The Entrepreneurship Dynamic: Origins of Entrepreneurship and the Evolution of Industries

Citation

Mitra, J. (2003), "The Entrepreneurship Dynamic: Origins of Entrepreneurship and the Evolution of Industries", Journal of Small Business and Enterprise Development, Vol. 10 No. 2, pp. 210-214. https://doi.org/10.1108/jsbed.2003.10.2.210.2

Just occasionally, the emergence of a few books renews faith in the pursuit of quality in entrepreneurship research and education. Two such books have hit the desk of this reviewer, and they should have arrived earlier! One of the two, Zoltan Acs’s excellent new exploration of the urban landscape as a unit of analysis, for innovation and entrepreneurship, is not the subject of this review, if only because of the editor’s strict adherence to the chronology of publications. The other is this important new collection edited by Schnoohoven and Romanelli, which marks a breakthrough in the direction of research sustained, primarily, by sociological and evolutionary perspectives on entrepreneurship. Few books raise so many powerful questions on the creation of something new in the world, on organisations and the relationships that they foster or break for wealth creation and innovation. In this I could not agree more with Messers, MacMillan, Gartner and Meyer, who have already inspected this collection in the USA.

The editors’ quest for a general theory of entrepreneurship underscores the good researcher’s motivation for writing on a subject which informs the economic and social agenda of policy makers, educationists and of course the wealth creators, all over the world. Such a quest is the inevitable consequence of, on the one hand, the need for pragmatic outcomes from entrepreneurship research, and, on the other, the web of discourse and analysis that is woven out of various grounded disciplines. To this end the editors organised a conference in Balboa Bay, Newport Beach California, and invitated 30 of their colleagues to present their research and ruminate over the future and development of entrepreneurship theory and studies. This book results from the endeavour that followed the conference. Some of the papers were presented from the conference and others were commissioned by the “general theory project” of the editors.

When you open a book showing a list of contributors to include the likes of Saxenian, Abrahmason, Tushman, Aldrich, and others, you expect a fare to delight any discerning scholar. However, the collating and editing of conference papers often results in lacklustre volumes of contributions characterised more by weak links than by the strength of thought and vision that underpin meditative effort in writing a monograph on a subject. Fortunately for Schoonhoven and Romanelli, the premeditated approach of a select conference and the subsequent distillation of presentations and discussions, all guided by the search for a general theory, have helped to avoid an insipid outcome. The editors have succceded in collecting some gems of insight into the hive of contexts for new venture creation and new industry emergence by asking two critical questions of entrepreneurship research:

1. 1.

   (1) What conditions prompt the founding of new organisations or what are the origins of new organisations?

2. 2.

   (2) What are the outcomes of entrepreneurial, activity?

In considering the questions referred to above, the reader will be excused if he/she were to consider this volume as a companion to Howard Aldrich’s brilliant “Organisations evolving”. That would be both a compliment and a mistake. It is a compliment in the sense that understanding how organisations are born, how they evolve through processes of variation, selection, retention and survival, elements of the central Aldrichian theses, require further exploration as part of a rich sociological heritage. It is a mistake because simply to view it as a companion volume would be to suggest that this new collection merely adumbrates Aldrich’s evolutionary perspective. This book and its contributors do much more – they open up critical issues relating first, to the fundamental puzzle that defies any prediction of when and where large numbers of new ventures will emerge, and second about the apparent capability of new organisations producing innovations and providing for a key dynamic for change in industries, economies and societies.

Schnoohoven and Romanelli collect the papers around three central hypotheses:

1. 1.

   (1) New organisations do not emerge from idiosyncratic and isolated actions of individuals.

2. 2.

   (2) Contexts exert a constraining influence on the rate and type of organisation creation while motivating new venture creation.

3. 3.

   (3) Organisation creation, itself a product of context, also transforms the context.

The hypotheses are three dimensions of a “pivotal” dynamic – the dynamic of entrepreneurship and of economic and social change.

In considering and testing the hypotheses referred to above, the editors organise the book in two parts to reflect the two critical questions of the origins and outcomes of entrepreneurship. This two‐part grouping is not necessarily a neat way of separating the inseparable. Not only are origins and outcomes independent of each other, but evolutionary processes tend to produce origins out of outcomes as much as origins lead to eventual outcomes, rather in the Eliot’s sense of beginning and end with exploration finding a new source for a start with the end of each search. Moreover, “origins” and “outcomes” are messy categories. Taken as separate categories; they interlope their way into each other’s “territories”, suggesting that the points of origin and change vary with different types of organisations in a variety of contexts. So, the editors’ artificial compromise is an analytical concession allowing for a consideration of a change continuum that includes origins and outcomes.

Part one contains six papers that deal with the questions of sources of and conditions for entrepreneurial activity. Empirical observations on the origins form the basis of insights into new venture creation (for “new ventures” also read, “new organisations”), as the chapters examine three essential aspects of entrepreneurship – entrepreneurial people, the entrepreneurial environment and the entrepreneurial organisation.

M. Diane Burton’s “The company they keep: founders’ models for organising new firms”, the editors’ own “The local origins of new firms”, and Anna Lee Saxenian’s “The role of immigrant entrepreneurs in new venture creation” trace the origins of new firm creators, with the source context influencing both the founders and the organisations they create. Burton’s paper combines both individual and contextual influences, the focus of the latter being the incubating existing organisations which help to develop “mental models” for the founders. Schnoohoven and Romanelli use the same basis of argument but focus on the regional and wider community influences, thus extending the scope of analysis. Saxenian’s paper then stretches the context issue to embrace the role of immigration, its in and outflow being the source of the entrepreneurship dynamic in legendary areas such as the Silicon Valley. We obtain a refreshing assessment of the circumstances of entrepreneurial activity, but the unit of analysis, the entrepreneur, is not lost in limited psychological considerations of traits and idiosyncrasies of the individual. However, for this reviewer the value of these three chapters lies in the unravelling of the three different contexts – the existing organisation, the wider economy/society, and the international, immigrant community. Together these three contexts provide content and insights into the way in which new ventures are being created in today’s world as organisations downsize, regions (rather than nation states) become the critical centre for economic growth, and internationalisation through people (rather than multinationals) generates connectivity for enterprises across the world.

