The Entrepreneurs' Opportunity Confidence on New Venture Ideas:
An Experimental Study
Master thesis
byAuthor: Robert Jan Vos
Student number: S3031195
Supervisor: S.M. Dos Santos Fernandes Costa Co-assessor: A.J. Groen
Date: 25/06/2018
Word count: 8099
June, 2018
University of Groningen
1
ABSTRACT
Since the revolutionary article of Shane and Venkataraman (2000) on the promise of entrepreneurship as a research field, research on entrepreneurial opportunities has grown rapidly. However, the great majority of research has focused on either the opportunity or the individual (actor). Davidsson (2015) suggested that the interaction between these parts should be studied. This study analyzed the effect of prototypical viability of New Venture Ideas on the individual’s opportunity confidence. It also investigates the moderating role of entrepreneurial passion on the relationship between the prototypical viability of New Venture Ideas and the individual’s opportunity confidence. An experimental design was used with only university students as participants. The results demonstrate that there is no significant difference between the different experimental conditions and the control group in terms of effect on opportunity confidence. However, the results show that there is a significant difference of the reported confidence between the dimensions ‘solves customer’s problems’ and the ‘manageable risk’. Entrepreneurial passion does not moderate this effect, it in fact has no direct effect on opportunity confidence. Insights are provided into the early stages of the entrepreneurial process.
Keywords: New Venture Ideas, Opportunity confidence, Prototypical characteristics, Entrepreneurial
TABLE OF CONTENTS
Introduction……… ………. 3
Literature review……… ………. 7
New Venture Ideas………...………. ………. 7
Opportunity confidence……….……….10 Entrepreneurial passion………. ………. 12 Conceptual model………... 13 Methods……….………..14 Study design……….………. 14 Participants……… ………. 15 Measures……… 16 Results ………19 Manipulation check………... 19
The effect of prototypical viability of New Venture Ideas on Opportunity Confidence…... 20
The moderating effect of Entrepreneurial Passion on the relationship between NVI and Opportunity Confidence………... 22
Discussion………...……… 26
Implications and directions for future research ………..28
Limitations……….……. 29
Conclusion………...………29
References………...……….30
Appendix A………. 35
3
INTRODUCTION
New organizations and economic activities come into existence through entrepreneurship (Davidsson, 2003; McMullen and Dimov, 2013). Entrepreneurship is widely considered to stimulate competition, drive innovation, create employment, generate positive externalities and increase productivity by introducing technological change. Entrepreneurship is also significantly important if we look at economic development and growth. Since the seminal article of Shane and Venkataraman (2000) on the promise of entrepreneurship as a research field, research on entrepreneurial opportunities has grown rapidly. Researchers have focused on the process through which ideas for potentially profitable new business are recognized by particular persons (e.g., Kirzner 1979, Shane 2003). Baron (2004, 2006) argued that individuals identify business ideas by perceiving connections between unrelated trends or events as meaningful patterns. Shane and Venkataraman (2000) argued that in the process by which new economic activities and organizations come into existence, “opportunities” are central. They consider that entrepreneurship encompasses the nexus between opportunities and individuals. Shane (2003) introduced a new concept, suggesting that researchers need to focus their studies on the individuals; the opportunities; and their fit; the individual-opportunity nexus.
On the opportunity side of the nexus, there has been a lot of focus from research on the creation of opportunities. There are many different definitions of opportunities, but most contain references to three features: novelty, potential economic value, and perceived desirability (Baron 2006). According to Baron (2006) opportunity is defined as “a perceived means of generating economic value that previously has not been exploited and is not currently being exploited by others” (p. 107). Dean (2015) argued that profit opportunities arise due to market gaps, which exists due to changing technologies and demands, however there is no clear description of what “opportunities” are. The other nexus is the individual, or the actor as described by Davidsson (2015). On this side of the nexus, there has been a lot of focus from research on the characteristics of the entrepreneur. According to Nair and Pandey (2006) entrepreneurs tend to be more innovative in their attitude. Rauch and Frese (2007) argued that entrepreneurs are higher in risk-propensity, their need for achievement, innovativeness and internal locus of control.
‘opportunity’ label. To study the interaction between both parts of the nexus, Davidsson (2015) suggested three new constructs, which are; external enablers; New Venture Ideas (hereafter mentioned as NVI); and opportunity confidence. This study focuses to both the characteristics of the NVI, and the individual (actor), in order to explain opportunity confidence. This study addresses both NVIs and external enablers, as the research method used refers to changes in technology.
The first construct, External Enablers, is a construct for the aggregate-level circumstances, for example technology changes or demographic shifts. Davidsson (2015) show that the context of External Enablers also plays an important role in the nexus between the constructs. ‘New Venture
Ideas’ is the second construct suggested by Davidsson (2015) to study the interaction between both
parts of the nexus. According to Davidsson (2015, p. 684), NVIs are defined as “imagined future ventures”. Every business starts with an NVI, which is cognitive and non-material. There are many terms that are linked to this phenomenon. Existing research may have labelled NVIs as “(entrepreneurial) discovery”, “opportunity recognition” or “opportunity identification”. Since NVIs happens at the cognitive level (Davidsson, 2015), it is important to understand how NVIs are mentally represented by individuals.
5
The last construct suggested by Davidsson (2015) is a way to evaluate an NVI; opportunityconfidence. It depends on both the characteristics of the NVI, and of the actor. Opportunity
confidence means the evaluation of the new economic activities which the actor observes (Dimov, 2010). Entrepreneurs act (or not) depending on whether they are convinced that what they ‘observe’ in an opportunity, which could be negative or positive. Because of differences in knowledge, resource and opportunity across entrepreneurs, they may assign varying attractiveness to identical incentives (McMullen and Shepherd, 2006; Shane, 2000). The opportunity confidence is momentary, because the evaluation is made at a certain time. During the whole entrepreneurial process, the opportunity confidence may vary. Opportunity confidence is a cognitive construct which must be further studied in order to gain a better understanding on how entrepreneurs think about opportunities before deciding to act upon them. Besides the research of Grégoire (2010) and Dimov (2010), no literature exists regarding opportunity confidence as a dependent variable. In addition, these studies have not considered the interplay between characteristics of the NVI and the actor.
