are made with an eyeon maximizing Crusoes pure profit (i.e., theamount of fish he can catch for a given level ofeffort).

3.1. Strategy in an entrepreneurial context

Figure 1 depicts the basic framework wepropose.

First, the opportunity is discovered. Accord-ing to Shane and Venkataraman (2000), a dis-covery is made when someone speculates that aset of resources is not put to its first best useor, more specifically, that the resources arepriced too low given the entrepreneurs beliefabout the price at which the output from theircombination could be sold in another location,at another time, or in another form (Shane andVenkataraman, 2000, p. 220). The individualsconjecture regarding the price of these resourcesis based on private information or some uniqueintuition (Shane and Venkataraman, 2000).Next, the decision to exploit the opportunity isbased on the entrepreneurs evaluation that theopportunitys expected value (i.e., profit) willexceed the opportunity cost paid in its exploi-tation; individuals will differ in their evaluations

and some will exploit the opportunity whileothers will not, even if the expected value is thesame (Shane and Venkataraman, 2000). Finally,as part of the exploitation phase, the mode ofexploitation whether to sell the opportunity toan existing firm or to exploit the opportunitythrough a new firm is selected based on acombined assessment of the nature of the

opportunity itself, the competitive environment,and the potential for appropriating the returnsfor the entrepreneurs efforts (Kirzner, 1979).

The element we introduce is the idea that the

exploitation process includes deciding the beststrategy for exploiting the opportunity given thecharacteristics of the opportunity and the natureof the environment. This we call the entrepre-neurial strategizing portion of the exploitationphase, and suggest that it involves a determi-nation of the optimal set of actions, decisions,and commitments to be made to maximize thereturns from the exploitation of the opportunity(Meyer et al., 2002). It is at this point that ourentrepreneur seeks to match the opportunityat hand with the best strategy for maximizingthe opportunitys value given some projection offuture environmental conditions.3 We refer tothis as the strategy-opportunity-environment fit.We now turn to outlining the strategy choiceset the range of strategic paradigms andpredictions available to the entrepreneur inour basic framework.

3.2. The strategy choice set and the dominant

paradigms

Although strategic management scholars focustheir attention on firm performance (Hoskissonet al., 1999), the nature and character of thetheoretical frameworks applied to such ques-tions and issues varies considerably (Mahoney,2005). Indeed, the idea of performance itself hasbeen rigorously explored in terms of, forexample, financial returns or profitability,

Opportunity

(discovery, evaluation,

mode of exploitation)

Entrepreneurial Strategy

(opportunity-strategy-environment fit)

New Opportunity

(Holcombe, 2003)

Underexploited

Opportunity

Figure 1. A basic framework of the entrepreneurial process.



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organizational effectiveness, market share, sur-vival, and environmental fit (Barney, 2002).Nevertheless, a review of the fields evolutionreveals a manageable number of theoretical

perspectives that comprise its core. For sake ofboth practical and conceptual simplicity, weconsider five of these frameworks here: (1) thestructure-conduct-performance (SCP) para-digm, (2) transaction costs economics (TCE), (3)the resource-based view (RBV), (4) evolutionarytheory, and (5) real options reasoning.4

3.2.1. Structure-conduct-performance (SCP)

and Porters five forces

In the context of the Porterian/structure-con-duct-performance framework, the entrepreneurin our framework faces a decision in the entre-preneurial strategizing phase of what position totake up in the marketplace given the assessedindustry structure. At its core, Porter (1980)outlines a framework of five forces (i.e., thebargaining power of buyers, the bargainingpower of suppliers, the threat of entrants, thethreat of substitutes, and industry rivalry)applicable in an analysis of industry structurefor selecting from three generic strategies costleadership, differentiation, and focused (or

niche) strategies. Given the complications ofuncertainty and a dynamic environment, maxi-mizing the strategy-opportunity-environment fitis far from easy. Porter (1991) contends thatwhether a firm achieves a competitive position inthe market place depends on two essential ele-ments: initial conditions and pure managerialchoice. Initial conditions at the firm level includefactors like the firms established reputation,acquired skills, and assets; at the environmentlevel, initial conditions capture the degree to

which the setting outside the firm is favorable toits success and performance. In contrast, puremanagerial choices are the decisions madewithin the firm independent of initial conditions.

