University of Amsterdam
MSc Business Administration Entrepreneurship and Innovation Track
MASTER THESIS
Do entrepreneurs perceive multiple experiences of insight during the
opportunity development process rather than one single Eureka-‐
Moment, and does this affect entrepreneurial activity or success?
A confirmatory study on the role of entrepreneurial insight in an adapted multi-‐stage creativity-‐based model of Opportunity Development, and exploratory examination of the
effect of multiple insight on new venture formation and start-‐up profitability.
Author: Jan-‐David Schreitter-‐Schwarzenfeld Student ID Number: 11088362 E-‐mail: jd.schreitter@googlemail.com
Supervisor: Emiel Eijdenberg
Statement of Originality
This document is written by Jan-‐David Schreitter-‐Schwarzenfeld who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in
creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
ABSTRACT
This research study reviews and synthesizes existing theoretical frameworks relating to opportunity recognition and opportunity development. It builds on and integrates existing entrepreneurship literature to propose a
reconceptualization of the opportunity recognition and development process models constructed by Hills et al. (1999) and Ardichvili et al. (2003). A survey questionnaire is used to verify the propositions relating to entrepreneurial insight made by Lumpkin et al. (2004) and Hansen and Lumpkin (2009). It finds that entrepreneurs experience more than one single Eureka moment, but rather that entrepreneurs may experience multiple moments of insight at any one or all of the stages of the opportunity development process. Furthermore, this research study investigates the impact of multiple insight on entrepreneurial activity and success through a set of propositions. Finally, recommendations for improving theoretical frameworks are made, and suggestions for scale refinement and future research directions are provided.
KEYWORDS:
Entrepreneurship, Opportunity, Idea Generation, Opportunity Recognition, Opportunity Development, Creativity, Entrepreneurial Activity, Entrepreneurial Success.
TABLE OF CONTENTS
STATEMENT OF ORIGINALITY...2
ABSTRACT...3
I. INTRODUCTION...7
II. LITERATURE REVIEW...14
2.1 THEORETICAL FACTORS INFLUENCING OPPORTUNITY RECOGNITION...14
2.1.1 A Creative View of Opportunity Recognition...14
2.1.2 The Role of Information Asymmetries...15
2.1.3 The Role of Entrepreneurial Alertness...15
2.1.4 Active Search versus Serendipitous Discovery...17
2.1.5 The Role of Cognitive Schemas...18
2.1.6 The Role of Personality Traits...19
2.1.7 A Neo-‐Classical View of Opportunity Recognition...20
2.1.8 The Role of Prior Knowledge...21
2.1.9 The Role of Social Networks...23
2.2 MODELS OF OPPORTUNITY RECOGNITION AND DEVELOPMENT PROCESSES...23
2.2.1 The Creativity-‐Based Model of Opportunity Recognition...24
2.2.2 The Core Process Model of Opportunity Development...25
2.2.3 Relating Opportunity Recognition to Opportunity Development...26
2.3 RECONCEPTUALIZED PROCESS MODELS...28
2.3.1 From Idea Generation to Venture Formation...28
2.3.2 Factors Influencing Opportunity Recognition Propensity...30
Entrepreneurial Alertness...30
Prior Knowledge and Information Asymmetry...31
Social Capital...32
Human Capital...33
Type of Opportunity...34
Entrepreneurial Climate...34
2.3.3 Reconceptualized Model of Opportunity Development...36
Number of Stages...36
Stage 1: Immersion (Perception) ...37
Stage 2: Incubation...38
Stage 3: Creation (Discovery) ...38
Stage 4: Evaluation...40
Stage 5: Elaboration...41
Multiple Insight...41
Process Iteration...42
Core and Secondary Processes...43
Concept Selection...43
The Reconceptualized Model...44
2.4 RESEARCH HYPOTHESES AND PROPOSITIONS...45
2.4.1 Confirmatory Research Hypotheses...45
III. RESEARCH METHODOLOGY...48 3.1 Research Philosophy...48 3.2 Research Approach...49 3.3 Scale Development...50 3.3.1 Operationalized Definitions...51 3.3.2 Item Development...52 3.3.3 Pilot Study...53
3.4 Measures and Scale Content...54
3.5 Response Categories...55
3.6 Independent Variable...56
3.7 Dependent Variable...57
3.8 Controls and Exclusion Criteria...58
3.9 Data Collection and Sample Frame...59
3.10 Research Sample...60
3.10.1 Response Rate...60
3.10.2 Sample Descriptive Statistics...60
3.11 Analytical Technique...61
IV. DATA ANALYSIS AND RESULTS...62
4.1 Data Cleaning and Preparation...62
4.1.1 Missing Values and Data Selection...62
4.1.2 Recoding Counter-‐Indicative Items...63
4.1.3 Aggregate Scales Computation...63
4.2 Testing Scale Reliability...64
4.2.1 Initial Reliability Testing...65
4.2.2 Scale Adjustment (Item Deletion) ...65
4.2.3 Adjusted Reliability Testing...67
4.3 Validity Testing...67
4.4 Research Hypothesis Testing...68
4.4.1 Primary Research Hypothesis Testing...68
4.4.2 Secondary Research Hypothesis Testing...71
4.5 Examining Research Propositions...73