Attention must also be paid to the characteristics of the actor. Davidsson (2015) referred the importance not only of the characteristics of the NVIs, but also of the actor. Each individual perceives business opportunities differently and has different prototypes. These differences be explained as the characteristics of the actor. The way each individual perceives an NVI is relevant to understand the opportunity confidence. The way people feel and the states of mind they experience influence parts of entrepreneurial cognition and behavior (Baron 2008, 2015; Hayton and Cholakova, 2012). Many positive and negative affective states were found which are relevant in the entrepreneurship process (Cardon et al., 2013) where entrepreneurial passion has progressively attracted researchers' attention as an affective entrepreneurial state (Cardon et al. 2009). There are studies which describe or associate entrepreneurial passion with a diverse range of positive affects and provide an emotional resource for coping with entrepreneurial challenges. According to Cardon et al. (2009) entrepreneurial passion is a positive predisposition toward entrepreneurship. It is interesting to see how individuals with low or high levels of passion identify a business opportunity, and how this may affect the opportunity confidence they perceive.
Research question:
Based on the identified literature gap and the goals of this research, the following research question has been formulated:
7
LITERATURE REVIEW New Ventures Ideas
Within entrepreneurial research, a current core topic is aiming to gain further understanding of the business opportunity process (Shane & Venkataraman, 2000; Gaglio & Katz, 2001; Shane, 2003). This research is focusses on understanding how opportunities are discovered, exploited and created, and with what kind of consequences. Another focus is on understanding how opportunities bring about future goods and services (Venkataraman, 1997). As Jack and Anderson (1999) paraphrased that a business is a chance to meet a market need, which results in more value than the value produced by alternatives businesses.
Baron (2004, 2006) suggested that individuals are central in the process of identification of business opportunities by perceiving connection between unrelated events or trends as meaningful patterns. However, Shane and Venkataraman (2000) argued that “opportunities” are central to this process, by which new economic activities and organizations come into existence.
Since Shane (2003) introduced the new concept of the individual-opportunity nexus, there has been made a lot of progress on the research of opportunities and the individual. However, researchers have typically focused on the two parts of the nexus separately. Davidsson (2015) argued that there is still some confusion about the ‘opportunity’ label. There is also a different idea about what the fundamental characteristics of ‘opportunities’ are. Davidsson (2015) suggested that the interaction
between these two parts should be studied. He suggested a new construct for the individual under the
nexus view; NVIs.
According to Davidsson (2015), NVIs are imaginary combinations of product/service offerings which are cognitive and non-material. NVIs can be defined as ‘imagined future ventures’ (BRON, JAAR). There are many definitions linked to this phenomenon, for example ‘opportunity identification’ and ‘opportunity recognition’. Opportunity recognition is the first stage of the entrepreneurial process (Baron & Shane, 2008). To recognize these NVIs, entrepreneurs need to ‘connect the dots’ between events or trends (Baron, 2004; 2006). Baron suggested that individuals identify NVIs by perceiving connections between apparently unrelated events or trends as a meaningful pattern. According to Amason et al. (2006) this new activity needs not to be innovative. However, it must be an introduction of a product/service for potential customers that has not previously been offered by the same actor (Shane & Venkataraman, 2000). To be recognized as an opportunity, this pattern should undergo a categorization process.
the essential cognitive structures needed to perform the categorization process. Prototypical categorization is a cognitive process, by which ideas are communicated through the most remarkable or delegate features involved in a basic structure, in particular a group of features that are indicative of a classification membership (Rosch et al., 1976; Lakoff, 1987). Prototypes are “abstract mental representations of the most common and salient features combined in an object that represents a category” (Costa et al., 2018, p. 60). When individuals identify objects or situations, they look at the most salient features of those objects or situations and compare them to the prototype of a category. Applying this idea to business opportunities means that individuals compare ideas of new products or services with their prototype of business opportunity (Baron & Ensley, 2006). If there is a possible match, the individual will categorize and recognize it as a business opportunity (Baron, 2004).
Baron and Ensley (2006) identified ten key features of business opportunity prototypes. Five features relate to the business opportunity upon recognition, the other five describe and express the decision to pursue/exploit a venture prototype. This study focuses solely on the features of business opportunity recognition, as recognition is the first stage of the entrepreneurial process. The dimensions included in this study are as follows; solves customers’ problems; generates cash flow; and has manageable risk. These dimensions are associated with meaning similarity and refer to a business opportunity viability (Santos et al., 2015). The features of business opportunity recognition are divided by being either related to business opportunity viability, or business opportunity distinctiveness. This study focuses on the viability dimensions, rather than those of distinctiveness, because a business opportunity’s viability is more accessible in the early stage of the entrepreneurial process than the dimensions referring to an opportunity’s distinctiveness. Business viability involves a need for a product or service and refers to the ability to have profits over a period as well as the perceived long-term survival (Aubin, 1991). The viability of perceived opportunities relates to the capacity to solve customers’ problems or meet their needs, the capacity to generate cash, and the associated risk (Santos et al., 2015).
