(e.g., business idea/concept; entrepreneurial idea/concept/conjectures; initial .... It is probably the NVI characteristic that is best developed in prior literature, which .... Introduction, research on diffusion of innovations has distilled a small set of ...
This is the author’s version of a work that was submitted/accepted for publication in the following source: Davidsson, Per & Tonelli, Marcello (2013) Towards a operable entrepreneurship nexus : conceptualizing venture ideas and their characteristics. In Toombs, Leslie (Ed.) 73rd Annual Meeting of the Academy of Management : Capitalism in Question, 9-13 August 2013, Lake Buena Vista (Orlando), Florida. This file was downloaded from: http://eprints.qut.edu.au/62856/
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Towards and Operable Entrepreneurship Nexus: Conceptualizing Venture Ideas and Their Characteristics
Abstract We support Shane and Venkataraman’s (2000) basic idea of an “entrepreneurship nexus” where characteristics of the actor as well as those of the “opportunity” they work on influence action and outcomes in the creation of new economic activities. However, a review of the literature reveals that very little progress has been made on the core issues pertaining to the nexus idea. We argue that this is rooted in fundamental and insurmountable problems with the “opportunity” construct itself. As an alternative, we suggest the admittedly subjective notion of New Venture Idea as a more workable alternative. We provide a comprehensive definition and explanation of this construct, and take steps towards improved conceptualization and operationalization of its subdimensions. With some further work on these conceptualizations and operationalizations it should be possible to implement a comprehensive research program that can finally deliver on the promise outlined by Shane and Venkataraman (2000).
Keywords: New Venture Idea; Opportunity; Nexus; Novelty: Appropriability; Scalability; Diffusability; Scope; Relatedness; Market Conditions; Completeness; Change
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Towards and Operable Entrepreneurship Nexus: Conceptualizing Venture Ideas and Their Characteristics
Introduction During the last decade entrepreneurship researchers have produced a rather sizable literature on “entrepreneurial opportunities” (Anonymous, forthcoming; Short, Ketchen Jr, Shook, & Ireland, 2010). Despite this, very little progress has been made on core issues pertaining to Shane and Venkataraman’s idea of an “entrepreneurship nexus,” namely how characteristics not only of actors, but also those of the “opportunities” they work on and the actor-opportunity fit, influence entrepreneurial action and outcomes. Based on a thorough review and comprehensive critique reported elsewhere (Anonymous, forthcoming; Anonymous & Anonymous, 2013) we acknowledge that there are individual papers in the research stream that make important contributions on particular issues; however, the scholarly conversation on “entrepreneurial opportunities” as a whole is characterized by vagueness, disagreement, confusion and inconsistencies across as well as within individual papers and authors (cf. Hansen, Shrader, & Monllor, 2011; Klein, 2008). We argue that the relative lack of theoretical and empirical progress on these core questions is rooted in problems with the “opportunity” construct itself, and that for entrepreneurship research to progress, this construct cannot be awarded the foundational role it is currently being given. This is particularly true for the application we have in mind here: a construct representing what entrepreneurs are “working on” through the process from first initiation until the outcome is known to be abandonment or the successful establishment of a new
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economic activity. Such a construct has to allow for process and change as well as for the identification of attributes that can be meaningfully discussed, assessed, and related to effects in terms of action and outcomes. Further, it needs to be applicable at different stages of the process, and to cases with successful as well as unsuccessful eventual outcomes. No
current
conceptualization
of
“entrepreneurial
opportunity”
achieves
this.
Opportunities understood as actor-independent, pre-existing external conditions (Eckhardt & Shane, 2012; Shane, 2012; Shane & Venkataraman, 2000) – the view proposed by what is now referred to as “Discovery Theory” – cannot be identified, sampled and measured at early stages of entrepreneurial processes; they are not identical to the “subjective conjectures” the theory assumes entrepreneurs act on, and they represent a view that is difficult to align with process, change, and unsuccessful outcomes. Many of the same issues pertain to “Creation Theory” (Alvarez & Barney, 2007; Alvarez, Barney, & Anderson, 2012). The opportunity is there defined as a competitive market imperfection created by the actor. Thus, the “opportunity” is the successful outcome of the process; it does not exist early in the process and therefore cannot be what is then being “worked on”. Neither can its characteristics be used to explain completion (or non-completion) of the process, as the creation of an “opportunity” is the successful outcome of the process. Other authors with similar views on the evolving and actor-dependent nature of opportunities apply the “opportunity” label to early stage ideas, while strongly emphasizing the conceptual inseparability of the opportunity from the actor (Dimov, 2011; Sarason, Dean, & Dillard, 2006). This invalidates any attempt at conceptualizing direct, actor-independent effects of “opportunity characteristics” on outcomes. Importantly, all notions of “entrepreneurial opportunity” are loaded with inherent favorability implied by the “opportunity” label, creating conceptual overlap with important explananda (dependent variables) and making consideration