4.5.1 Research Propositions Related to Entrepreneurial Activity...73
4.5.2 Research Propositions Related to Entrepreneurial Success...74
4.6 Additional Findings from Descriptive Analysis...76
V. DISCUSSION AND LIMITATIONS...77
5.1 Summary of Results...77
5.2 Theoretical Implications...77
5.3 Practical Implications...81
5.4 Limitations...83
5.5 Suggestions for Future Research...87
VI. CONCLUSION...88
VII. LIST OF REFERENCES...90
B. Complete List of Survey Items...100
C. Sample Demographic Statistics...102
D. Scale Reliability Testing -‐ Inter-‐Item Correlations...103
E. Scale Reliability Testing -‐ Summary Tables...110
F. Exploratory Factor Analysis -‐ Summary Table...111
G. Primary Research Hypothesis -‐ Single-‐Sample T-‐Test Results (H1)...112
H. Null Hypothesis -‐ Single-‐Sample T-‐Test Results (H0) ...113
I. Secondary Research Hypothesis -‐ Descriptive Statistics (H2)...114
J. Secondary Research Hypothesis -‐ Descriptive Statistics (H3)...115
K. Research Propositions -‐ Descriptive Statistics and Correlations (P1)...116
L. Research Propositions -‐ Descriptive Statistics and Correlations (P2)...117
M. Research Propositions -‐ Descriptive Statistics and Correlations (P3) ...118
N. Research Propositions -‐ Descriptive Statistics and Correlations (P4) ...119
O. Additional Descriptive Statistics -‐ Concept Selection...120
P. Additional Descriptive Statistics -‐ Idea Versus Opportunity...121
I. INTRODUCTION
Historically, traders and merchants acted as independent agents of commerce long before business was recognized as a practical field and deemed worthy of academic investigation. The notion of Entrepreneurship was arguably first identified and described by Richard Cantillon in his "Essay on the Nature of Trade" published in 1755 (Nevin, 2013). Cantillon recognized an entrepreneur's inherent role as being the sole and central risk bearer in the pursuit of commercial ventures and economic opportunities (Nevin, 2013). This early conception captures the central elements of opportunity and risk which form the foundations of entrepreneurship theory as it stands today. The capacity to not only recognize changes in technology, society, or the environment, but also to act upon these realisations so as to transform them into commercially viable opportunities, is often seen as the distinguishing feature that
defines entrepreneurs (Bygrave and Hofer, 1991). The Global Entrepreneurship Monitor (GEM) annually assesses the Adult Population Survey (APS) and National Expert Survey (NES) of over 60 economies (GEM Report, 2016). It finds that an average of 42% of the working population in these economies has identified opportunities to start a business, and 21% actually intend to do so within the next three years (GEM Report, 2016). With this rise in entrepreneurial interest, it becomes important to question what we know about the central process of opportunity recognition that lies at the core of
entrepreneurial activity.
A review of relevant academic literature reveals a vast amount of collated information and previously researched knowledge pertaining to Opportunity Recognition (Bygrave and Hofer, 1991; Shane, 2000; Eckhardt and Shane, 2003). Some areas of opportunity
recognition have been awarded significant attention. For example, Schumpeter suggests that the misallocation of resources creates opportunity (Schumpeter, 1934), while Hayek and Kirzner suggest that information asymmetries constitute the source of entreprenerial activity (Hayek, 1945; Kirzner, 1973). Contrastingly, Khilstrom and Laffont suggested that opportunities may equally be discovered by all (Khilstrom and Laffont, 1979), whilst other studies highlighted the importance of individual
characteristics in developing such an ability to recognize opportunities (Endsley, 1995; Ray and Cardozo, 1996; Krueger and Dickson, 1994; Krueger and Brazeal, 1994; Neck and Manz, 1992; Neck and Manz, 1996).
Academics such as Shane and Venkataraman emphasized the importance of prior knowledge (Venkataraman, 1997; Shane and Venkataraman, 2000; Shane, 2000; Eckhardt and Shane, 2003; Shane, 2003), others stressed the role of entrepreneurial awareness (Kirzner, 1973; Kirzner, 1979; Kirzner, 1985; Gaglio and Katz, 2001; Gaglio, 2004). These theories, implying a serendipiduous opportunity recognition process, were posited against later findings of entrepreneurs employing active search strategies (Koller, 1988; Peterson, 1988), and actively positioning themselves within the
information flows of their social networks (Gilad et al., 1988; Kaish and Gilad, 1991; Cooper et al., 1995). The direct influence of the size and strength of ties within an individual's social network on their propensity to recognize opportunity was examined (Granovetter, 1973), and later validated (Hills et al., 1997). Recent research has
considered the contribution of more rudimental influences such as Gender (Chandler and DeTienne, 2007).