9
(Storrud-Barnes et al., 2010). In fact, if a business opportunity can solve customers’ problems, and consequently generates cash flow, that is a sign that it will have a manageable level of risk (i.e. requires fewer technological changes or does not involve production risks). In short, any emergent pattern perceived by entrepreneurs will be identified as constituting a business opportunity according to the extent that it solves a current customer problem, has the potential to generate cash flow, and involves moderate rather than excessive levels of risk.Opportunity confidence
The term opportunity confidence was introduced by Dimov (2010) and has an important role on the individual-opportunity nexus. Opportunity confidence denotes the evaluation of the new economic activities, which the actor sees (Dimov, 2010). Dimov (2010) argued that opportunity confidence reflects two personal beliefs about the opportunity: 1) that they will have the capacity to set up a venture that exploits it; and 2) that it is feasible. Opportunity confidence is defined by Davidsson (2015) as the result of an actor’s evaluation of an External Enabler of NVI. In this study, we focus only on the evaluation of the NVI. As well as NVIs, opportunity confidence is also a cognitive construct. Prior literature has also used different terms to describe opportunity confidence, e.g. ‘opportunity evaluation’ or ‘opportunity belief’ (Autio et al., 2013; Eckhardt & Shane, 2003). Entrepreneurs act (or not) depending on what they are convinced they ‘observe’ in an opportunity, which could be negative or positive.
Because of differences in resource, knowledge and opportunity cost across entrepreneurs, they may assign varying attractiveness to equivalent incentives (McMullen & Shepherd, 2006; Shane, 2000). There could also be a difference in the entrepreneur’s tendency to under- or overestimate what is possible for them. During the entrepreneurial process, the opportunity confidence can become higher or lower. It is important to gain a better understanding on how entrepreneurs think about opportunity ideas before they decide to act upon them.
Dimov (2010) has conducted research on opportunity confidence, both as an independent variable and dependent variable. His study focused on the effect of entrepreneurial experience, industry experience and early planning on opportunity confidence. He also tested the effect of a nascent entrepreneurs’ opportunity confidence on venture emergence. In his research, there is no focus on the characteristics of the NVIs. Because opportunity confidence is a direct evaluation of an NVI however, this study focuses on the interaction between the characteristics of an NVI and opportunity confidence.
11
Prototypical viability refers to the perceived long-term business survival, the ability to make sustainable profits over a period and involves the need for a product or service (Aubin, 1991). We expect that the higher the viability of an NVI is, the better represented it will be as an opportunity in an individuals’ mind, and the higher the actor’s perception of the NVIs feasibility. We expect that this will result in a higher level of opportunity confidence. This assumption leads to the following hypothesis:Entrepreneurial passion
The way people feel and the states of mind they experience influence parts of entrepreneurial cognition and behavior (Baron 2008, 2015; Hayton and Cholakova, 2012). Many positive and negative affective states were found which are relevant in the entrepreneurship process (Cardon et al., 2013), where entrepreneurial passion has progressively attracted researchers' attention as an affective entrepreneurial state (Cardon et al. 2009).
According to Cardon et al. (2012), “passion is at the heart of entrepreneurship” and can be defined as a possible “key driver of entrepreneurial action” (Cardon et al., 2012, p. 374). Passion can have a positive effect on the search for promising new opportunities (Baron, 2008; Nasiru et al., 2015). Vallerand et al. (2003) define passion as: “a strong inclination toward an activity that people like, that they find important, and in which they invest time and energy” (Vallerand et al., 2003, p. 757). Schumpeter (1961) described entrepreneurial passion as the unrelenting pursuit and belief in a dream that defied reasoning. Entrepreneurial passion is an affective internal state that individuals experience when thinking about or engaging in activities that are typically related to entrepreneurship, not a personality trait (Cardon et al. 2009). Passion can become a key driver of entrepreneurial action, given the challenges of developing new organizations with limited resources and the uncertainty of success when launching new products and services.
In other words, entrepreneurial passion consists of accessible positive feelings that are central to an individual’s identity. The combination of these two aspects (intense positive feelings and identity centrality) result in enduring affective experiences that tend to last longer than mental scenes. These roles are found consistently at the heart of the entrepreneurial process: 1) founding new organizations; 2) inventing new products or services; and 3) developing these organizations beyond their initial survival and successes (Cardon et al., 2009a). Research from Cardon et al (2009) has shown that these dimensions are conceptually and empirically distinct from each other, and from other aspects of emotion and cognition known to play a role in entrepreneurship.
Prior research has proposed that entrepreneurial passion is not only an outcome of entrepreneurial effort (Frese & Gielnik, 2014), but it can influence entrepreneurial cognition (Cardon et al. 2009), mediates the relationship between self-efficacy and persistence (Cardon & Kirk, 2015), and is an antecedent of entrepreneurial intentions (Biraglia & Kadile, 2016). However, there is little evidence of its role in opportunity confidence.
13
can promote or hinder information processing or categorization (e.g., Baron 2008, 2015). The way each individual thinks about NVIs is relevant to understand the opportunity confidence of a business idea. There are studies which describe or associate entrepreneurial passion with a diverse range of positive affects and provide an emotional resource for coping with entrepreneurial challenges. According to Cardon et al. (2009) entrepreneurial passion is a positive predisposition toward entrepreneurial cognition. It is interesting to see how individuals with low or high levels of entrepreneurial passion identify a business opportunity, and how this affects the perceived opportunity confidence of these opportunities. It is expected that this positive affect on opportunity cognition could lead to a higher level of opportunity confidence for people with a high level of entrepreneurial passion. The assumption that high levels of entrepreneurial passion leads to a higher level of opportunity confidence brings us to the following hypothesis:H2: Entrepreneurial passion moderates the relationship between the prototypical viability of NVIs and opportunity confidence (OC), such that the level of opportunity confidence is higher for participants with high levels of entrepreneurial passion than for those with low levels of entrepreneurial passion.
METHODS Study design
For this study, the experimental design used contained the independent variable (prototypical viability of the NVI) which has four conditions. A randomized algorithm randomly assigned participants to each condition (Shadish, Cook & Campbell, 2002). An online survey was used to conduct the experiment study.