3.2.2. Resource-based view

In contrast to the emphasis of industry structureas a determinant of firm performance, theresource-based views (RBV) conceives of the firm as a bundle of resources in which theperformance of the firm is driven from within(Penrose, 1995). As for the entrepreneur in our

basic framework, RBV suggests his or herentrepreneurial strategy centers on the acquisi-tion, development, and leverage of competitiveadvantage-granting resources or capabilities.

Indeed, it would seem the earliest of entrepre-neurial strategy decisions might have the mostlong-lived effects; take for example the decisionthe entrepreneur might make on where to locatea new venture. According to Peteraf (1993),having the foresight or good fortune to acquire alocation of operations that grants resource po-sition advantages over other firms is a primeexample of an ex ante limit to competition. In-deed, the firms location is likely to take on thecharacteristics of a non-tradable asset to theextent that the firms sustained competitiveadvantage depends on a unique, advantageouslocation (Teece et al., 1997). Dierickx and Cool(1989) also suggest that a firms location may bean important determinant in its ability toacquire and leverage valuable resources andcapabilities.

3.2.3. Transaction cost economics

The fundamental premise of transaction costeconomics (TCE) is that firms exist to internalizeinto organizational hierarchies (e.g., firm struc-

tures) those transactions made prohibitivelycostly by market imperfections (Coase, 1937).Given TCE, the entrepreneurial strategy deci-sions faced by our entrepreneur now encompassthe modes of exploitation i.e., market versushierarchy and the nature of the governancestructure needed given the nature of theopportunity and the environment. When select-ing the governance structure, our entrepreneurdoes so with conscious foresight based onwhat the evolutionary biologist Richard Daw-

kins refers to as the unique human ability tosimulate the future in ones imagination (Wil-liamson, 2000). In this respect, the governancestructure is selected to limit, for example, theopportunistic behavior individuals now and inthe future (Williamson, 2000). In more concreteterms, this means our entrepreneur will makedecisions on what assets his or her firm willmake or buy in the pursuit of the given oppor-tunity. Such choices, evidence suggests, arecritical factors in the success of a new venture(Mosakowski, 1991).



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3.2.4. Evolutionary theory

The evolutionary perspective of Nelson andWinter (1982) conceives of the firm as a bundleof routines in an environment of Schumpeterian

competition (Mahoney, 2005). This perspectiveemphasizes the tacit knowledge and skills ofindividuals applied in predictable patterns orroutines with the firm that include, among otherthings, production, hiring and firing procedures,research and development, and other activities(Mahoney, 2005). A particularly central elementof evolutionary theory is the concept ofsearch. Nelson suggests that, contrary to thecentral premise of our basic framework, it can-not be the case that firms seek to enact a singlebest strategy (Nelson, 1991). Instead, based onSchumpeters notion of competition as gales ofcreative destruction (Schumpeter, 1934), firmprofitability is modeled as function of continu-ous innovation and technological change ratherthan optimization. Such continuous change isthe result of the search and selection of newroutines or organizational knowledge and thusthe firms performance can be said to be afunction of Schumpeterian rents (i.e., superiorreturns accruing to innovation or, more specifi-cally, the search and selection of new combina-

tions)5

(Winter, 1995).It is not clear how evolutionary theory fits with

our account of an entrepreneur facing entrepre-neurial strategy decisions. How do we, forexample, account for our entrepreneur activelymaking strategic choices when such a decisionfunction is virtually incompatible with a highlydeterministic theory of routines? We could sug-gest that our entrepreneur should act with an eyetowards establishing and nurturing key routinesand repertoires within the firm, but this brings us

to the same essential discussion under RBV. Thisis not much of a surprise since evolutionarytheory serves as one of the theoretical founda-tions for the resource-based view (Foss, 1997).Unlike RBV, which we interpreted as suggestingthat the earliest decisions made by the entrepre-neur have the most long-lived effects, evolution-ary theory seems to imply that, although initialconditions within the firm may have importantlong-term consequences, they are no more or noless significant than the firms ability to adapt andevolve with the passing of time.

We do note, however, that Nelson and Win-ters (1982) notion of search is strongly reflectiveof the entrepreneurial process of the IONframework. Much in the way that some, but not

all, individuals may recognize a given opportu-nity based on their idiosyncratic prior knowl-edge and experiences (Shane, 2001), whether ornot the firms search routines find any newroutines of merit depends on the routines al-ready in existence and use within the firm. Inother words, successful search depends on priororganizational knowledge (Nelson and Winter,1982). This suggests to us that the concept ofsearch in evolutionary theory and the concept ofdiscovery in the entrepreneurial process havemuch in common, perhaps to the point wheremany of their underlying principles are the sameor interchangeable.