Whilst much has happened and significant progress has been made towards
recognition, our understanding of the process still remains incomplete. The knowledge which has been accumulated is largely fragmented, highly focused in regards to specific perspectives or factors influencing the opportunity recognition process (Shane, 2003; Casson, 2005), and sometimes findings appear contradictory. In some cases only one-‐ dimensional analysis of a process factor has been completed (Busenitz, 1996), while other studies have attempted to model the opportunity recognition process as a whole (Hills et al 1997; Hills et al., 1999; Ardichvili et al., 2003; Hansen and Lumpkin, 2004; Hills et al., 2011). Hills et al. (1997, 1999, 2011) draw on early creativity-‐based perspectives (Wallas, 1926), to model opportunity recognition, but focus only on the core of the process rather than also taking antecedents, moderators and influencing contextual factors into account. Other frameworks offer a more integrated perspective and model the process as more intricate and complex (Ardichvili et al., 2003). While Ardichvili et al.'s (2003) proposition for a model attempts to integrate a multitude of dimensions relevant to opportunity recognition, findings remain partially inconclusive and open more new questions than they answer. They adopt and assume an adapted version of the creativity-‐based view of the core opportunity recognition process but their propositions are derived solely from an integration of previous academic literature, without any empirical validation.
Whilst both these previous frameworks offer valuable insights to modelling opportunity recognition, the elements of the core process differ, and remain unvalidated and
disputed. I argue that these past frameworks should be integrated into a wholisitic view of opportunity recognition, and that at least some of the assumptions related to the core opportunity recognition process should be subject to validation. Therefore, the first section of this theoretical work has been devoted to creating a revised, and partially
reconceptualized model of the opportunity recognition process, building mainly on an integration of the theoretical framework foundations laid by Hills et al. (1995, 1997, and 1999) and Ardichvilli et al. (2003).
In the conceptual model section of this document these two existing frameworks are integrated, into one comprehensive model termed "Opportunity Development". This is based on the creative view of opportunity recognition, which posits that opportunities are created and developed over time rather than discovered in a single instance of revelation (Sarasvathy et al., 2010). The newly proposed conceptualisation, augments the integration of existing models with previously isolated research findings, relating to individual components or elements such as Human Capital, Social Capital,
Entrepreneurial Climate and Entrepreneurial Alertness. Lastly, due to recent findings by Hansen and Lumpkin (2009), the new conceptualisation questions the assumption of previous models, that entrepreneurial insight is a single stage of the process by which the opportunity suddenly becomes clear to the aspiring entrepreneur. Rather, the new conceptualisation proposes that entrepreneurial insight plays a consistent and
continuous role, functioning as a mechanism to facilitate transitions and movement between the modelled stages of the opportunity recognition process.
Although this new conceptualization of the "Opportunity Development" process must be subjected to extensive empirical testing before it can be accepted and adopted into existing entrepreneurship theory, the creativity-‐based model of opportunity recognition around which it has been constructed, has already been somewhat validated by previous research (Hansen and Lumpkin, 2009; Hills et al., 2011). As the model is highly complex and multi-‐dimensional, testing the validity of all components and elements
simultaneously would require an empirical methodology and longitudinal study that far exceed the scope of a singular university master thesis. Therefore, the focus of the empirical research, analysis and study has been devoted to examine and verify the core processes of the model, and to explore the role of entrepreneurial insight within it. More specifically, the research efforts have been concentrated on examining the relationships between the 5 stages of the creativity-‐based model (as proposed originally by Wallas, 1926 and adapted first by Hills et al. 1997), and aims to shed new light on the role of "insight" within this multi-‐staged process. As such, the research question addressed in the subsequent sections of this paper reads; Do entrepreneurs perceive multiple experiences of insight during the opportunity development process rather than one single Eureka-‐Moment, and does this affect entrepreneurial activity or success? The research represents a confirmatory study on the role of entrepreneurial insight in an adapted multi-‐stage creativity-‐based model of Opportunity Development, and an exploratory examination of the effect of multiple insight on new venture
formation and start-‐up profitability.
The research also aims to answer related sub-‐questions such as; Is there a difference between ideas and opportunities? Can the processes of idea generation and opportunity recognition be differentiated? Are opportunities discovered, or are they created through the development of ideas? At which stages of the process does entrepreneurial insight occur? Can insight occur at any or even all of the five process stages outlined in a creativity-‐based model of opportunity development? Does insight influence the subsequent actions taken by entrepreneurs to realise the opportunity, or change the perceived value of business opportunities, or both? And finally, what are the theoretical and practical implications of entrepreneurs experiencing multiple moments of insight throughout the opportunity development process?