Participants were first asked to answer questions about entrepreneurial passion and the control variables. These control variables were used to rule out alternative explanations of opportunity confidence. Considering that entrepreneurial motivation could reflect opportunity confidence, we controlled the start-up self-efficacy, general self-efficacy and start-up motivation of participants. Participants were then randomly assigned to one of four conditions of prototypical viability of the NVI: solves customers' problems; generates cash flow; manageable risk; and the control group. For each condition, there was a scenario in which an NVI could be identified. The scenario used was based on a real business idea which was presented at a business competition (Duarte & Casimiro, 2010). Participants were asked to put themselves in the position of the actor in the scenario.
After reading the scenario, participants were asked to write down in their own words, which if any NVI they could identify in the story they had just read. If they could, they were asked to briefly describe the business idea they had recognized with as much detail as possible. If they could not describe the business idea, they had a chance to read the story again, keeping in mind that they were looking for a business idea within this story. If they were unsure, they were asked to explain which aspect of the business they were unsure about, and then asked to describe the business idea. This control question was added to guarantee that participants had understood the NVI presented in the scenario.
15
Participants
In total, 160 participants filled out the questionnaire, three of whom did not complete all the questions and thus were excluded from the analyses. Most the participants were university students (N=147), the others were part- or full-time employed (N=8), or in-between jobs (N=2). This study was conducted using university students, because university students can be regarded as potential entrepreneurs. This also means that the results from the participants who were employed were invalid and therefore excluded (Block, Hoogerheide & Thurik, 2011). Potential entrepreneurs are described as individuals who “need not have any salient intentions toward starting a business; their potential is latent and is causal and temporal prior to intentions” (Krueger & Brazeal, 1994. p. 91). To thrive in the contemporary environment, characterized by uncertainty and rapid changes, students require an entrepreneurial mind-set. Students need an entrepreneurial way of thinking within their environment, even if they declared no entrepreneurial intentions or have no entrepreneurial experience. For this reason, university students constitute the sample instead of entrepreneurs. A further, 27 participants did not correctly answer the control question on identification of an NVI. This resulted in a total sample of 120 students with an average age of 24 years old. 70% of the sample were male (N=84) and 74,4% studying Economy and Business (N=89). From the total of 120 participating university students, 88 participated in the experimental groups and 32 in the control group (table 1).
Experimental groups Control group
N = 88 N = 32 N Percentage N Percentage Gender Male 60 68.2 24 75.0 Female 28 31.8 8 25.0 Study direction
Economy and Business 67 76.1 22 68.8
Other 11 23.9 10 31.2
Measures
The questionnaire was subjected to rigorous translation and back-translation process. Because we also used university students coming from abroad to improve our response, the questionnaire was available in Dutch and English. 75% filled in the Dutch version, compared with 25% who filled in the English version.
Control variables
The age and gender (male or female) of participants was controlled in this experiment. Their occupation was also accounted for, measured by selection one of seven options (student, employed (full-time), employed (part-time), graduated, in between jobs, stay-at-home parent or retired). The area of their study was also considered.
There is a chance that the entrepreneurial motivation of the participant could reflect their opportunity confidence. Therefore, we included three different control variables from Dimov (2010), as explained in the introduction of the methods, to rule out alternative explanations for the observed opportunity confidence. Start-up self-efficacy is measured with a six-item scale (α= 0.780), which assesses the students’ belief that they can effectively complete the current start-up effort, on a 7-point scale (with 1 being ‘completely disagree’ and 5 being ‘completely agree’). General self-efficacy belief was measured with a 3-item scale (α= 0.826) on a 5-point scale (ranging from 1 ‘very confident’ to 5 ‘not at all confident’) reflecting the students’ general belief in their ability to achieve tasks, overcome obstacles and complete new tasks. Start-up motivation was also measured along a three-item scale (α= 0.775), reflecting the commitment each participant had to establish their own business. These control variables were measured on a 5-point scale (ranging from 1 ‘completely untrue’ to 5 ‘completely true’).
New Venture Ideas
The scenario used describes a situation favourable to the production and installation of a special energy floor in shopping centers, as a way to producing energy. The scenarios did not explicitly state which NVI was to be identified, but provided information in a connecting- the-dots perspective (Baron 2006). This allows participants to recognize the business opportunities by linking the information that was presented. The scenarios are presented in appendix B.
17
(‘superior product’ and ‘ability to chance the industry’), because the viability dimensions did not require knowledge of a complete market (as in case for the ‘superior product’ dimension) or comparisons with other products (as in case for the ‘ability to change the industry’ dimension). Therefore, the information presented was fully descriptive of each scenario.A 17-item scale adapted from Baron and Ensley’s (2006) original items by Costa and colleagues (2016) describes the three prototypical dimensions of the NVIs viability. We asked the participants: “In your opinion, are the following items characteristics of the business idea you identified?” on a five-point scale (1 = not at all to 5 = very much). The prototypical dimension ‘generates cash flow’ was measured along a five-item scale. The ‘solves customers’ problem’ dimension was also measured along a five-time scale, e.g., “Is life improving” and “is wanted by customers”. The last dimension, managerial risk, was measured along a four-item scale, including ‘has few liabilities’ and ‘has risks in production’. The purpose of these items was to control if participants identified the same business idea in each scenario.