3.2.5. Real options reasoning

Recently, real options theory has taken a positionamong the dominant theoretical frameworksapplied to strategic management questions(Leiblein and Miller, 2003; McGrath, 1997, 1999;McGrath et al., 2004). Proponents of real op-tions approaches to investigating ways of orga-

nizing (McGrath et al., 2004), decision-makingunder uncertainty (Janney and Dess, 2004),diversification (Raynor, 2002), firm boundaryissues (Leiblein and Miller, 2003), and corporatestrategy (Barnett, 2003). Real options theory,applied to questions of strategy, represents afundamental departure from many of the otherapproaches to strategy (including those discussedabove) because of the assumed central role of themanager in the process of recognizing andappreciating the value of flexibility in the face of

uncertainty and dynamic conditions. As withfinancial options, at least in theory, real optionslogic advances the idea that the option can bevalued based on the underlying real asset; and,like financial options, the longer the option lastsbefore it expires and the more volatile is the priceof the underlying asset the greater the optionsvalue. Valuable options possess an asymmetricalperformance distribution, skewed toward theupside. This is achieved when the options-ori-ented investor pursues opportunities that appearto have significant upside potential in a manner



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that permits costs (downside risk) to be con-tained (McGrath et al., 2004).

It can be argued, however, that real optionstheory and the entrepreneurial process we have

outlined are fundamentally incompatible. Ourframework, and the ION perspective on whichit is built, is grounded in the premise that theopportunity to produce future goods and ser-vices exists in the current period. Real optionstheory, on the other hand, is grounded in theassumption that the opportunity itself will comeinto existence in some future period and thatthe strategic imperative of the entrepreneur isto make investments today in anticipation ofthe future opportunitys discovery. This tem-poral inconsistency between real optionsreasoning and our framework complicates ourconception of entrepreneurial strategizing. Forreal options theorists, the fundamental strate-gic prescription is resolving uncertainty by, ineffect, preparing for the discovery of futureopportunity. As a result, this perspective offerslimited prescriptions to entrepreneurs exploit-ing given opportunities in the current period,other than to do so in a way that allows themto leverage the benefits of flexibility andentrepreneurial discretion.

3.2.6. Synthesis

Each of the five strategy paradigms detailedabove represent a range of theoretical founda-tions, assumptions, perspectives, and prescrip-tions for establishing and sustaining a firmscompetitive advantage and performance. As awhole, these various perspectives suggest thatthe entrepreneur in our basic framework is facedwith several strategic choices including (1) whichmarket position to occupy; (2) which resources

and capabilities to acquire, develop, and lever-age; (3) the structure of the venture itself; (4)establishing and maintaining search and inno-vation as strategic imperatives; and (5) prepar-ing the future opportunities yet to be discovered.Our review of these theoretical perspectives issummarized in Table I.

Not surprisingly our treatment of theseframeworks however brief reveals that thesetheories diverge in important ways when con-sidered in the context of the entrepreneurialprocess. The theoretical focus of each theory

varies from the conditions within the firm (i.e.,RBV, evolutionary theory), to the interaction ofinternal and external factors (i.e., TCE), to theexternal environment (i.e., SCP), and even the

passing of time (i.e., real options). As a result,the level of analysis of each varies respectivelyfrom routines, resources, and assets to firmboundaries to industry structure. More impor-tantly, there are considerable differences in theconceptualization of the firm in each theory.SCP views the firm as a production function,RBV as a bundle of resources, TCE as a gov-ernance structure, evolutionary theory as abundle of routines, and real options as a port-folio of investments and assets. And, of course,they differ in terms of the fundamentalassumptions that underlie each theory.