As only a very limited amount of research has been dedicated to examining the role of insight within the opportunity recognition process, this paper aims to provide more information about the phenomenon and at least in part, some evidence refuting the presumption of a singular Eureka-‐moment taking place. Limiting the research approach to examining only the specific phenomenon of entrepreneurial insight, increases the feasibility of completing the research project within the relatively short timeframe of six months. Including some survey items to validate the revised and adapted
reconceptualisation of the integrated opportunity recognition and development process model, allows for enough topic breadth and a large enough scope to make a significant research contribution to entrepreneurship theory. In other words, scoping the research proposal in this manner enabled a verification of the suggested framework adaptations, and faciliated a specific examination of the role that insight plays within the process. The proposed research approach and selected methodology for this investigation involved sending a survey questionnaire by e-‐mail to founders and co-‐founders of start-‐ups within the Netherlands. The sample of candidates was selected according to their
fulfilment of central selection criteria outlined in the research methodology section. The main research goal was to examine the presence and significance of entrepreneurial insight within the different stages of the opportunity recognition and development process, from a self-‐reported, retrospective view.
The relevance of this research study is quite self-‐evident as potential conclusions from the results of data analysis may serve to enhance and broaden the understanding and knowledge of opportunity recognitiona and development processes. If the findings are found to be significant, they will greatly contribute to asserting that there is no singular
"one-‐off", eureka-‐type moment of insight from which entrepreneurs identify the opportunities they subsequently act on to form new ventures and businesses. Rather, the findings could provide support for the argument that opportunity recognition and development is a gradual process, which occurs over time, and proceeds through multiple phases and iterations of stages.
The theoretical and practical implications of this are potentially vast, as this new understanding might help entrepreneurs and individuals who are currently engaged in the opportunity identification process make improved decisions about the role of new insights within their followed evaluation processes. This is to say, that the findings of this research study could potentially encourage aspiring or active entrepreneurs to reconsider actions or committments of resources, based on their first perceived instance of insight or moment of revelation they experience. Instead, the following research findings may suggest that entrepreneurs should maintain an open awareness or even expectation of future insights when thinking about or subsequently acting upon recognized entrepreneurial opportunities. Perhaps the research findings suggest maintaining maximum levels of flexibility and openmindedness towards new
information throughout the opportunity development process. In line with the emerging popularity of effectuation approaches (Sarasvathy, 2001; Sarasvathy, 2009), perhaps a recommendation for "trying early and failing often" can be made. In other words, perhaps entrepreneurs should be sensitive to multiple and miniature moments of insight, and act upon these; testing potential ideas and concepts early, so as to learn from them. This may potentially result in more opportunities being recognized and the production of higher value or higher quality decisions and solutions. Lastly, if certain stages can be identified as being prime loci for instances of insight, then perhaps this not
only expands and refines our understanding of the opportunity recognition and development processes but also facilitates a conceptual restructuring of the cognitive stages themselves; potentially repositioning them within the proposed process model or offering new conceptualizations of the process altogether.
II. LITERATURE REVIEW
2.1 THEORETICAL FACTORS INFLUENCING OPPORTUNITY RECOGNITION
2.1.1 A Creative View of Opportunity Recognition
The study of opportunity recognition and development has always been central to the field of entrepreneurship (Bygrave and Hofer, 1991; Hills et al., 1997). As early as 1934, Schumpeter recognized the potential of "creative destruction" and technological change opening possibilities for innovative recombinations (Schumpeter, 1934). According to these early conceptions, opportunities arise from an individual's discovery of situations where technological advancements can be applied to remedy either underutilized resources (inefficient supply) or unsolved customer problems (unmet demand)
(Schumpeter, 1934). Either of these conditions, or a mixture of both, can result in what Schumpeter classified as "innovative recombinations" (Schumpeter, 1934). Thus, the earliest definition of an entrepeneurial opportunity involves innovative recombinations of resources and methods, to create new means-‐ends frameworks, that generate new value (Schumpeter, 1934). However, this early understanding of an entrepreneurial opportunity was born with the inherent assumption that individuals must first identify situations in which technological changes can be applied to shape business actions and
thus entrepreneurial activities (Schumpeter, 1934). Schumpeter proposed that this identification process must be different from individual to individual, in order to explain why some people recognized opportunities and became successful entrepreneurs, while others did not (Schumpeter, 1934).
2.1.2 The Role of Information Asymmetries
This basic understanding of opportunity recognition was largely unquestioned but also unsubstantiated, for more than a decade. In 1945, Hayek introduced the notion of information asymmetries, which seemed to validate Schumpeter's assumptions (Hayek, 1945). Hayek proposed that it was impossible for all people to have gathered and collated the exactly same types and amounts of information throughout their lifetimes (Hayek, 1945). He argued that these information asymmetries influenced and shaped economic activity and transactions (Hayek, 1945). Hayek believed that changes in the market price reflected an unequal dissemmination of information amongst people, as some knew more about the future value of certain goods and resources than others, and were thus willing to incure higher costs to purchase them (Hayek, 1945). Although developed specifically within the realm of economic philosophy, Hayek's main proposition, that information is unequally distributed within society (Hayek, 1945), directly supports Schumpeter's original assumptions about opportunity recognition. If everyone has different levels of information about products, markets, technologies or events, then everyone is likely to discover different opportunities.