Opportunity confidence
To measure opportunity confidence, we used a 11-item scale (α= 0.837) from Dimov (2010) on a 7-point scale (ranging from 1 = strongly disagree to 7 = strongly agree). Opportunity feasibility belief estimates the certitude of the student that the business will achieve milestones. Participants were asked: “Considering the economic and community context for the new firm, how certain are you that the new business will be able to accomplish each of the following?”. Opportunity feasibility belief was measured along an 11-item scale, such as obtain raw materials and comply with local, state, and
Entrepreneurial passion
19
RESULTS
Manipulation check
The manipulation check was included to check if the independent variable (prototypical viability) was well operationalized and manipulated. We used an ANOVA test to check the averages of the manipulation items per scenario. Results demonstrate that there were no significant differences between the scenarios (p > 0.05), but an analysis of the averages had gone that the manipulation goes in the right direction. As shown in table 2, the average of the manipulation items is higher for all the prototypical viability conditions compared with the control group. However, in the ‘solves customers' problems’ (SCP) and the ‘manageable risk’ (MR) scenarios, the averages were not higher in every case than in the other scenarios (SCP; 3,66 versus 3.89, in the PNCF condition) and (MR; 3.44 versus 3.64, in the PNCF condition). It could be possible that participants made associations between dimensions of the prototype, assuming information about customers when they are informed of profit and assumptions of profit once risk is manageable. In fact, the dimensions of the prototype are connected in terms of meaning (Santos et al., 2015). Nevertheless, we were confident that the manipulation worked, because the result was higher when a condition was manipulated, than when there was no condition (i.e. the control group). Furthermore, this manipulation check is validated in a research by Costa et al (2018) with 283 respondents. One can conclude from this manipulation check that there was no significant difference between the scenarios, however the analysis of the averages shows that the manipulation went in the right direction and all the average for the manipulated item were higher than those in the control group. Thus, we can confident in further analyzing the results.
Experimental Groups*
NVIs prototypical viability SCP PNCF MR Control group
Solves customers' problems (SCP) 3.66 3.89 3.65 3.61
Generates cash flow (GCF) 2.87 3.30 2.84 2,78
Manageable risk (MR) 3.38 3.64 3.44 3.33
*The values refer to the mean
The effect of prototypical viability of New Venture Ideas on opportunity confidence
Hypothesis 1 predicts that the opportunity confidence level will be higher for participants who read an NVI with high prototypical viability. Participants who read a story with the dimension ‘solves customers’ problems’ reported the highest opportunity confidence (M = 3.89, SD = .71), followed by the participants who read the scenario within the ‘generates cash flow’ dimension (M = 3.81, SD = .49). Participants who read the scenario with the dimension ‘manageable risk’ reported the lowest opportunity confidence (M = 3.52, SD = .66), even lower than participants who read the scenario without prototypical viability – the control group (M = 3.67, SD = .69).
Variable Mean F Sig.
Gender .14 0.06 .16 Age 0.9 2.02 .16 Study direction 1.26 3.94 .05 Start-up Self-efficacy 1.07 2.85 .09 General Self-efficacy .85 1.79 .18 Start-up Motivation 1.24 3.81 .05
NVIs prototypical viability 1.10 3.01 .03*
R Squared = ,15 (Adjusted R Squared = .082) *Significant at (p < 0.05)
Table 3: ANCOVA analyses
We conducted an ANCOVA test to evaluate if covariate values differed among the scenarios. We included gender, age, study area, start-up self-efficacy, general self-efficacy and start-up motivation as control variables. The results of the ANCOVA test, showed in table 3, pointed out that NVIs prototypical viability had a significant effect on the participants’ opportunity confidence F".$$% = 3.01; p < 0.05 . With only an ANCOVA test it is not possible to conclude between
21
prototypically viable. Nevertheless, this results were interesting and will be addressed in the discussion.
NVIs Prototypical Viability NVIs Prototypical Viability ∆ Mean Std. Error Sig.
Solves customer’s problems Generates cash flow .10 .18 .99
Manageable risk .46 .16 .03*
Control group .25 .16 .58
Generates cash flow Solves customer’s problems -.10 .18 .99
Manageable risk .36 .17 .22
Control group .14 .17 .96
Manageable risk Solves customer’s problems -.46 .16 .03*
Generates cash flow -.36 .17 .22
Control group -.21 .16 .70
Control group Solves customer’s problems -.27 .16 .58
Generates cash flow -.14 .17 .96
Manageable risk .21 .16 .70
Dependent variable: opportunity confidence * Significant at 𝑝 < 0.05
The moderating effect of entrepreneurial passion on the relationship between NVI and Opportunity Confidence
Hypothesis 2 predicts that entrepreneurial passion moderates the relationship between the prototypical viability of NVIs and opportunity confidence, such that the opportunity confidence level is higher for participants with a higher level of entrepreneurial passion than for those with a low level of entrepreneurial passion. To test H2, we conducted an ANCOVA test and tested a three-way interaction effect between the prototypical viability, opportunity confidence and entrepreneurial passion. Entrepreneurial passion was re-coded, and the mean (M = 5.01, SD = 1.07) of all the 10 items was tested. The participants who scored a mean of 1- 5.01 had a low level of entrepreneurial passion. The participants who scored a mean of 5.01 - 7 had a high level of Entrepreneurial Passion.
As the complete theoretical model was now being tested, the control variables were again included (gender, age, study area, start-up self-efficacy, general self-efficacy and start-up motivation). However, only study direction F".$$% = 5.76; p < 0.05 was seen to be a significant predictor of a
higher level of opportunity confidence. Participants who studied Languages and Communication (N=2) reported the highest opportunity confidence (M = 4,32) and participants who were in the field of Technical Studies reported the lowest level of opportunity confidence (M = 2,88). The great majority of the participants studied Economy and Business (N = 89) and scored a 3,74 on opportunity confidence. However, when a test was conducted to establish if the study area of participants had a direct effect on opportunity confidence, the results was only marginal significant (p = 0.05). Thus, it is possible that in combination with other factors, Language and Communication students reported higher confidence and Technical studies students reported lower opportunity confidence. However, no significant direct effect on opportunity confidence can be seen.
Variable Mean Square F Sig.