It is our contention, however, that these fivetheories converge on a number of importantpoints. First, the five strategy theories we re-viewed suggest or imply that superior perfor-mance is a function of the firms ability toestablish or take advantage of any idiosyncrasiesand asymmetries, variously defined, betweenfirms. Such a conception fits nicely with thenotion that entrepreneurial opportunities arisefrom disequilibrium or idiosyncrasies in the

market (Holcombe, 2003; Kirzner, 1997; Shaneand Venkataraman, 2000; Venkataraman,1997). For example, given an SCP framework, afirms performance is based on achieving a un-ique and defendable market position (Porter,1991), while in RBV the firms performance isbased on the possession of unique resources(Barney, 1991). Likewise, in TCE, performanceseems to be based on the firms idiosyncraticability to economize (Williamson, 1975) while inevolutionary theory the firms performance is

based on its unique routines and repertoires(Nelson and Winter, 1982). Finally, in realoptions, the performance is based on the firmsidiosyncratic flexibility to defer, delay, expedite,or decline the exploitation of a given opportu-nity to maximize the difference between thecurrent and future value of real assets(Mahoney, 2005).

Second, the five strategy theories generallyshare ontological and epistemological views onthe nature of entrepreneurial opportunity. Froman ontological perspective regarding the



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TABLEI

Strategyco

nstructsandopportunity

Theory

Foundations

Typeof

economicrent

Normative

implications

Opportunity

construct

Entrepreneurial

stra

tegy

SCP/Porter

Structure-conduct-performance

paradigm;firmasaproductionfunction

Monopolyrentsaccruing

toindustrystructure

Assesstheindustrystru

cture

(fiveforces)toimplement

oneofthree

genericstrategiesi.e.,

cost-leadership,

differen

tiation,

orniche

Opportunities

areobjectiveartifacts

definedbyunmet

needsordemand

Entrepreneur

cho

osesa

market

pos

itioning

stra

tegy;initial

env

ironment

con

ditionsand

co

rrectness

ofchoices

hav

estronger

imp

lications

for

newfirms

Resource-

basedview

Politicaleconomy(Ricardo),

organizational

economicsincludin

g

evolutionary

theory;firmasabundle

ofresources

Ricardianren

tsaccruing

tovaluablere

sources

Acquireandleveragevaluable,

advantage-grantingresources;

developandupgradecore

competencesor

dynamiccapabilities

Opportunitiesare

objectiveartifacts,

butinsomecases

maynotexistoutside

thecontextofthe

firm;probably

definedbynew

resourcesor

capabilities

Ear

liest

decisionsthat

influence,

amongother

thin

gs,

the

abilityto

acq

uireand

leverage

valuable

resources

(e.g

.,location,

legalform)

are

pivotal

Transaction

costeconomics

Newinstitutional

economics,firmtheory,

organizationalecon

omics,

economics

ofinformation;firm

asa

governance

structureforexchange

Pareto(quasi)rents

accruingtoassets

puttofirst-be

stuse

Assesthenatureofthe

difficulties

foragiventransaction;select

mostefficient

governancestructure(i.e.,

firm,market,orhybrid

)

Opportunities

areobjective

artifactsdefined

bypossibilityfor

reducingor

exacerbating

transactionfrictions

Asidefrom

the

modeof

exp

loitation

(firmormarket),

akeydecision

isthe

gov

ernance

stru

ctureand

the

boundaries

ofthefirm

(i.e.,whatto

makeandwhat

tobuy)



11/17

existence of opportunity, all five theoreticalperspectives generally support the notion thatopportunities are objective, not subjective, phe-nomena that theoretically exist independent of

the individual. Real options logic, however,introduces the possibility that the opportunitiesthemselves, not just the prospect of new prod-ucts and services, come into existence in thefuture. From an epistemological point of view,these perspectives with the exception of evo-lutionary theory generally suggest that theformulation of entrepreneurial strategy isachieved to some degree by individuals consid-eration of the facts and information at hand. Weacknowledge that this is a broad-brush state-ment, but nevertheless we suggest that buildingperceptions and judgments that differ betweenindividuals into the foundation of these strategyperspectives, rather than treating such factors astheoretical extensions, is one way that entre-preneurial perspectives in general, and the IONframework in particular, can contribute to thefield of strategic management.

4. The under-exploitation of opportunity

In the preceding sections, we summarized the

ION framework and the emphasis on the actionsof individuals to discover, evaluate, and exploitentrepreneurial opportunity; to this, Holcombe(2003) adds the notion that the entrepreneurialprocess leads to the emergence of new entrepre-neurial opportunities. Our extension of Hol-combes (2003) discussion namely, the conceptof entrepreneurial strategizing integrates theunderlying strategic management perspectiveinto the exploitation aspect of the ION frame-work. Specifically, we equate the execution of

competitive strategy from the former with theexploitation of opportunity in the latter. In doingso, we consider the effort of the entrepreneur tomatch the best strategy to the given opportu-nity in light of a dynamic environment andoutline a strategy choice set comprised of fiveessential elements (market positioning, resourceleveraging, firm structure, innovation and search,and flexibility). We defined this relationship as thestrategy-opportunity-environment fit.

