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Diffusion of innovations theory and entrepreneurship

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Could understanding the diffusion of innovations help in entrepreneurship?

The diffusion of innovations has been studied by many scholars over the ages, but notably from 1970 onward by American sociologist Everett Rogers.

Rogers was interested in trying to get farmers to adopt innovations that could better their lives and make their businesses more productive. He pondered the forces that lead some to adopt and others to abstain.

Modeling adoption curves

He suggests that different types of adopters: innovators, early adoptions, early majority, late majority and laggards have different adoption criteria. For instance, a strategy that may attract early adopters may not attract the early majority because they want different things.

The size distributions of the different types of adopters (i.e., number of members of a particular adopter category), grow and then shrink giving rise to an inverted u-shaped curve, giving rise to the famous s-curve of total adoption.

Image source: Wikicommons

Hybrid entrepreneurship theory

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What is hybrid entrepreneurship? Most entrepreneurs work for organizations before or while they start their businesses. There is macho entrepreneurship dogma that says you have to go all in, experience "the fear" and dedicate yourself for 80 hours a week to your venture. Implicit in this is the notion that an entrepreneur cannot succeed if they hedge their bets by keeping one foot in employment.

Why go all in to a startup if startups are probabilistic events, not givens. Many employers and regulators allow employees the freedom to pursue new ventures on the side, especially those that do not directly compete with their employers (and therefore not breaching a duty of loyalty). 

Hybrid entrepreneurship refers to entrepreneurship whereby an employee starts a business on the side and keeps their day job until the startup reaches a certain size. Once the business is large enough to command the founder's full attention, then the employee makes their exit. However, it is i…

Lean launchpad and entrepreneurship

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What is the Lean Launchpad? The Lean Launchpad was developed by Steve Blank (serial entrepreneurs and adjunct professor at Stanford) and colleagues as a repeatable process to create a startup. It is probably the most popular methodology today, featuring in a great number of entrepreneurship programs for students and mature students. It is also the method used at Y-Combinator and other top incubator programs. Despite its popularity, there is little empirical research examining the method.
Assumptions behind the Lean Launchpad The theory behind the Lean Launchpad can be described as a discovery theory. The entrepreneurship literature is divided about the nature of entrepreneurial opportunities. At one end of the spectrum is the creationist school that views entrepreneurship as a process of opportunity creation led by teams and individuals (McMullen and Dimov, 2013). At the opposite end of the spectrum, the discovery school defends an objective view of entrepreneurship where opportuniti…

Social safety nets and entrepreneurship

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What is the risk compensation theory of entrepreneurship? Peltzman’s (1975) pioneering study of automobile accidents revealed that expected positive effects of safety regulations rarely materialized upon implementation. He argued that when drivers feel safer, they take more risks, which compensate for the safety interventions. Support for what is now dubbed the ‘Pelzman effect’ (or risk compensation theory) is far reaching and extends to varying contexts including new rules in NASCAR racing, mandated visor use in hockey, consumer vigilance in response to food safety messages, and bike helmet laws. But does this phenomenon also explain greater entrepreneurial risk-taking in the presence of social safety nets?

There is emerging evidence that social safety nets can have positive benefits for entrepreneurs by reducing the risk associated with entry. Olds (2016a) finds that states that provided more food stamps have more limited liability company registrations among members of newly covered…

Individual ambidexterity and entrepreneurship

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What is the individual ambidexterity theory of entrepreneurship?Most new ventures are founded by former employees of organizations. Employees make discoveries while working for organizations and decide to exploit them on their own, especially when parent firms do not see the value in their discoveries, or choose not to exploit them due to a lack of fit with the firm’s strategy. When employees leave to start new ventures, we call their ventures employee spinouts

Ambidextrous behaviors have been observed in entrepreneurs. Entrepreneurs display ambidextrous through boundary-spanning relationships, by avoiding excess exploitation and keeping time aside for exploration, by using platforms for discussing issues related to exploration, and by shifting focus from exploration to exploitation and vice versa as the current situation requires (Volery et al., 2013). The entrepreneurial process is often conceptualized as stage-based. For example, Kazanjian and Drazin (1990) suggest four stages: …

Attribution theory and entrepreneurship

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What is the attribution theory of entrepreneurship? Attribution theory was developed by Austrian psychologist Fritz Heider in the 1950s. The fundamental assumption of attribution theory is that people are motivated to find causes for their own success and failure events as well as the behaviors of others. Individuals are more likely to attribute the causes of a successful event to themselves or their in-group, whereas they are more likely to attribute the causes of failure events to distal forces or out-group members. This is called a self serving bias.