Gender .09 .22 .64 Age .58 1.41 .24 Study Direction 2.38 5.76 .02 * Start-up Self-efficacy 1.40 3.38 .07 General Self-efficacy .40 .956 .33 Startup motivation 1.09 2.63 .11
NVIs prototypical viability .94 2.27 .31
Passion: inventing .87 2.11 .15
Passion: founding .62 1.51 .22
Passion: developing .02 .05 .82
23
NVIs prototypical viability × Founding .11 .26 .85
NVIs prototypical viability × Developing .03 .08 .97
Dependent variable: opportunity confidence R Squared = ,301 (Adjusted R Squared = .054) *Significant at (p < 0.05)
Table 5: ANCOVA analyses of the moderating effect of entrepreneurial passion on the relation between NVI and opportunity confidence
As shown in table 5, within the full model, the NVIs prototypical viability is no longer significant 𝐹".$$% = 2.27; p > 0.05 . Also, none of the subscales of entrepreneurial passion (inventing,
founding or developing) are seen to be a significant predictor of opportunity confidence. After the subscales of entrepreneurial passion, further tests were conducted regarding the interaction between the scenarios and the subscales of entrepreneurial passion. This test did not significantly explain more variance of the level of opportunity confidence.
In addition to the ANOVA test, an independent sample t-test was performed, to further explore the role of passion in each condition of the NVI, and attempt to establish if any indication of interaction was present. No differences were found between the experimental groups and the control group regarding the subscales of entrepreneurial passion (Inventing, founding and developing.
Given the mean values (figure 2, 3 and 4), there are no significant differences between the participants who are scored low or high passion levels on the relationship between the NVIs and opportunity confidence (appendix A).
Figure 3: Multiple Line Mean of Opportunity Confidence by’ subscale: founding’ by the NVIs Prototypical Viability
25
Finally, a linear regression was conducted to investigate whether (or not) the three subscales predicted opportunity confidence. No significant differences were found (table 6). To conclude, there was no significant interactive effect between entrepreneurial passion and prototypical viability on the level of opportunity confidence which participants reported. Thus, we found no support for hypothesis 2.Subscale B Std. Error t Sig.
Passion: Inventing -.04 .09 - .51 .61
Passion: Founding .58 .06 - .46 .65
Passion: Developing .08 .07 1.13 .26
Dependent variable: opportunity confidence R Squared = ,01 (Adjusted R Squared = -.01)
Table 6: Regression analyses of the direct effect of entrepreneurial passion on opportunity confidence
DISCUSSION
Davidsson (2015) argued that the interaction between the individual and the opportunity should be studied. In this study, attention was paid to both the characteristics of the NVI and the actor to explain opportunity confidence. This experimental study has analyzed how prototypical characteristics of an NVI influence opportunity confidence. Specifically, the way in which prototypical viability influences opportunity confidence was analyzed.
Results showed that there was a significant difference in the confidence reported between ‘solves customer’s problems’ and ‘manageable risk’, which means that different experimental conditions are not significantly different compared to the control group in terms of effect on opportunity confidence. Participants who read an NVI with the dimension ‘solves customer’s problems’ showed the highest level of opportunity confidence (3.89) while participants who read an NVI with the dimension ‘manageable risk’ have the lowest level of opportunity confidence (3.51), even lower than participants who read an NVI without prototypical viability – the control group (3.67). According to Costa et al. (2018), there might be a significant difference between ‘solves customers’ problems’ and ‘manageable risk’ because ‘manageable risk’ is a complex construct to identify at the early stages of the entrepreneurial process. Our participants were students with minimal or no entrepreneurial experience. This is in line with Baron’s (2006) literature which suggested that experienced entrepreneurs focus more on analyzing risk than less experienced entrepreneurs. It is plausible that students were not aware of risks, but when they read an NVI with characteristics of risk they become aware of the risks and have less confidence in an opportunity. There is no support for Hypothesis 1. It could be that participants identified the NVI, but choose not to act upon them. The participants can have concludes that the NVI is too bad (Davidsson, 2015). The insignificant relationship might be explained by the fact that 59 participants (49,1%) are unwilling to invest time, energy and resources in the NVI. Also 11 participants (9%) are not confident. It may also be that it is not a matter of presence or absence of prototypicality, but of the aspect of viability present or absent in the NVI that affects opportunity confidence.
IMPLICATIONS AND DIRECTIONS FOR FUTURE RESEARCH
The aim of this study was to create a better understanding on how entrepreneurs think about opportunities before deciding to act upon them. It is important to know how these entrepreneurs identify NVIs and what kind of characteristics have influence on the evaluation of these NVIs. This study has some interesting implications.
The study showed that there are not significantly different between the different experimental conditions and the control group from each other in terms of effect on opportunity confidence, however the results show that there is a significant difference in opportunity confidence between ‘solves customer’s problems’ and ‘manageable risk’. Evidence was provided indicating that ‘manageable risk’ is a complex construct to identify at the early stages of the entrepreneurial process. Since recognition is the first stage of the entrepreneurial process, we can conclude that entrepreneurs should focus on the ‘solves customers’ problem’ dimensions of the business opportunity to obtain the highest level of opportunity confidence.
No empirical evidence was found to suggest that entrepreneurial passion moderates the relation between NVIs and opportunity confidence. This means, individuals with a high level of entrepreneurial passion did not have a significantly higher level of opportunity confidence compared to individuals with a low level of entrepreneurial passion. In this sense, entrepreneurs at the early stage of the entrepreneurial process should focus on other individual characteristics to successfully establish a new business.