2.1.3 The Role of Entrepreneurial Alertness
This observation was further validated several years later by Izrael Kirzner, who first clearly applied disequilibrium theory to entrepreneurship, and also introduced the
concept of entrepreneurial alertness (Kirzner, 1973). Kirzner argued that the knowledge and information individuals accumulate, ultimately shaped and influenced their ability to recognize those gaps within the market which held potential commercial value when filled (Kirzner, 1973). In other words, information asymmetries impact a person's ability to recognize entrepreneurial opportunities (Hayek, 1945; Kirzner, 1973). The
fundamental assumption of disequilirium economics suggests that no one person possesses all information about all given things at one time, so market actors have to guess or anticipate each other's actions; which inevitably leads to misallocations and non-‐perfect, disequilibrium markets (Kirzner, 1973).
Furthermore, Kirzner implied that entrepreneurial opportunities simply exist and can theoretically be seized or discovered by anyone, without those individuals actively searching for them, because entrepreneurial alertness is a skill and not an active behavior (Kirzner, 1973 and Kirzner, 1979). In 1979, Kirzner developed the construct of entrepreneurial alertness, and defined it as "a distinctive set of perceptual and
information-‐processing skills that enable and drive opportunity identification and recognition processes"(Kirzner, 1979). As such Kirzner believed that the main barrier preventing all people from discovering opportunities equally, was the lack of the necessary information or knowledge that would make underutilized resources or market gaps evident (Kirzner, 1979). In 1980, Kirzner refined his theory to include the notions of "veridical perception" and "veridical interpretation" (Kirzner, 1980). These concepts emphasize the importance of entrepreneurs being able to more accurately assess changes in their market environments, and interpret the potential consequences of these events more truthfully, closer to the reality of what was actually happening (Kirzner, 1980). Finally, Kirzner broadened his definition of entrepreneural alertness to include "a motivated propensity to formulate an image of the future" (Kirzner, 1985),
and emphasized the importance of cognitive error control in the opportunity recognition process.
2.1.4 Active Search versus Serendipitous Discovery
The idea of entrepreneurial alertness was also validated by Koller (1988), Peterson (1988), and Hills et al. (2004), who examined whether entrepreneurs employ active search behaviors to look for opportunities, or serendipitously discover them (Koller, 1988; Peterson, 1988; Hills et al., 2004). Research was targeted at examining different entrepreneurial search strategies and the amount of time and effort individuals
committed to finding opportunities (Gilad et al., 1988; Kaish and Gilad, 1991; Cooper et al., 1995; Hills et al., 2004). It was believed that at least some individuals were
successfully engaged in repeated entrepreneurial activity without ever actively searching for opportunities because they were very good at using information
asymmetries in their favor (Gilad et al., 1988; Kaish and Gilad, 1991). These individuals were seemingly gifted at positioning themselves within or along the flow of information within their close environments or greater society, so that new information about potential opportunities was simply conveyed to or directed at them (Kaish and Gilad, 1991; Cooper et al., 1995). Specifically Kaish and Gilad (1991) and Cooper et al. (1995) considered differences in both the amount of time and effort spent looking for new information, as well as the number of information sources held between repeatedly successful entrepreneurs and executive managers (Kaish and Gilad, 1991; Cooper et al., 1995). Although they found that entrepreneurs spent significantly more time and
accumulated a greater network of information sources (Kaish and Gilad, 1991; Cooper et al., 1995), these findings were later critized by and found to be insignificant by Busenitz (1996). He argued that any differences had only been discovered due to low internal
reliability or mistakes in the research methodology and data analysis execution (Busenitz, 1996).
2.1.5 The Role of Cognitive Schemas
Later attempts to understand entrepreneurial alertness (as for example by Gaglio and Katz, 2001; and Gaglio, 2004) adopted a more psychological perspective. Gaglio and Katz (2001) attempted to map out opportunity identification processes as cognitive
behaviours and patterns in a schema of entrepreneurial alertness (Gaglio and Katz, 2001). Gaglio and Katz (2001) build on Bargh and Pratto's (1986) chronic schema argument; adding that some individuals activate cognitive schemas regardless of how appropriate they may be to understanding the situational context (Bargh and Pratto, 1986; Gaglio and Katz, 2001). They use this to explain how the habitual activation of entrepreneurial alertness schemas can lead to some entrepreneurs discovering
opportunities without active search processes (Gaglio and Katz, 2001). This is contrary to the findings of other research studies which stress the importance of formal search and information gathering strategies in recognizing opportunities (Cooper et al., 1995; Hills et al., 2004).