In most cases, the actions of the entrepreneurin the process of discovery, evaluation, and

TableI

continued

Theory

Foundations

Typeof

economicrent

Normative

implications

Opportunity

construct

Entrepreneurial

strategy

Evolutionary

theory

Evolutionaryeconom

ics(Schumpeter),

behavioraltheory(C

yert,

March,

Simon),

businesshistory;firm

asarepertoire

ofroutines

Schumpeterianrents

accruingtosearch

andselection

ofnew

combinations

(i.e.,organiza

tionaland

technological

innovation)

Selectionofa

first-beststrategyis

notpossible,efforts

tooptimizelead

toinefficiency

Opportunities

areobjective

artifactstobe

foundbysearch

routines

Lessclear

thanother

theories,

but

theconcepts

ofsearchand

discover

yare

strongly

related

Realoptions

reasoning

Focusedonthecom

ponents

representative

ofafirmstotalmark

etvalue

Schumpeterianrents

basedonopportunities

flowingfrom

theoptionsto

purchaseadditional

productivecapacityin

futureperiods

Valueofflexibility

inthefaceof

uncertaintyand

dynamicconditions

Opportunities

representative

ofinvestmentstoday

inanticipationoffuture

investmentsgiven

uncertainty

Focused

on

entrepre

neurial

strategie

sthatallow

fortheleveragingthe

benefits

offlexibility

andentrepreneurial

discretio

n



12/17

exploitation results as Holcombe (2003) con-tends in the emergence of new opportunitiesfor future entrepreneurs to exploit. As inHolcombes example, the exploitation of the

opportunity for the personal computer begatopportunities for application software, compo-nents, peripherals, and complimentary productsfor others to pursue and exploit. With that said,however, Figure 1 also encapsulates our con-tention that the exploitation of a given oppor-tunity is likely to be flawed in execution. Indeed,we suggest that plagued by uncertainty in adynamic environment, an entrepreneurs bestefforts to assure a good strategy-opportunity-environment fit likely results in a mismatch.Such a mismatch ultimately leads to the givenopportunity being under-exploited in the sensethat the effort ultimately falls short of awardingthe entrepreneur the full value of the opportu-nity. Thus, in sum, whether entrepreneurialactivity creates a new opportunity as Holcombe(2003) suggests, the entrepreneurs effort is alsovery likely to leave the original opportunityavailable for other entrepreneurs to pursue.

As Casson (2003) points out, entrepreneurialdecisions are by definition judgmental in thesense that the choices made in the current period

are based on an individuals belief or interpre-tation of what the future is to hold; such beliefsand conjectures about the future, however, arebased primarily on the information and knowl-edge initially at hand. Thus, in the parlance ofthe Crusoe allegory, the decision to build theboat is based on Crusoes judgment that theboat will remain a valuable way for him to catchfish even after he completes its construction.Given the reality that the environment isdynamic in both the real and allegorical sense,

there is the very real possibility that Crusoesbelief will ultimately be wrong. This idea is

entirely consistent with the strategic perspectivesconsidered in the previous section since all sug-gest that such strategic choices are made in thecurrent period in anticipation of future envi-ronmental conditions.

A dynamic environment raises the specter ofuncertainty as a central complicating factor inthe entrepreneurial strategizing process. In thiscontext, we specifically mean Knightian uncer-tainty where the individual making the decisions

cannot know the range of possible outcomesthat determine the future value of the exploitedopportunity (Knight, 1921). For our purposes, itdoes not matter if the distribution of future

outcomes does not exist or is simply unknow-able; in either case, the entrepreneurial processof discovery, evaluation, and exploitation pro-ceeds on the judgments of the individual andwithout the benefit of knowing how the futuremay unfold. There is no doubt that suchuncertainty plays havoc with any of the deci-sions made at the discovery, evaluation, andexploitation phases of the entrepreneurial pro-cess. It could be, for example, that the conjec-ture that defines discovery, the evaluation of theopportunity, the chosen mode of exploitation,or any combination thereof are flawed given theprospect of uncertainty. In our framework,however, we choose to focus our attention onthe role uncertainty plays in the entrepreneurialstrategy portion of the exploitation phase.