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of uncertainty and failure awkward (Singh, 2001; Klein, 2008). Making the favorability probabilistic (Shane, 2012) does not solve this problem. As we see it, there is no more reason to positively bias by definition the non-actor side of the entrepreneurship nexus than there is reason to restrict the actor side to “competent entrepreneurs” or the like. Removing favorability by crafting a definition of “opportunity” stripped of every connotation of favorability instead begs the question why the “opportunity” label should be kept at all. This, underscores that the problems are rooted in the construct itself; it appears impossible for anyone to come up with a defensible notion of “entrepreneurial opportunity” which can be applied consistently and in a way which is useful for the purpose of developing testable, micro-level theory about entrepreneurial processes. Therefore, we suggest another construct, New Venture Idea (NVI), as a realistic replacement of “entrepreneurial opportunity” in such applications. We hold that this is a much less contentious and much more coherent and workable construct with a clear definition and accompanying specifications of essential properties, scope conditions, and delimitations regarding time and analysis level (Suddaby, 2010). Further, we take important next steps by identifying and discussing a range of attributes or characteristics of New Venture Ideas and offer some speculations about their effects. To appreciate the potential value of an agreed-upon set of salient NVI characteristics, consider the closely related field of innovation. Diffusion research has identified five characteristics of innovations, which make them more or less likely to be adopted by users and therefore to diffuse in society, namely relative advantage, complexity, compatibility, observability, and trialability (Rogers, 1995). This seemingly simple set of constructs provides researchers and practitioners alike with extremely useful abstractions that can be applied to any innovation, at any time, at any place. It allows us to see beyond the
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idiosyncrasies of individual cases and provides a framework and language to discuss problems and make decisions. What target segments should we focus on; i.e., for what user group is the relative advantage the greatest? How can complexity and perceived complexity be reduced through product redesign and improved market communication? For what users is compatibility with current norms likely to be less of an issue, and how can we convert the rest with clever marketing communication? How can we increase the exposure of the product-in-use? How can we reduce the buyers’ necessary upfront financial commitment, thus improving perceived trialability? We believe entrepreneurship researchers and educators as well as entrepreneurs, investors and other stakeholders would be well served by having a set of clearly defined NVI characteristics (with known general effects) to support their design, analysis, interpretations and decisions. Thus, our hope is for this paper to facilitate future contributions towards operationalizations and further refinements of conceptualizations of characteristics of NVIs, allowing progress in the direction of realizing a research program along the lines implied by Shane and Venkataraman’s (2000) idea of the entrepreneurship nexus. New Venture Ideas Defined We define New Venture Ideas as “imagined future ventures” or, more precisely, the evolving, changing and often implicit and incomplete outlines of a future venture that give direction to action in processes of attempted creation of new economic activities (cf. Anonymous, forthcoming). “Actions” here include the decision not to try to implement the idea. We choose “venture” rather than “business” as part of the label to make the notion more inclusive. What we have in mind is a cognitive precursor to new economic activities in any organizational and market context, where “economic” refers to productive use of resources and
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thus is considerably broader than “commercial”. It is a cognitive construct reflecting what the actor is considering or aiming to create, rather than denoting the emerging venture itself as it gradually materializes. NVI is a venture-level construct, and well-articulated NVIs can be codified and transferred – albeit probably not completely without change or reinterpretation – to other actors as an emerging venture changes organizational home and/or human champions. In real-world cases NVIs would typically originate from the actor, but they can also be provided by a researcher-experimenter or others who for whatever reason are not themselves interested in acting on the idea (cf. McMullen & Shepherd, 2006). New Venture Ideas are clearly subjective and thus quite different from objectivist notions of “opportunities” as sets of external circumstances. We do not deny the existence and importance of external conditions. However, we hold that as a micro-level companion to the actor, for most types of study, NVI is theoretically and empirically a much more workable construct than is the highly contentious and problematic notion of “opportunity”. To increase precision of the NVI construct, we add that the intended new economic activity does not need to be innovative but must concern introduction of new competition to a market or market-like context (where it can affect customers, incumbents, and potential followers, or close equivalents thereof) rather than representing an idea for optimization of the actor’s current activities (Davidsson, 2004; Shane & Venkataraman, 2000). As regards time and duration, an NVI exists as soon as it is cognized by someone, although it may be rudimentary at first. During the process, the NVI can change and become more elaborated. The NVI is in operation from the first venture creation activity until the attempt is either given up, or the new economic activity has been established in the market. Beyond that point, what guides the now established venture is not an NVI. This said, it may be meaningful to relate qualities of the