Furthermore, Gaglio (2004) emphasized the role of counterfactual thinking in generating cognitive processes that assist entrepreneurs in deconstructing and creating new means-‐ends frameworks which result in new entrepreneurial opportunities
(Gaglio, 2004). Although Gaglio and Katz (2001) and Gaglio (2004) do not contribute much empirical evidence to substantiate one side of the active search versus
serendipitous discovery debate, their research provided new insight to understanding how entrepreneurs think and the cognitive phenomena which take place during opportunity recognition. Moreover, this stream of research provided support for the
previously implicit assumption that opportunity recognition is a process of social construction (Berger and Luckman, 1967); that opportunities are recognized as a result of an entrepreneur's beliefs being accepted or rejected by other market actors and confirmed by perceptions of the market environments themselves.
2.1.6 The Role of Personality Traits
The active search versus serendipitous discovery debate also spurred a line of academic research into the personal attributes and personality traits of entrepreneurs (Endsley, 1995; Ray and Cardozo, 1996; Krueger and Dickson, 1994; Krueger and Brazeal, 1994). Experts grappled to understand if there was a specific combination of traits that would lead to a successful serial entrepreneur persona. Endsley (1995) proposed that some people simply have a higher propensity to discover opportunities because they notice solutions to their own or other people's problems (Endsley, 1995). Ray and Cardozo (1996) suggest that opportunity recognition is driven by an increased level of sensitivity to changes that results from specific personality traits (Ray and Cardozo, 1996).
Moreover, Krueger and Dickson (1994) and Krueger and Brazeal (1994) emphasize the importance of optimism, arguing that increased self-‐efficacy and belief in oneself leads to challenging situations being interpreted as opportunities rather than threats (Krueger and Dickson, 1994; Krueger and Brazeal, 1994; Neck and Manz, 1992; Neck and Manz, 1996). In other words, higher levels of optimism increase the likelihood of individuals discovering opportunties. Not only personality traits, but also the effect of personal characteristics such as gender, have been the interest of more recent research efforts. Chandler and DeTienne (2007) for example, find that whilst men and women utilise their human capital differently throughout the process of opportunity recognition, this
does not result in neither men nor women being less or more likely to achieve entrepreneurial success (Chandler and DeTienne, 2007).
2.1.7 A Neoclassical View of Opportunity Recognition
The research theories established by Schumpeter, Hayek, and Kirzner, proposed that entrepreneurial activity and the process of opportunity recognition can only occur under conditions of economic disequilibrium. However, the mainstream neoclassical school of economics offered an alternative explanation. The neoclassical view argued that entrepreneurship takes place under market-‐equilibrium conditions and that all individuals have an equal chance of discovering entrepreneurial opportunities
(Khilstrom and Laffont, 1979; Evans and Jovanovic, 1989). Rather than simply finding opportunities, entrepreneurs are seen as individuals who actively search for new means-‐ends combinations that held commercial value (Khilstrom and Laffont, 1979). Evolving this different perspective, Khilstrom and Laffont first argued that all
individuals can and will discover the same opportunities in response to any given technological change (Khilstrom and Laffont, 1979). A decade later, this view was further substantiated by Evans' and Jovanovic's Model of Entrepreneurial Choice Under Liquidity Constraints (1989). In their model, Evans and Jovanovic mathematically argue that the probability of discovering entrepreneurial opportunities is unrelated to the attributes of the individuals aspiring to be entrepreneurs (Evans and Jovanovic, 1989). Rather, individuals are believed to calculate and assess the potential financial
consequences (the potential earning), of becoming unconstrained or constrained entrepreneurs versus becoming wage workers (Evans and Jovanovic, 1989). The main distinction between the two groups is the level of risk an individual is comfortable facing (Evans and Jovanovic, 1989).
As such the neoclassical view postulates that previous findings relating to
information asymmetries and personality traits are irrelevant, and that these factors do not influence an individual's propensity to recognize opportunities (Khilstrom and Laffont, 1979; Evans and Jovanovic, 1989). However, an individual's attitudes towards risk and their perception of acceptable risk-‐levels can arguably be seen as an element of that individual's personality. Moreover, the importance Khilstrom and Laffont place on active search strategies (Khilstrom and Laffont, 1979), can be reconciled with theories of entrepreneurial alertness (Kirzner, 1973; Kirzner, 1979; Gaglio and Katz, 2001; Gaglio, 2004), as individuals exhibiting higher levels of entrepreneurial alertness are inherently more actively searching for opportunities and thus likely to recognize more of them successfully. Consequently, the neoclassical view does little to contradict previous findings on factors influencing an individual's propensity to recognize
opportunities, but rather offers a differently focussed lense to identify and explain them.