Again, in the example of the personal com-puter, we suggest that Michael Dells opportunityto manufacture and sell personal computersemerged from prior manufacturers under-exploitation of the given opportunity. In itsentrepreneurial strategizing, for example, IBM

did not or could not foresee, given uncertainty,the enormous opportunity of the customizedpersonal computer sold directly to the consumer.Although IBMs initial strategy was appropriategiven the initial environmental, advances ininformation technologies and changes in con-sumer preferences (e.g., for customized machines)rendered IBMs retail, one-size-fits-all strategyunable to capture the full value of the opportu-nity. In short, the opportunity that IBM pursuedwas under-exploited to the benefit of Dell.

4.1. Imperfect and incomplete exploitation

Characterizing the mismatch is an importantextension of our basic framework because itfollows that how an entrepreneur might goabout pursuing an underexploited opportunitymight vary according to the reason for the sub-optimal strategy-opportunity-environment fit.Consider, for example, the possibility that a sub-optimal strategy is selected from the outsetresulting in what we call imperfect exploitation.



13/17

In the personal computer example, IBMs deci-sion to outsource the operating system softwareand microprocessor was ultimately to the benefitof Microsoft and Intel, respectively. From the

start, IBM unwittingly conceded to other firmsthe two components that arguably define theheart of the personal computer and its value. Incontrast, the possibility that an optimal strategyis initially selected, but that the strategy becomesincreasingly mismatched as the environmentchanges, we call incomplete exploitation. Thisseems to be the case with the example above inwhich IBMs inability to foresee and adapt toenvironmental changes was to the benefit ofMichael Dell.

4.2. Strategic and tactical errors

Although imperfect or incomplete exploitationresults in the under-exploitation of a givenopportunity, we suggest that the strategy-opportunity-environment mismatch can be fur-ther characterized by the nature of the errormade in strategy selection. Indeed, we suggestthat strategic error is made when the wrongstrategy framework is selected; that is, as an

example, it could be that IBM was thinking interms of transaction cost economics (TCE) whenit presumably underestimated the specificityof the operation system and microprocessor andsourced both from outside firms. In contrast, aresource-based view might have highlighted theunique character and value of both componentsresulting in their being sourced within the firm.It may also be the case that, even if the optimalstrategy paradigm is selected, the wrong strategyprescriptions within the given perspective areheeded to the entrepreneurs detriment; we callthis a tactical error. Again, in the IBM example,it may be the case that TCE was the correctperspective, but the choice to outsource ratherthan integrate two key functions ultimatelyproved a tactical error.

Why should the origins of the strategic mismatchmatter in an entrepreneurial context? We contendthat the sources of the strategy-opportunity-envi-ronment mismatch shape the characteristic of theunderexploited opportunity and thus influence why,when, and how a given individual might recognize it

as such and take action to exploit it. A mismatchresulting from imperfect exploitation, for example,should yield an opportunity that looks very differentfrom one resulting from incomplete exploitation. It

may well be that under-exploitation given imperfect,rather than incomplete, exploitation offers the mostattractive scenario to would-be entrepreneursbecause, by definition, at no time was the executedstrategy optimal. In the case of incomplete exploi-tation, for example, the entrepreneurial strategy isoptimal at least for some time prior to the change inthe environment. The same might be said for stra-tegic or tactical errors; here, the magnitude of thestrategic error in comparison to a tactical error sug-gests more room for another entrepreneur topursue the under-exploited opportunity. These re-marks are, of course, only a beginning, but we expectthat characterizing thenature of the mismatchin ourbasic framework with an eye towards understandingthe emergence of underexploited opportunities is afruitful area for further examination.

In sum, we suggest that, although the actionof exploitation has likely resulted in the creationof some new opportunity, it is our position thatwhen entrepreneurial strategizing occurs underconditions of uncertainty, an inevitable mis-match between the exploitative strategy and the

opportunity-environment will result. Moreover,we further contend that this mismatch generallyone of two conditions result: (1) the givenopportunity is under-exploited (maximum rentsare not returned to the firm) because the entre-preneur has selected a sub-optimal strategy fromthe start, or (2) the opportunity is under-exploited because the environment has changedsuch that what may have been an optimalstrategy at one time is no longer optimal tomaximize return to the firm. Before discussing

what insights our basic framework yields, how-ever, we next turn our attention to some of thedominant paradigms in strategic management toexplore the extent to which they theoreticallyaccommodate our conception of the opportu-nity construct and the entrepreneurial process.