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original NVI to outcomes beyond establishment after controlling for effects of the strategic management of the now established venture. Importantly, the notion of New Venture Ideas does not imply any favorability, and an actor’s identification of an NVI does not require positive evaluation thereof. In short, NVIs can be perceived as – and later turn out to be – good or bad. NVIs are thus not equal to what others may have called “opportunity recognition”, “discovery”, “perception of opportunity”, “opportunity ideas” or “initial opportunity beliefs” because there is no assumption of favorable evaluation. Because of this value-neutrality of the construct, there will never be a need to take back that the NVI was “unsubstantiated”, “false” or “not genuine” as authors frequently do when discussing “opportunities” that did not lead to success (Hmieleski & Baron, 2008; Mullins & Forlani, 2005; Randøy & Goel, 2003). In prior literature, some authors have used the “opportunity” label for less well specified entities of what we here call NVIs. Similar notions also appear under a range of other labels (e.g., business idea/concept; entrepreneurial idea/concept/conjectures; initial opportunity beliefs, or opportunity ideas) in prior literature on opportunities, venture capital decision making, and business planning. Occasionally, “(new) venture idea” has been used as the main construct (e.g., Klofsten, 2005). However, typically these constructs are introduced without much conceptual elaboration or justification. Therefore, we hold that our notion of NVI represents a construct with much greater clarity (definition; specification of essential properties and scope conditions; coherence, etc; see Suddaby, 2010) than anything hitherto offered in the literature on “entrepreneurial opportunities” or other literatures discussing similar constructs. As a label for the subjective perceptions that guide entrepreneurial action we find “New Venture Idea” to be preferable to the problematic
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notion of “opportunity [ideas/beliefs]” because of the latter alternative’s inescapable connotation of favorability. We also hold that the above represents a more precise definition and a more comprehensive description of NVIs than what has previously been presented under the same or other labels. For example, the nature, characteristics, and role of entrepreneurs’ “conjectures” in “Discovery Theory” have never been worked out in any detail (Shane & Venkataraman, 2000; Eckhardt & Shane, 2010; 2012). In terms of the content of the construct, we believe our notion of NVI offers something which can actually be sampled, researched, and related to action and outcomes in prospective, micro-level studies of new venture creation, whereas the notion of opportunities as sets of external circumstances present insurmountable challenges in these regards. Although their cognitive status and evolving nature will create challenges, we hold that NVIs can be articulated by actors and meaningfully assessed by researchers at various stages of venture creation processes. The meaningfulness of using something like what we call NVIs as separate (from actors) entities that can explain action and outcomes in entrepreneurial processes has been challenged from the most “objectivist” as well as the most “subjectivist” ends of prior literature on “entrepreneurial opportunities”. As regards the former, Shane (2012) holds that if we put subjective ideas rather than objective, actor-independent “opportunities” into the equation, there is no “entrepreneurship nexus” because ideas are functions of the individuals behind them, and thus the entire explanation ultimately is based on the individual. To this we respond that the same actors frequently work on different NVIs in parallel or across time, with varying results (Ucbasaran, Westhead, & Wright, 2006). It would seem likely that some of this outcome variance is attributable to inherent differences in the quality of the NVIs and in their fit with the actors. Therefore, assessing characteristics of NVIs is meaningful even if they do not have actor-
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independent existence. Further, in experimental settings NVIs can be assessed across alternative actors (expert vs. novice entrepreneurs; independent entrepreneurs vs. champions of corporate entrepreneurship; early stage external investors, etc.) who did not originate the idea. While we agree with Shane (2012) that NVIs are different from his notion of entrepreneurial opportunities, we hold that the NVI construct for many purposes have considerable analytical advantages beyond facilitating identification, sampling and measurement. The set of external circumstances that help determine the fate of a venture based on a particular NVI – what makes the NVIs “opportunities” or not – would vary across space and time, and the “opportunity” status of the NVIs would also vary by actor (Shane, 2000). By contrast, the NVIs behind them would have measurable characteristics, the attractiveness, fit and success-driving ability of which could be assessed across actors, location, and time. At the subjectivist end of the spectrum (Dimov, 2011; Sarason, Dean, & Dillard, 2006) it is argued that “opportunities” – which are conceptualized more in line with our notion of NVI – are idiosyncratic to the actors and cannot be meaningfully discussed without them. Although the interdependence between the actor and the NVI may in some sense be descriptively true (and important for some theoretical and practical purposes) we again emphasize that meaningful assessment and comparison of characteristics of NVIs do not require that these have actorindependent existence. By the same token, an innovation will have idiosyncratic characteristics which derive from its creator, but this does not preclude that these characteristics can be described and assessed in terms of the abstracted constructs “complexity”, “compatibility”, etc. (see Introduction) or that they share some of the effects that are generally attributable to these characteristics. We think a central task for researchers is to develop powerful abstractions that allow the transfer of insights from one context to another and that distilling conceptualizations