29
LIMITATIONS
The are some limitations to this study which should be pointed out. For instance, a larger sample would further validate the manipulation check and establish a larger number of participants in each scenario. A snowball sampling method was used to gain respondents (Cohen & Arieli, 2011). Cohan and Arieli (2011) argued that the snowball sampling method is not the best method to gain respondents, however it is still a valuable method to gain respondents and increase collaboration. A personal network was used to gather participants for this research, which resulted in largely Economic and Business students (74,4%) as participants. A more varied target group could have given varied results.
CONCLUSION
REFERENCES Articles
Ardichvili, A., Cardozo, R., & Ray, S. (2003). A theory of entrepreneurial opportunity identification and development. Journal of Business venturing, 18(1), 105-123.
Amason, A. C., Shrader, R. C., & Tompson, G. H. (2006). Newness and novelty: Relating top management team composition to new venture performance. Journal of Business Venturing, 21(1), 125-148.
Aubin, J. P., & Frankowska, H. (1991). Viability Kernel of Control Systems. In Nonlinear
synthesis (pp. 12-33). Birkhäuser, Boston, MA
Autio, E., Dahlander, L., & Frederiksen, L. (2013). Information exposure, opportunity evaluation, and entrepreneurial action: An investigation of an online user community. Academy of Management
Journal, 56(5), 1348-1371.
Baron, R. A. (2004). The cognitive perspective: a valuable tool for answering entrepreneurship's basic “why” questions. Journal of business venturing, 19(2), 221-239.
Baron, R. A. (2006). Opportunity recognition as pattern recognition: How entrepreneurs “connect the dots” to identify new business opportunities. The Academy of Management Perspectives, 20(1), 104-119.
Baron, R. A. (2008). The role of affect in the entrepreneurial process. Academy of management
Review, 33(2), 328-340.
Baron, R. A., & Ensley, M. D. (2006). Opportunity recognition as the detection of meaningful patterns: Evidence from comparisons of novice and experienced entrepreneurs. Management
science, 52(9), 1331-1344.
Baum, J. R., Frese, M., & Baron, R. A. (2014). Born to be an entrepreneur? Revisiting the personality approach to entrepreneurship. In The psychology of entrepreneurship (pp. 73-98). Psychology Press. Biraglia, A., & Kadile, V. (2017). The role of entrepreneurial passion and creativity in developing entrepreneurial intentions: Insights from American homebrewers. Journal of Small Business
31
Block, J. H., Hoogerheide, L., & Thurik, R. (2013). Education and entrepreneurial choice: An instrumental variables analysis. International Small Business Journal, 31(1), 23-33.Cardon, M. S., Gregoire, D. A., Stevens, C. E., & Patel, P. C. (2013). Measuring entrepreneurial passion: Conceptual foundations and scale validation. Journal of Business Venturing, 28(3), 373-396. Cardon, M. S., Wincent, J., Singh, J., & Drnovsek, M. (2009). The nature and experience of entrepreneurial passion. Academy of management Review, 34(3), 511-532.
Choi, Y. R., Lévesque, M., & Shepherd, D. A. (2008). When should entrepreneurs expedite or delay opportunity exploitation?. Journal of business venturing, 23(3), 333-355.
Choi, Y. R., & Shepherd, D. A. (2004). Entrepreneurs’ decisions to exploit opportunities. Journal of
management, 30(3), 377-395.
Costa, S., Santos, S. C., & Caetano, A. (2013). Prototypical dimensions of business opportunity in early stages of the entrepreneurial process. Revista Psicologia: Organizações e Trabalho, (3), 265-278.
Cohen, N., & Arieli, T. (2011). Field research in conflict environments: Methodological challenges and snowball sampling. Journal of Peace Research, 48(4), 423-435.
Costa, S. F., Santos, S. C., Wach, D., & Caetano, A. (2018). Recognizing Opportunities across Campus: The Effects of Cognitive Training and Entrepreneurial Passion on the Business Opportunity Prototype. Journal of Small Business Management, 56(1), 51-75.
Davidsson, P. (2003). The domain of entrepreneurship research: Some suggestions. In Cognitive
approaches to entrepreneurship research (pp. 315-372). Emerald Group Publishing Limited.
Davidsson, P. (2015). Entrepreneurial opportunities and the entrepreneurship nexus: A re-conceptualization. Journal of Business Venturing, 30(5), 674-695.
Duarte, F., & Casimiro, F. (2010). Wayenergy–A Techonology-Based Company to Act on Renewable Energy and Energy Efficiency Markets. Lisbon, Portugal: ISCTE-IUL MIT Portugal Venture
Dimov, D. (2010). Nascent entrepreneurs and venture emergence: Opportunity confidence, human capital, and early planning. Journal of Management Studies, 47(6), 1123-1153.
Eckhardt, J.T. and Shane, S.A. (2003). Opportunities and Entrepreneurship. Journal of Management 29(3):333–349.
Foss, N. J., Klein, P. G., Kor, Y. Y., & Mahoney, J. T. (2008). Entrepreneurship, subjectivism, and the resource-based view: toward a new synthesis. Strategic Entrepreneurship Journal, 2(1), 73-94.
Frese, M., & Gielnik, M. M. (2014). The psychology of entrepreneurship. Annu. Rev. Organ. Psychol.
Organ. Behav., 1(1), 413-438.
Grégoire, D. A., Barr, P. S., & Shepherd, D. A. (2010). Cognitive processes of opportunity recognition: The role of structural alignment. Organization science, 21(2), 413-431.
Gregoire, D. A., Shepherd, D. A., & Schurer Lambert, L. (2010). Measuring opportunity-recognition beliefs: Illustrating and validating an experimental approach. Organizational Research
Methods, 13(1), 114-145.
Gaglio, C. M., & Katz, J. A. (2001). The psychological basis of opportunity identification: Entrepreneurial alertness. Small business economics, 16(2), 95-111.
Hayton, J. C., & Cholakova, M. (2012). The role of affect in the creation and intentional pursuit of entrepreneurial ideas. Entrepreneurship Theory and Practice, 36(1), 41-68.