Anne Miner, Dale Eesley, Michael DeVaughn and Thelka Rura Polley (“The Magic Beanstalk Vision: Commercialising University Inventions and Research”), Eric Abrahamson and Gregory Fairchild (“Knowledge Industries and Ideas Entrepreneurs: New Dimensions of Innovative Products, Services and Organisations”), and Jonathan Murmann and Michael Tushman (“From the Technology Cycles to the Entrepreneurship Dynamic: The Social Context of Entrepreneurial Innovation”), sharpen up the act for the first part of the book with a focus on institutions. There are probably three reasons that make the exploration in these chapters particularly interesting. First, it is the authors’ attention to so‐called centres of knowledge creation, as in universities, the creative or knowledge industries , and technology systems. Second, the analysis of both institutional sources for organisational formation is shaped by a consideration of both social and cultural issues. Finally, the authors explore the ideas that govern the creation and functioning of new ventures, and the networks of academics and industrialists (as knowledge creators), and the influence of policies made in particular contexts.

Communities of people in cities, of users of particular technologies, and other communities of knowledge, are where people live and work and which provide the source of raw materials for new ideas. The detailed six‐chapter analysis of these origins provides a basis for answering questions such as “how are new ventures created?” or “what are the influences on new venture creation?” in a complete, thorough way – a way that open‐up possibilities for proper theory creation. They also help to provide a basis for investigating the outcomes of entrepreneurial activity – jobs, innovation and economic wealth – and how new ventures affect the development of industries and the wider environment. Part two leads the reader to ask further questions on such outcomes.

Howard Aldrich and Ted Baker (“Entrepreneurial responses to constraints on the emergence of new populations and organisations”) lead the second part through a fascinating exploration of Internet entrepreneurs and the strategies for establishing legitimacy of their new form of business activity. Each competitive act produces its equally powerful collective counterpart, in that competitive operation in specific domains is accompanied by co‐operative acts such as the sharing of information to ensure legitimacy of the business activities of all players. This process of sharing does not stop with either the Internet or its afficionados. Even entrepreneurs in the coffee industry systematically educate their consumers about the benefits of new products and services, as Violina Rindova and Charles Fombrun (“Entrepreneurial action in the creation of the specialty coffee niche”) claim. Whether it is the creation of new populations (Aldrich and Baker) or the creation of new markets (Rindova and Formbrun), strategies located in particular contexts affect changes to organisations and the organisational environment.

The following two chapters (“The power of public competiton: promoting cognitive legitimacy through certification contests” – Haygreeva Rao, and “Social movement theory and the evolution of new organisational forms”, by Anand Swaminathan and James B. Wade) continue on the theme of cognitive and sociopolitical legitimacy of new organsations. The interesting contrast in these two chapters is between public competion for collective strategy formation (Rao) and cooperation (Swaminathan and Wade).

Part two continues on the theme of collective action as essential to new venture creation, and helps the reader to revisit the local context for entrepreneurial activity. The local context is examined here in terms of institutional cooperation. Ari Ginsberg, Erik Larsen and Alessandro Lomi (“Entrepreneurship in context: strategic interaction and the emergence of regional economies”) use a computational model to argue that cooperation by conforming to emerging organisational forms, or defection from that form, is based on an understanding of local competitive conditions. Mark Suchman, Daniel Steward and Clifford Westfall (“The legal environment of entrepreneurship: observations on the legitimation of venture finance in Silicon Valley”), investigate the role of law and the instrument of venture capital finance contracts, in the legitimisation of new organisational activities through the active participation of legal institutions in the structuring of financial deals. Legitimisation is offered here by a supporting institution, namely the legal institutions which use their knowledge of the region to reduce uncertainties both for the new ventures and themselves as changing organisations in their own right.

We have come full circle now and can comfortably conclude with the authors that entrepreneurship is a local process in a local environment, that both entrepreneurs and institutional actors use their mental models to connect with each other and to influence the organisations and the industries they represent, and that collective strategies by entrepreneurs and institutions, even when unrecognised, provide the basis for new venture creation and new populations. Or do they? Schoonhoven and Romanelli further investigate these emerging hypotheses in the concluding chapter of the book in which they attempt to set the stage for new research on the subject.

I ask “do they?”, because I am left with some doubts; hence the early salutation for the editors of a good book. If there is a weakness in the book it is possibly in the limited scenarios that the book has to offer. For the entrepreneurship dynamic to be understood clearly it is perhaps useful to explore contrasting environments of upwardly mobile scenarios and lagging regions. Contexts provide examples of both success and failure, and an appreciation of the entrepreneurial deficit in particular environments helps us to better understand the evolution of the entrepreneurship dynamic. Schnoohoven and Romanelli recognise this shortfall in the book. They refer to the unanswered questions of what constitutes a critical mass of organisations (in terms of a required number of existing organisations for new venture formation), and the crucial role of time, especially the entrepreneurial continuum in terms of pre‐start ups, new firm creation stage and innovative organisational processes in existing organisations. There also appears to be a blissful avoidance of the question of economic choice.

No matter! I cannot recommend this book strongly enough to students and teachers for an engagement with fascinating discoveries, and to the researcher for a reconsideration of the different units of analysis for and the varied domains of entrepreneurship research.