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and operationalizations of characteristics of NVIs should be assumed meaningful until empirical testing has proven otherwise. In other words, we think the time has come for entrepreneurship research to develop a body of common language and common knowledge to describe the characteristics of New Venture Ideas. Strong conceptualizations of such characteristics, which also allow effective operationalizations, will aid the development and testing of theory about a range of issues that are of central interest to entrepreneurship research and practice. For example, what characteristics of NVIs are likely to trigger successful and less successful action? That is, are some NVI characteristics associated with systematic over- or under-investment of entrepreneurial effort and investor capital? What types of NVIs are more likely to originate in and/or be successfully exploited in which organizational contexts? What is the relative importance and interactive effects of different NVI characteristics for action and success among particular types of actors? On a more concrete, practical level: can we justifiably advise graduating entrepreneurship students to pursue highly innovative NVIs in their first, full-time entrepreneurial endeavor, or would they be better off trying their wings with something less spectacular the first time around? A systematic program of research will be needed in order to answer such questions. In the remainder of this paper we take steps towards identifying a set of salient and potentially measurable characteristics of NVIs that can be further refined, extended, and applied in future research. Some Tentative Characteristics of New Venture Ideas Several attempts to conceptualize and measure single characteristics of what we label NVIs already appear in the entrepreneurship literature, although the previously described ambiguity and vagueness surrounding the ‘opportunity’ construct is reflected in the investigation
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of its constituents. An exercise in finding promising candidates for NVI characteristics can also draw on other literatures, for example Strategy (e.g., Dutton & Jackson, 1987) and Innovation (e.g., Rogers, 1995) as well as strands focusing on venture capital and/or business plans in entrepreneurship research (e.g., Kollmann & Kuckertz, 2010; Mason & Stark, 2004). However, we have not been able to identify any comprehensive effort to outline the salient, generic attributes of NVIs (under any label). Further, the direct applicability of conceptualizations from earlier literature within and outside entrepreneurship is restricted by our request that the conceptualizations apply to what we see as the core contribution of entrepreneurship research, namely to be able to explain the journey from non-existence to established existence (or preoperational abortion) of new economic activities in the marketplace. We see our effort merely as a starting point from which to continue to build, realizing that it is possible that characteristics we suggest may be in part conceptually overlapping; suboptimally organized; omit important aspects of NVIs and in some instances turn out to be prohibitively hard to apply in empirical research. In distilling the key dimensions of the NVI we focus on characteristics that we believe will meaningfully apply to a majority of NVIs and which can be manipulated in experimental research as well as assessed empirically at various stages of development of on-going venture creation processes. When we use the term “New Venture Idea” or our chosen labels for their characteristics in relation to prior literature below, our labeling may not concur with the cited authors’ choice of terms. The implied degree of favorability following from high or low values on the discussed sub-dimensions should be thought of informed expert judgments rather than as objective facts. Proof of favorability would require empirical analysis where NVI characteristics are related to venture creation outcomes. General Characteristics of the NVI
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Novelty. Novelty – or innovativeness – concerns the degree to which the intended market offering and/or the operations of the NVI deviates from previous norms in the industry or marketplace. Novelty is thus defined in relation to the external world and not in relation to the actor. It is probably the NVI characteristic that is best developed in prior literature, which explicitly discusses and suggests operationalizations both to type and degree of novelty. Dewar and Dutton (1986) made the familiar distinction between incremental and radical innovations, whereas Gaglio and Katz (2001) include imitation at the low end of a similar categorization. Low and Abrahamson (1997) conceptualize novelty slightly differently, namely by which industry context (from emerging to mature) the new venture enters. Consideration of novelty – under varying labels – frequently appears in the literatures on business planning and venture capital (Kollmann & Kuckertz, 2010; MacMillan, Siegel, & SubbaNarasimha, 1986; Mainprize, Hindle, & Mitchell, 2002; Mason & Stark, 2004; Muzyka, Birley, & Leleux, 1996). In research on new venture creation, Fiet (2002), DeTienne and Chandler (2004), and Samuelsson and Davidsson (2009) assessed degrees of total novelty of NVI with varying degrees of sophistication. Building on Schumpeter’s (1934) five types of novelty, Dahlqvist (2007; cf. Dahlqvist & Wiklund, 2012) and Hill and Birkinshaw (2010) independently developed operationalizations that consider the type of innovation. Recently, Senyard, Baker, Steffens and Davidsson (in press) refined Dahlqvist’s work to assess four dimensions of novelty of NVIs in nascent ventures, namely in terms of product/service; producing/sourcing; marketing approach, and target market selection. They applied the measures both separately and as an index of total novelty, thus addressing both degree and type of novelty. Gatignon, Tushman, Smith and Anderson (2002) developed and tested measures of another familiar categorization of type of novelty, namely competence-enhancing vs. competence-destroying innovation.