5. Towards a theory of entrepreneurial

opportunity

What, then, does this discussion tell us about theorigins of opportunity? At its core, our discussion



14/17

of the entrepreneurial process resulting in newopportunities while leaving existing opportuni-ties underexploited serves to highlight one of thecentral challenges to our understanding of, and

theorizing about, the origins of opportunity: Atany given moment, the opportunities exploitedby entrepreneurs may not be objectively new.It may well be that Michael Dell perceived theopportunity for his computer venture as new,but from the perspective of our basic frameworkit may be that it was not. Thus, if we are toconjecture as to the true origins of opportunity,a theoretical model for doing so will need todistinguish the opportunities that are genuinelynew from those that have not been used up byprior entrepreneurial activity. This is the meta-phorical equivalent of separating the wheat fromthe chaff and as a theoretical issue the matter isnot trivial.

There is an interesting parallel between ourarguments here and a provocative suggestionmade by Professor Herbert Simon: a mythicalvisitor from Mars, not having been apprised ofthe centrality of markets and contracts (1991,p. 27) would find it surprising that a good por-tion of economic (not to mention, management)theory places greater emphasis on market

transactions than on organizational (within-firm) transactions; after all, such an other-worldly visitor would observe not a marketeconomy, per se, but rather an organizationaleconomy in which economic activity occurspredominantly within, rather than between,firms. Such a conclusion implies, Simon con-tends, that that the variables considered ofcentral importance to a first-order theory ofeconomic activity may not be as important asscholars might contend. We wonder whether the

same could be said for entrepreneurial oppor-tunities: if it were the case that the majority ofopportunities exploited by entrepreneurs arepreviously underexploited, rather than newinstances of opportunity, one might expect thatsome theories of entrepreneurship, and theirnormative prescriptions, would need revision.

This point leads to a second insight that theexploitation of opportunity is not a zero-sumproposition. We interpret Holcombes (2003)arguments, for example, as implying that, oncean opportunity is discovered and exploited by a

given entrepreneur, it is no longer available toothers to pursue even if they too recognize theopportunity as such. In contrast, in our basicframework we contend that more than one

entrepreneur might seek to exploit the sameopportunity given the likely possibility of under-exploitation. Indeed, nothing about our frame-work suggests that the pursuit of the sameopportunity by more than one entrepreneur issequential as in the IBM/Dell example; our no-tion of imperfect exploitation, for example,suggests that a strategy-opportunity-environ-ment mismatch early in the exploitation phasemay mean that a given opportunity may bepursued more or less concurrently by multipleentrepreneurs.

This relates to a third insight from our dis-cussion. The successful exploitation of a givenopportunity depends not only on environmentalconditions, but also on the chosen entrepre-neurial strategy. In fact, under-exploitationmight well result from a strategy-opportunitymismatch independent of any changes in theenvironment. Thus, even if the environment whether defined in terms of appropriability orinstitutional conditions, for example favors agiven opportunity, the entrepreneurs ability to

formulate and execute a successful exploitationstrategy is paramount. This notion that strategymatters is an obvious point and one often madewhen teaching entrepreneurship at the under-graduate or graduate level. The point, however,is that the choices and actions of individualentrepreneurs a particular domain of man-agement scholars, especially concerning theentrepreneurs cognitive dimensions must beunderstood in the context of the broader envi-ronmental conditions a particular domain of

economists and policy thinkers and vice versa.In other words, interdisciplinary and meso-levelresearch may not only be fruitful, it may berequired as part of the development of a theoryof opportunity.

One final point we wish to make is that thelanguage of opportunity presents a seriousobstacle to the development of full-fledged the-ory of opportunity and the entrepreneurialprocess. We offer that the language of newmeans-ends in particular leads to easy confu-sion and the confounding of ideas. Indeed,



15/17

whether the word means includes or excludesDells unique business model not only allows usto question if his opportunity was, in reality,new it also opens the possibility to question

whether it was entrepreneurial. If entrepre-neurial opportunities are indeed a sub-set of allopportunities for profit and are a central focusof entrepreneurship research, it would seem thata clearer definition of what makes an opportu-nity entrepreneurial is needed. At the very least,it suggests that scholars be very clear in theirdefinition and use of the means-ends termi-nology. Indeed, we argue that distinguishingmeans and ends from a notion of themethod of exploitation (which we have calledhere entrepreneurial strategizing) is part of aresolution to the issue of semantics.