2.1.8 The Role of Prior Knowledge
Whilst the neoclassical view has not been discredited, it is by far not as popular in mainstream entrepreneurship theory and has received much less support in more recent studies. Venkataraman (1997) and Shane and Venkataraman (2000) argue that rather than selecting between all possible alternatives, individuals will not perceive all available opportunities at any given time due to the influence of prior knowledge
(Venkataraman, 1997; Shane and Venkataraman, 2000; Shane, 2000). They argue that a neoclassical view of opportunity recognition is inadequate, as it does not take into account the different levels and types of knowledge individuals have gathered throughout their lifetimes (Shane, 2000).
The equilibrium-‐based view is often heavily crititized for the incompleteness of price information, as current prices give no indication about entrepreneurs' beliefs about the potential future value and prices of resources (Shane, 2000; Eckhardt and Shane, 2003). Having prior knowledge in an area or field relevant to the potential opportunity, is likely to influence the value perception, and thus the individuals'
willingness to pay higher future prices for resources required to realize the opportunity (Shane, 2000). The neoclassical assumption that all market actors, including resources owners have access to this information, is highly unlikely (Venkataraman, 1997; Shane and Venkataraman, 2000).
Shane and Venkataraman (2000) and Eckhardt and Shane (2003) thus emphasize Casson's (1982) argument that if resource owners held information about the future value of their resources they would raise the prices of their resources in an attempt to capture more value and some of the potential profit (Casson, 1982), to a point where the opportunity would cease to exist for entrepreneurs because the price differences
become so insubstantial that forming a new venture around their exploitation becomes unprofitable and unfeasible (Venkataraman, 1997; Shane and Venkataraman, 2000; Shane, 2000; Eckhardt and Shane, 2003).
Ultimately, Shane and his colleagues assert that entrepreneurship must take place under disequilibrium conditions because of differences in prior knowledge amongst market actors (Shane, 2000; Shane and Eckhardt, 2003). Shane finds that differences in prior knowledge influence not only an individual's likelihood of discovering an entrepreneurial opportunity, but also the opportunity exploitation processes that follow when the opportunity is acted upon in the formation of a new business or venture (Shane, 2000).
2.1.9 The Role of Social Networks
Parallel to the developments made towards gaining a better understanding of opportunity recognition from an economic or a psychological view, in the field of sociology, Granovetter (1973) developed an early theory of opportunity identification founded in the attributes of an individuals' social network (Granovetter, 1973).
Granovetter's most renowned proposition is his "weak-‐ties" argument. Within it, he postulates that the higher the number of weak-‐ties within a person's social network (the more casual acquaintances and informal relationships, versus family members who represent "close-‐ties"), the higher the chance of that person coming in contact with new and different information and thus discovering new opportunities (Granovetter, 1973). More recent research studies, such as those of Hills et al. (1997) contend the importance of social networks in the opportunity recognition and identification processes; finding that entrepreneurs with more extensive social networks are more likely to identify a greater number of opportunities (Hills et al., 1997).
2.2 MODELS OF OPPORTUNITY RECOGNITION AND DEVELOPMENT PROCESSES
Whilst the previously discussed theories contribute valuable insights to understanding the phenomenon from separate perspectives, the current understanding of opportunity recognition processes remains incomplete, highly fragmented, and largely unvalidated (Herron et al., 1992, Gartner and Shane 1995). The knowledge gained has been gathered from three main disciplines, namely economics, psychology and sociology, but many commentaries call for reconciliation and integration of these fields to arrive at a more wholistic theory of opportunity recognition that applies specifically to the field of entrepreneurship (eg. Bygrave and Hofer 1991).
2.2.1 The Creativity-‐Based Model of Opportunity Recognition
Two noteable attempts at an integration of model components have been made. The first research studies attempting to model the opportunity recognition process were a series of surveys completed by Hills et al. (1997 and 1999), and the second, an extensive literature review completed by Ardichvili et al. (2003). Hills et al. (1999) conceptualize the opportunity recognition process by relating it to the creative process as first
described by Wallas (1926). They argue that entrepreneurs do not simply discover existing opportunities that are already out there, but rather create entrepreneurial opportunities from innovative recombinations and new means-‐ends frameworks (Hills et al. 1995, 1997, and 1999).
Mosakowski (1998) identifies four main resources individuals possess which assist them in the means-‐ends frameworks deconstruction and re-‐creation process (Mosakowski, 1998; Hills et al., 1999). According to Mosakowski, creativity, foresight, intuition and alertness all help individuals to identify and act on opportunities,
ultimately making them into successful entrepreneurs (Mosakowski, 1998). Hills et al. (1999) use these parameters as antecedents of opportunity identification and build on their findings from three successive survey designs and data analysis approaches to construct a five-‐stage creativity-‐based model of opportunity recognition (Hills et al. 1995, 1997, and 1999).