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The above mostly concerns conceptualizations and operationalizations that are meant to be applicable across a broad range of contexts. Cliff, Jennings and Greenwood (2006) represent an interesting attempt at a radically different approach, namely to develop a measure of a particular type of innovation (organizational), customized to a particular industry. Worth attention is also the work of Amit and Zott (2001), who discuss novelty as one of their four dimensions of successful business models for e-business. However, in our conceptualization both “efficiency” and “complementarities” also represent types of novelty (new, more efficient processes; new “bundle” in the market offering). In total, there is a fair amount of conceptual and empirical work to build on as regards assessing the extent and impact of novelty of NVIs. The ability to develop NVIs with high novelty is likely to vary by actor (personality; prior knowledge; organization age and size). The effects on action and outcomes are likely to be complex and contradictory. While high novelty should increase the long term likelihood of above-average success it also increases the risk and the hurdles that need to be overcome turn out to be prohibitive, indicating negative effects on survival and the speed at which the venture can reach an operational state. At the same time, the lure of a successful outcome and concerns for first-mover advantages may intensify resource investments in the process (Amason, Shrader, & Tompson, 2006; Semasinghe, 2011). These contradictory effects of novelty are a likely reason why venture capitalists do not seem to wholeheartedly embrace novelty as an investment criterion (MacMillan, Siegel, & SubbaNarasimha, 1986; Mainprize, Hindle, & Mitchell, 2002; Mason & Stark, 2004; Muzyka, Birley, & Leleux, 1996). Appropriability. This refers to the possibility of capturing the returns from the exploitation of an NVI and preventing others from doing so (cf. Levin, Klevorick, Nelson, & Winter, 1987). Under different labels this dimension appears frequently in studies on
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“opportunities” and business models (e.g., Amit & Zott, 2001; Holmén, Magnusson, & McKelvey, 2007). Clearly, intellectual capital protection potential is a major aspect of appropriability (Eckhardt & Shane 2010:68), which is more or less omnipresent in the literature on venture capital decision making (Knight, 1994; Kollmann & Kuckertz, 2010; MacMillan, Siegel, & SubbaNarasimha, 1986; Zacharakis, McMullen, & Shepherd, 2007; Zacharakis & Shepherd, 2001). However, appropriability is not just about formal protection of intellectual property. Haynie, Shepherd and McMullen (2009) approached (what we label) Appropriability more broadly from a Resource-Based Theory perspective, discussing the VRIO properties of NVIs (rarity and inimitability being particularly relevant). Amit and Zott (2001) identified “Lock-In” as a salient feature of some successful business models and operationalized it in terms of switching costs and network externalities. These authors also pay particular attention to the existence and type of revenue model, i.e., the way in which the imagined new venture is supposed to generate revenues that ascertain sustained existence (and profit, in for-profit endeavors). The existence and type of revenue model would seem to be an Appropriability issue of great concern to investors but does in fact not have much of an obvious presence in that literature, which instead focuses on patentability or otherwise proprietary technology. Smith et al. (2009) zero in on the tacitness vs. codification aspect of Appropriability, using items available in the Panel Study of Entrepreneurial Dynamics (PSED) data set, which also contains simple indicators of intellectual property protection (Gartner, Shaver, Carter, & Reynolds, 2004). We know of no effort of operationalizing Appropriability of NVIs comprehensively with a multiitem scale. While some forms of Appropriability (e.g., patent protection) require Novelty, most forms of Novelty do not guarantee Appropriability. Thus, the two dimensions are likely to be
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positively correlated but not fundamentally overlapping. We suspect that actors with greater resource endowments would be better able to develop and defend NVIs with high Appropriability, but this may not hold for all of its forms. Like Novelty, Appropriability is likely to have a complex relationship to action and outcomes. While Appropriability should facilitate success in the longer term – and help attract resources at early stages – developing it may also prolong the venture creation process and therefore make high Appropriability NVIs contribute to lesser levels of success in the short term. Diffusability. We define Diffusability as the intended market offering’s potential for being rapidly adopted and socially communicated within an economic system. As noted in the Introduction, research on diffusion of innovations has distilled a small set of generic characteristics of innovations, which affect their rate of adoption and diffusion, namely relative advantage, compatibility, complexity, trialability and observability (Rogers, 1995; see Agarwal & Prasad, 2007; Murphy & Long, 2007, and Wood, 2009 for related but in part different specifications of what we call Diffusability). With some adaptation, we believe some of these characteristics can be productively applied as NVI attributes as well. Relative advantage has to do with what proportion of potential users would see a (sufficiently large) benefit in using the new alternative relative to other alternatives already available. Compatibility represents “the degree of consistency with existing socio-cultural values and beliefs, previously introduced ideas, and client needs” (Rogers 1995:240). This covers a “softer” subdimension of cultural values, beliefs and preferences, and a “harder” one referring to existing technical systems, physical infrastructure, and the like. Sometimes a less precise notion of “general feasibility” has been used – and operationalized – to capture compatibility (Grégoire et al. 2010) among other things. Complexity is a “negative” characteristic referring to the extent to which the product or