6. Conclusion

Our essay, as the title suggests, presents a col-lection of ideas that we suggest require furtherthought and attention on our part and on thepart of entrepreneurship scholars more gener-ally. We expect that subsequent theorizing willand should focus on distinguishing betweenthose opportunities in the economy that are

genuinely new and those that are, in fact, un-derexploited instances of existing opportunities.Indeed, the possibility of a dynamic model ofan opportunity lifecycle, if plausible andmeaningful, may well be the pivotal contribu-tion to the study of entrepreneurship. This re-view highlights a need to link the efforts of themost micro-analytic research aimed at under-standing the individual with the most macro-level social or economic theory to understandthe origins of opportunity. This is not merely a

suggestion for a cross-fertilization of ideas be-tween economists and management scholars;instead it is our contention that the choices andactions of individual entrepreneurs, and theorigins of the opportunities they exploit, may bebest understood in the context of the broaderenvironment and vice-versa.

Acknowledgements

We would like to thank Frederick Lehman,Zoltan Acs, all the participants of the MPI

workshop on the origins and nature of entre-preneurial opportunity, and the blind reviewersfor their helpful comments, advice, and criticalsuggestions. We especially thank Jeff McMullen

for his sage advice and direction in what turnedout to be a very difficult essay to write. We areindebted to him for helping us clarify andarticulate our arguments. The authors wouldalso like to thank David Audretsch and the MaxPlanck Institute of Economics as well as theDeming Center for Entrepreneurship at theUniversity of Colorados Leeds School of Busi-ness for their support of this project.

Notes

1 In our discussion the term objectively new means, inthe simplest sense, that the opportunity is new to every-

one. That is, the existence of the opportunity is not

dependent on a particular actor, but rather exists in real,

yet intangible, form available to anyone to exploit; its

novelty is grounded in the new knowledge emerging at

the boundaries of societys knowledge frontier (e.g.,

technological advances). We are not assuming away,

however, the idea that not all actors based on, for

example, idiosyncratic prior knowledge or cognitive abil-

ities will recognize the opportunity as such.2 The structure of this essay implies that we first developed

our basic framework for linking strategy to the entrepre-

neurial process and then reviewed the relevant strategy lit-erature. In truth, the reverse is true. To help the reader

understand how and where strategy considerations fit into

the entrepreneurial process and the central implications

thereof, we first describe our basic framework and then

summarize five of the dominant paradigms in the strategy

literature.3 Acknowledging that the notion of a best strategy can be

operationalized to define disparate outcomes e.g., apply-

ing a socio-cognitive lens, best would be defined as a

function of the extent to which the outcomes of exploitation

satisfied the goals and motivations of the entrepreneur

(Fiske and Taylor, 1991) we define best to describe a

strategy that maximizes the entrepreneurs returns from

exploitation (Kirzner, 1979).4 We acknowledge that our review is by no means

exhaustive, as strategy research has also focused a number

of theoretical lenses to investigate performance questions in

the context of agency problems, behavioral aspects, prop-

erty rights, and institutions. Our exclusion of these frame-

works is admittedly somewhat arbitrary, but it is not

without some justification. First, behavioral theories of the

firm e.g., March and Simon (1958) and Cyert and March

(1963) while applicable to the study of firm performance

arguably fall in the domain of organizational behavior.

Similarly, we excluded the property rights and institutional

economics literature given Williamsons own contention



16/17

that his transaction cost economics perspective is an

outgrowth of the broader New Institutional Economics

(Williamson, 1998). Finally, we excluded agency theory

under the assumption that, given its shared conceptual

roots with TCE (Hoskisson et al., 1999), a review of its

application in strategy research would not yield any distinctinsights into the nature of entrepreneurial opportunity.5 Winters (1995) definition is slightly narrower than

Mahoney and Pandians (1992) meaning of Schumpeterian

rents. In the latter case, Schumpeterian rents are achieved

by risk-taking or entrepreneurial insight in an uncertain

environment. In either case, this is a dynamic concept of

rent in an evolutionary context.

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Origins of Entrepreneurial Discovery

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