The creativity-‐based model is a valid and much accepted approach to
conceptualizing the process. However, later revisions and adaptations to the model that result from case studies and empirical validation (Hansen et al., 2005; Hansen and Lumpkin, 2009; Hansen et al., 2011), show that there is still some ambiguity and indecision regarding the exact number of phases an entrepreneur follows when
recognizing opportunities, and that the role of evaluation and insight are not yet completely understood.
2.2.2 The Core Process Model of Opportunity Development
In a very different approach, Ardichvili et al. (2003) use Dubin's (1978) theoretical model building framework to integrate the role of personality traits, social networks, prior knowledge and entrepreneurial alertness into a more comprehensive model of what they term opportunity development (rather than recognition), to reflect the creative nature of the process (Ardichvili et al., 2003). Whilst this represents a
progression in modelling the opportunity recognition process wholistically, especially the final "Core Process" stage of opportunitiy development is depicted in a manner that reflects unclarity and ambiguity. The stages Ardichvili et al. (2003) use to describe the core process of opportunity development, entail quite similar procedures as the stages in the creativity-‐based model of opportunity recognition, but they have been renamed to reflect the creation and development perspective of opportunity (Archidvili et al., 2003). Synchronizing the terminology used to describe the five process stages is one aspect adressed in the subsequent reconceptualizations.
Figure 1: The Creativity-Based Model of Opportunity Recognition
Furthermore, Archidvili et al. (2003) astutely extract and combine findings from previous research and reviewed literature to explain antecedents and factors
influencing an individuals propensity to recognize opportunities, but fail to adequately clarify how their representation of the subsequent process of opportunity development differs from previous conceptions by Hills et al. (1995, 1997 and 1999). Moreover, Archidvili et al. (2003) only conduct an extensive literature review and base their model on propositions deduced from previous findings, rather than testing any of the
assumptions on which their model is built. This is valuable for conceptualizing the process of opportunity recognition and development, but not for verifying or validating that the process actually occurs in this manner.
2.2.3 Relating Opportunity Recognition to Opportunity Development
Contrastingly, the main issue of Hills' et al. (1997 and 1999) model appears to be identifying antecedents or precursors which support effective opportunity
identification. Although they call their model opportunity recognition, their research actually appears to be focused on the core process of what Ardichvili et al. (2003) would term opportunity development; the process after recognition has occured. This is
because the model proposes that entrepreneurs begin with immersion in an industry or information gathering related to a certain topic area (Hills et al., 1997). This implicitly assumes that such a focus of interest has already occured. However, to collect detailed information on a product, service, need, or market specific enough to analyse in incubation or evaluate in later stages, some locus, context or basic concept for an opportunity has to be identified and recognized (Ardichvili, 2003; Lumpkin et al., 2004, Hills et al., 2011).
As such, whilst both models are suboptimal and incomplete in representing the entirety of the opportunity recognition and development process on their own, their faults appear complimentary, and an integration of the two models could prove valuable in more accurately depicting the process as a whole. Additionally, both models are congruent in utilizing a non-‐linear representation of the different process stages, suggesting that the process is highly complex, multi-‐dimensional and iterative
(Ardichvili et al., 2003; Hills et al., 1997; Hills et al., 1999; Hills et al., 2004; Hansen et al., 2005; Hansen and Lumpkin, 2009; Hills et al., 2011). Lastly, Hills et al. (2004) suggest that multiple instances of evaluation and insight may occur within the process of
opportunity recognition, and contrary to previous beliefs, that there may not be a single "eureka" moment of insight that leads to opportunity identification.
Figure 2: Units and Model of Opportunity Identification and Development
As a result of the literature reviewed, it is argued that the different views of opportunity recognition which have been developed over the years, are complimentary and can be reconciled into a more complete understanding of the opportunity recognition and development phenomena. Therefore, as a foundation for further research into the complex roles of insight and evaluation within the core opportunity development process, the following reconceptualizations of the opportunity recognition process are proposed.
2.3 RECONCEPTUALIZED PROCESS MODELS
2.3.1 From Idea Generation to Venture Formation
The processes involved in recognizing and then developing an idea into an opportunity and ultimately a new venture, involves a multi-‐dimensional process which occurs over time and is comprised of distinct phases of activity (Ardichvili et al., 2003; Sanz-‐Velasco, 2006; Dimov, 2007). The creativity-‐based model explains the creative process
entrepreneurs undergo in developing an opportunity from a perceived business idea (Hills et al., 1999). However, the creativity-‐based model, focuses on examining the process of developing an opportunity without offering an explanation of the factors involved in the idea generation or opportunity recognition phase preceeding it (Hills et al., 1999; Hills et al., 2011; Lumpkin et al., 2004; Hansen et al., 2009). As such, the model implicitly assumes that a creative idea has been recognized and can be developed into a business opportunity.
Yet creating a good idea is arguably not identical to developing a good business opportunity (Timmons, 1994; Ardichvili et al., 2003). Sarasvathy (2010) uses three dimensions of "newness" to characterize types of opportunity (Sarasvathy, 2010).