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service to be offered is difficult to understand and use, or perceived to be so by potential users. In entrepreneurship, an adaptation to cover complexity as perceived by other stakeholders – notably external investors – may be advisable. Trialability is “the degree to which an innovation may be experimented with on a limited basis” (Rogers 1995:258). This would arguably also affect the ease with which a new venture can establish itself in the market. Davidsson (2012) speculates about a similar notion when discussing the significance of unit value to the user. Finally, Observability is “the degree to which the results of an innovation are visible to others” (Rogers 1995:258). Total Diffusability may be best thought of as a formative index (Diamantopoulos & Winklhofer, 2001) based on the above subdimensions. It may be noted that the subdimensions of Diffusability are based on potential users’ reactions to the new venture’s market offerings after launch and that “real” effects of high Diffusability are assumed to occur at that stage. Therefore, any early stage benefits from Diffusability would be derived from the stakeholders’ perceptions of favorability and their associated willingness to commit resources to the emerging venture. The underlying dimensions were originally developed with innovations in mind, indicating partial overlap with Novelty. However, the subdimensions discussed here should be possible to apply to imitative NVIs although on some sub-dimensions (e.g. relative advantage) such NVIs would logically be restricted to the lower end of the scale. Scalability is an NVI characteristic of great practitioner (e.g., investor) concern, which seems to have attracted limited scholarly attentions, Lumpkin, Moss, Gras, Kato and Amezcua (2011) being one of few studies applying it. Mahnke, Venzin and Zahra (2007) touch on aspects of related issues under the label “location specificity”, while Davidsson (2012) offers some speculation about Scalability in terms of the production cost for a short series. We define
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Scalability – perhaps somewhat broader than prevailing, lay usage – as consisting of three elements: a) the size of the increments by which the NVI can be implemented and expanded; b) the relative ease with which that minimum size can be multiplied, and c) limits to the number of possible multiplications. With a Lego metaphor, we may think of the first as brick size. This refers to the minimum size at which a new venture can viably enter the market – similar to the notion of minimum efficient scale (Gupta, 1981). This may or may not coincide roughly with the size of the increments by which it can expand (think, e.g., of increasing sales within a given outlet; increasing floor space, and adding new outlets). The “brick sizes” may be determined by the cost logic of production technologies or other factors. Under current technological solutions, nuclear power vs. solar cells or wind turbines illustrates the difference in brick size. The second sub-dimension refers to how easy or difficult it is to fit new bricks to the building. Finally, total potential or magnitude concerns how many bricks there is room for. This latter notion is contentious because of ex ante non-knowability challenges and potential overlap with successful outcomes, similar to the notion of objective, pre-existing “opportunity”. Acknowledging that no perfect assessment of total potential can be made at early stages, we suggest that it may be meaningful to assess variance in estimated total potential and that such assessments of volume do not guarantee profitability. The NVIs behind the publications The Big Issue and Metro both had excellent scalability in principle (i.e., add additions in more cities), but after initial success in the original location both failed miserably in some other locations (Dacin, Dacin, & Tracey, 2011; Dal Zotto & Gustafsson, 2008; Wilcox, 2005). Note also that brick size and total potential need not be positively correlated; some NVIs may imply only one or a few large bricks whereas others can have small brick size but almost unlimited potential for cloning.
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Although “brick size” and potential “brick number” are both aspects of scale and thus Scalability, they are likely to have effects that are different from each other and at different stages of venture development. Thus, the subdimensions are probably best assessed separately. We should also caution that the “brick” metaphor should perhaps not be carried too far as ventures can expand in many different ways. This said, small brick size is arguably a facilitator for progress at early stages but not necessarily so in the longer run. Small brick size should be associated with low entry barriers to the industry not only for the focal actor but for other actors and ventures as well, making it a mixed blessing. The direct, positive effects of total potential (“brick number”) will arguably set in after launch and will only be realized by actors who are successful in a competitive race that can become fierce precisely because of the lure of the large total potential. Therefore, the early stage effects of the total potential associated with an NVI may be less straightforward than a first glance might suggest. Further, the above considerations imply the presence of strong interaction effects between Scalability and Appropriability. Undoubtedly, there will also be some correlation between Scalability and Diffusability. However, the former relates more to the operations of the imagined venture while the latter deals exclusively with its intended market offering. Scope. By Scope we mean the breadth and depth of the operations and market offerings of the imagined new venture. Horizontally the construct captures the breadth vs. narrowness of what the new entity is aiming to introduce, e.g., in terms of product/service range; type of customers served, and geographical coverage. Vertically, the notion refers to the range of the total value chain included in the NVI. Larger literatures on the pros and cons of vertical and horizontal integration exist, but may be of limited relevance in the context of new venture creation, often by small, independent actors. It is easy to imagine Scope having important effects