Jack, S. L., & Anderson, A. R. (1999). Entrepreneurship education within the enterprise culture: producing reflective practitioners. International Journal of Entrepreneurial Behavior &
Research, 5(3), 110-125.
Krueger Jr, N. F., & Brazeal, D. V. (1994). Entrepreneurial potential and potential entrepreneurs. Entrepreneurship theory and practice, 18(3), 91-104.
33
McMullen, J. S., & Dimov, D. (2013). Time and the entrepreneurial journey: The problems and promise of studying entrepreneurship as a process. Journal of Management Studies, 50(8), 1481-1512 McMullen, J. S., & Shepherd, D. A. (2006). Entrepreneurial action and the role of uncertainty in the theory of the entrepreneur. Academy of Management review, 31(1), 132-152.Nair, K. R. G., & Pandey, A. (2006). Characteristics of entrepreneurs: an empirical analysis. The
journal of entrepreneurship, 15(1), 47-61.
Nasiru, A., Keat, O. Y., & Bhatti, M. A. (2015). Influence of perceived university support, perceived effective entrepreneurship education, perceived creativity disposition, entrepreneurial passion for inventing and founding on entrepreneurial intention. Mediterranean Journal of Social Sciences, 6(3), 88.
Rauch, A., & Frese, M. (2007). Let's put the person back into entrepreneurship research: A meta-analysis on the relationship between business owners' personality traits, business creation, and success. European Journal of work and organizational psychology, 16(4), 353-385.
Rosch, E., Mervis, C. B., Gray, W. D., Johnson, D. M., & Boyes-Braem, P. (1976). Basic objects in natural categories. Cognitive psychology, 8(3), 382-439.
Santos, S. C., Caetano, A., Baron, R., & Curral, L. (2015). Prototype models of opportunity recognition and the decision to launch a new venture: identifying the basic dimensions. International
Journal of Entrepreneurial Behavior & Research, 21(4), 510-538.
Shane, S. A., and S. Venkataraman (2000). “The Promise of Entrepreneurship as a Field of Research,”
Academy of Management Review 25(1), 217–226.
Shepherd, D. A., & DeTienne, D. R. (2005). Prior knowledge, potential financial reward, and opportunity identification. Entrepreneurship theory and practice, 29(1), 91-112.
Short, J. C., Ketchen Jr, D. J., Shook, C. L., & Ireland, R. D. (2010). The concept of “opportunity” in entrepreneurship research: Past accomplishments and future challenges. Journal of Management, 36(1), 40-65.
Vallerand, R. J., Blanchard, C., Mageau, G. A., Koestner, R., Ratelle, C., Léonard, M., ... & Marsolais, J. (2003). Les passions de l'ame: on obsessive and harmonious passion. Journal of personality and
social psychology, 85(4), 756.
Venkataraman, S. (1997). The distinctive domain of entrepreneurship research. Advances in
entrepreneurship, firm emergence and growth, 3(1), 119-138.
Books
Cook, T. D., Campbell, D. T., & Shadish, W. (2002). Experimental and quasi-experimental designs
for generalized causal inference. Boston: Houghton Mifflin.
Dean, T.J. (2015). Equilibrium, Disequilibrium, and Entrepreneurship. Wiley Encyclopedia of Management, 1.
Matlin, M. W. 2005. Cognition, 6th ed. John Wiley and Sons, New York.
35
APPENDIX A
NVIs prototypical viability Subscales Passion N Mean Std. Deviation
Solves customer’s problems Inventing Low 16 3.93 .78
High 14 3.85 .64
Founding Low 12 4.13 .72
High 18 3.73 .68
Developing Low 11 3,93 .90
High 19 3.87 .60
Generates cash flow Inventing Low 12 3.78 .46
High 12 3.85 .54
Founding Low 12 3.93 .58
High 12 3.70 .38
Developing Low 7 4.01 .65
High 17 3.73 .41
Manageable risk Inventing Low 16 3.47 .69
High 18 3.56 .65
Founding Low 16 3.44 .81
High 18 3.59 .52
Developing Low 16 3.40 .80
High 18 3.61 .50
Control group Inventing Low 17 3.56 .47
High 15 3.79 .87
Founding Low 18 3.62 .49
High 14 3.73 .90
Developing Low 19 3.57 .63
High 13 3.80 .22
Dependent variable: opportunity confidence
APPENDIX B
The scenario used was based on a real business idea which was presented at a business competition (Duarte & Casimiro, 2010). The different scenarios are described below.
Common part for each scenario
You are in charge of the electric maintenance of a shopping center group. On your last visit to one of the group’s shopping centers, you met the usually crowded scenario so typical of these places. While talking to the shopping center manager about this, he says that, although there are lots of people, they are buying less and less. Electricity costs are rising every month and the profit margin to pay for it is smaller. With your knowledge of electricity, you quickly realize that the energy produced by people walking around the shopping center could be transformed into electricity. You imagine a device that covers the floor of the entire shopping center.
Solving customer’s problems condition
Making people’s visits count even if they spend no money, solving the company’s problem. The same idea could be applied to other clients to lower their energy consumption costs. Thus, from a long-term perspective, the shopping centers would be autonomous in their energy production, lowering their dependence. This would be a renewable energy source and would be socially responsible—something shopping centers would want to be connected with.
Generates cash-flow condition
These devices are inexpensive to mass-produce and the profit return would be very swift – less than a year. The general commercialization of these devices would further increase your profit margin. Thus, you would consider applying this idea to other contexts to increase your profit.
Manageable risk condition
The production of these devices hold few risks. Placing them in shopping centers would involve no technological or legal liabilities because administrations are willing to use this technology. This would also definitely solve the problem of energy dependence.
Control group