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– in the tension between the benefits of niche- or focused strategies on the one hand, and the spreading of risks on the other – on investor attractiveness as well as on the likelihood and speed at which a venture can get successfully established. In spite of this, we have only been able to locate a single study that has applied this construct in the context of the development of new ventures (Davidsson, Hunter, & Klofsten, 2006). We suspect one reason for this is that Scope is a characteristic which may be particularly challenging to compare when using observational data across heterogeneous samples of NVIs. However, it may be useful in research on more homogenous samples and in studies involving experimental manipulation. Further, if the absolute Scope of NVIs cannot be validly compared it may still be possible to assess within cases the extent to which the NVI broadens or narrows in Scope over time, which is what Davidsson et al. (2006) did with a relatively simple indicator. As regards relation to other NVI characteristics it would seem that broader scope will complicate the assessment of other dimensions because there may be variance in the Novelty, Appropriability, etc. across the Scope of the NVI. While this introduces an additional challenge we hold that it does not create insurmountable problems. NVI Characteristics Linked to the Actor The fit or match between the actor and the NVI can be assessed as interaction effects between actor and (actor-free) NVI characteristics, assessed independently. Alternatively, researchers may want to approach the degree of fit directly. We see two subdimensions here; NVI Relatedness to Actor Knowledge & Interests and NVI Relatedness to (Other) Actor Resources (cf. Semasinghe, 2011). We define the former as the extent to which the identification and exploitation of the NVI builds on and can potentially benefit from the particular knowledge resources of the actor. On the individual level, effects of relatedness to the actor’s prior knowledge has been one of the most active and successful areas of research, albeit mostly limited
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to the “discovery” side of the process, with relative neglect of the “exploitation side” (Ardichvili, Cardozo, & Ray, 2003; Grégoire & Shepherd, 2012; Haynie et al., 2009; Shane, 2000; Shepherd & DeTienne, 2005). Aspects of McMullen & Shepherd’s (2006) important distinction between 1st person and 3rd person “opportunities” can also be understood in these terms. However, no standardized measure of founder relatedness seems to exist. On the firm level, the construct of Absorptive Capacity could potentially be used as a starting point (Zahra & George, 2002). NVI Relatedness to (Other) Actor Resources. This second dimension we tentatively define as the extent to which the identification and exploitation of the NVI builds on and can potentially benefit from the other distinctive resources of the actor. The issue of resource relatedness, which is highlighted in other terms in the literature on entrepreneurial bricolage (Baker & Nelson, 2005; Senyard et al., forthcoming) seems less emphasized in prior research on “opportunities” or new venture creation processes. However, some authors stress the social context of idea development (Ardichvili et al., 2003; Gemmel, Boland, Kolb, 2011). On the firm level, Resource-Based Theory can serve as a main vantage point for developing more precise conceptualizations of the fit between NVIs and the organization in which they are developed or exploited. However, it should be noted that the entrepreneurship literature also offers a counterpoint to taking for granted that high resource relatedness is a good thing, namely Stevenson’s notion of entrepreneurship as the relentless pursuit of opportunity without regard to resources currently controlled (Stevenson, 1984). Firm specificity, as discussed by Mahnke et al. (2007) is also about NVI relatedness to actor resources. We should here caution that there is a possibility of partial overlap with our previously discussed Appropriability dimension. NVI Characteristics Linked to the Environment
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Many aspects of the environment may influence the fate of a venture, and by the same token the alignment of an NVI with conditions of the environment in which the imagined venture aims to operate is likely to have derived effects at early stages of development. We will here focus on one aspect of the environment which is arguably the most important for most new ventures: the Market Conditions prevailing in the future venture’s intended market. Market Conditions seem surprisingly little emphasized in the literature on “entrepreneurial opportunities”. Possibly this is due to Shane and Venkataraman’s (2000; 2001) de-emphasizing of the environment in their original formulation of the entrepreneurship nexus, and/or the inward-looking emphasis of the currently dominating theory in Strategy: Resource-Based Theory. In the literature on venture capital decision making, Market Conditions are usually more emphasized than characteristics of the product/service or operations. Typically, some or all of the following are covered: market size; market growth; market (industry) barriers and competitiveness, and (already established) market acceptance of the product/service in question (Knight, 1994; Kollmann & Kuckertz, 2010; MacMillan, Siegel, & SubbaNarasimha, 1986; Mason & Stark, 2004; Muzyka et al., 1996; Zacharakis, McMullen, & Shepherd, 2007; Zacharakis & Shepherd, 2001). Each of these subdimensions relates to rather large underlying literatures, not least within branches of economics (cf. Geroski, 1995). However, this does not mean that all the necessary theorizing has already been done. As far as we have been able to determine, relatively little is known about the effects of Market Conditions reflected in NVIs from an early stage, micro-level, process perspective. In addition, the literature referred to above typically assesses these dimensions with simple, single-item indicators so more remains to be done on the operationalization side, as well.
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We should also mention that some subdimensions of Market Conditions overlap with issues we discuss under other labels. Market size largely coincides with our “total potential” aspect of Scalability, while competitiveness may have some overlap with the same construct’s “brick size” dimension. Market acceptance is in part the antithesis of Novelty and in part reflected in Completeness (discussed below). Therefore, the most distinct net addition discussed in this section is market growth, which is strongly emphasized in the literature on venture capitalists’ decision making. NVI Characteristics Linked to Process Above, we defined NVIs as the evolving, changing and often implicit and incomplete outlines of a future venture that give direction to action in processes of attempted creation of new economic activities. Thus, although an NVI can remain unchanged in principle during the process, it is likely to evolve. This means that process research should ideally assess all NVI characteristics we discuss at several points in the process, and allow for an “unknown” or “not yet determined” alternative at early stages. Alternatively, or in addition, Completeness can be conceptualized and assessed as an NVI characteristic in its own right. We tentatively define Completeness as the extent to which all essential aspects of the imagined venture’s operations and market offerings have been fully elaborated and clearly worked out. It is widely observed that the market applications for new (technical) ideas are rarely clear and unequivocal, and only emerge after substantial market experimentation (Chesborough & Rosenboom, 2002). Douglas and Shepherd (2002) highlight a particular aspect of the Completeness dimension when discussing the notion of “investor readiness”, further broken down into the extent to which the technology and the market side of the NVI, respectively, have been fully developed. Eckhardt and Shane (2012) similarly highlight technical and market
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feasibility, whereas Sarasvathy, Dew, Velamuri and Venkataraman (2003) discuss enduring uncertainty of the NVI pertaining to the supply side, the demand side, or both. Further, the whole notion of “discovery opportunities” vs. “creation opportunities” can at least in part be re-cast as an issue of Completeness. The ideas associated with the former are supposedly closer to implementation whereas the latter may require more agency on the part of the entrepreneur, such as changing seemingly “objective” obstacles through technological invention, political lobbying for regulatory change, or the creation of new “social constructions” (norms and preferences) in the marketplace (Alvarez & Barney, 2007; Alvarez et al., 2012) before a successful launch is possible. Conceptual models of stages development of innovations or new ventures also observe the issue of Completeness (or readiness; e.g. Bhave, 1994). As noted above, the literature on venture capital decision making often include indicators of the existence of a workable prototype; proven market acceptance, or estimated time to completion. As regards operationalization of “overall” Completeness, Davidsson and Klofsten (2003) observe this dimension and develop a short index to assess it. While their sample was one of young firms the measure would arguably be applicable at an earlier stage as well. A second NVI characteristic linked to the process is Amount of Change. By this we do not mean changing some attribute from undefined to defined (which would be an aspect of Completeness) but from one defined solution to another. Thus, we suggest the extent to which important elements of the NVI have undergone substantive change since first formulated as our definition of this dimension. At least in some industry contexts the indication is that change to the NVI is both frequent and desirable (Klofsten, 2005; Furr, Cavarretta, & Garg, 2012). This is also supported by the notion of Effectuation as a new venture strategy (Sarasvathy, 2008). However, this result may well be contingent on the type of venture, and curvilinear effects are
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also likely, such that excessive change is subobtimal. Currently, no comprehensive, validated measure to assess the Amount of Change of NVIs seems to be available. Such a measure could be subdivided further into dimensions of change like the types of Novelty discussed above. It may also be noted that Novelty and the two process-related characteristics discussed here are likely to be inter-related. Arguably, novel NVIs should – ceteris paribus – be more prone to change and take longer to complete. Other Possible NVI Characteristics What we have discussed above may not be an exhaustive list of salient characteristics or represent the best possible way of categorizing all specific elements that make NVIs trigger action and influence outcomes. What we offer is a starting point from which to build. In this early attempt at a delineation of salient characteristics of NVIs we may have over-emphasized aspects of the product/market offering relative to other aspects of the imagined new venture, such as the resource acquisition and resource transformation mechanisms to be developed. Depending on the research question, the theoretical framing, and the exact empirical context other researchers may want to give greater prominence to these possible other aspects of NVIs. One possible characteristic which we have deliberately chosen not to include is the risk and/or uncertainty with which the NVI is associated. Eckhardt and Shane (2010) among others discuss risk and/or uncertainty as a characteristic of “opportunities”. We suspect attempts to conceptualize and operationalize this as an NVI characteristic in its own right. For one thing, true Knightean uncertainty is non-quantifiable by definition (Sarasvathy et al., 2003). We assume that the inclusion of the right mix of substantive NVI characteristics will also reflect its character in terms of risk or uncertainty.
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Conclusion Shane and Venkataraman’s (2000) “promise” article was a milestone in entrepreneurship research. Its emphasis on opportunities was a useful approximation which has served the field well for a decade by gearing entrepreneurship research towards studying the early stages of new venture development. This is a focus worth keeping. Above we have tried to explain why New Venture Idea (NVI) is a construct better suited to the role of implementing the research program on the “entrepreneurship nexus” that Shane and Venkataraman (2000) hoped to inspire, but which so far has been only very partially realized (Shane, 2012). We have offered a careful definition of NVI accompanied by an elaboration on its essential properties and scope conditions. We then progressed by taking steps to identify distinguishable, operationalizable, and potentially important characteristics of NVIs. Specifically, we have put Novelty, Appropriability, Diffusability, Scalability, Scope, Actor Relatedness, Market Conditions, Completeness, and Amount of Change on the table as a starting point for future conversation. Their possible direct and actor-moderated effects on entrepreneurial action and outcomes are something we have only touched lightly upon. It is our hope that future research will theorize and test such relationships. We fully realize that suggesting what others should do is not enough and that “[t]he field will be shaped by those who produce research that interests and attracts others” and that “[t]hose who believe they know the way forward need to do such work themselves” (Aldrich & Baker, 1997). Thus, as next steps we plan to further develop our conceptualizations of NVI constructs and – importantly – their relationships, and follow up with empirical work that allows operationalization of the constructs and testing of their effects. However, this is a major undertaking and we hope that the ideas we have outlined will inspire others to join us in that pursuit.
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