Similarly, when we see others fail, we are likely to attribute their failure to internal causes, such as laziness or incompetence rather than considering environmental conditions. This is called fundamental attribution error. Thus, when we see an entrepreneur fail in business, we assume that the failure is because they did something wrong. This may lead to a belief in wrong causes because the entrepreneur could have failed for reaso…

Self‐competition theory of entrepreneurship

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What is the self-competition theory of entrepreneurship? Elias Khalil (1997) at Monash University asks why is it that some entrepreneurs that have prior accomplishments continue to risk their capital again and again? One possibility is that these entrepreneurs are trying to be the best in the world or in a given territory or space. Another possibility is that they are striving just to be better than their former selves.

Self-competition theory's main assumption is that individuals develop the desire to improve themselves, or rather, upon their former selves. Entrepreneurship can be viewed as behaviors that individuals use to better themselves. The theory also assumes that individuals keep track of their personal best and have the ability to compare themselves to their former bests. For example, one might try to obtain a return on investment that is double what a previous venture was able to provide. Or one might try to expand the scale of the venture to be larger than previous v…

Embeddedness theory of entrepreneurship

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What is the embeddedness theory of entrepreneurship? Karl Polanyi was an Austrian-Hungarian economic sociologist in the middle years of the twentieth century. He coined the term 'embeddedness' to mean the extent that economic activity is constrained by institutions that are non-economic. Non-economic institutions may include:

1) kinship or family
2) religious or cultural
3) power and politics

Embeddedness can also be thought of as the nature, depth and extent of an individual’s ties into the environment (Jack and Anderson, 2002). Patterns of economic exchange become embedded in webs of social relations that over time leading to the development of trust and reciprocity (Uzzi, 1997).

Embeddedness affects decisions about who to transact with including potential investors and customers of entrepreneurs' ventures. For instance, someone that graduates from Stanford may be more likely to get investment from someone in the Stanford venture capital network, but they may also be …

Social judgement theory and entrepreneurship

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What is the social judgement theory of entrepreneurship? The central concept in social judgement theory is legitimacy (Suchman, 1995), as the buyers and suppliers of any new venture must believe that the startup is legitimate in order to commit their scarce resources or risk capital. A startup must meet the regulatory, normative and cognitive institutional requirements of the markets where it competes. 

A social judgment theory of entrepreneurship looks to the entrepreneurs stakeholders' social judgement about their ventures. These judgments are important because of the way that stakeholders make decisions to support a burgeoning venture or not to.

Impression management? Perhaps and interesting critique of the social judgement theory as stated above is that is may be descriptive rather than prescriptive. For example, if the theory is considered prescriptive (i.e., normative), then an entrepreneur might thus manages the impressions that stakeholders build about them in order …

Biculturalism and entrepreneurship

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What is the biculturalism theory of entrepreneurship? Biculturalism refers to an individual characteristic that develops as a result of exposure to two cultures. The typical case is the immigrant who lands and must learn the host countries local culture and in doing so adopts elements of a second culture.

The Al-Shammari team examines individuals with bi-cultural skills and experiences: "those who are exposed to different cultures and environments will experience different types of experiences in their social interactions and thus will accumulate rich knowledge that is diverse" (page 7). They theorize that biculturalism provides advantages in the opportunity recognition, evaluation, selection and exploitation stages. They find that bicultural individuals have advantages in the earlier stages, but struggle with exploitation (due to institutional constraints), unless they are able to build networks in the host country.

This is an interesting theory, though obviously lends it…

Resilience theory of entrepreneurship

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What is the resilience theory of entrepreneurship? Resilience is the ability to get up after you fall down, whether it be physically, psychologically, cognitively, financially, socially, or economically. Resilience is expected to be an important capability of entrepreneurs because they typically face numerous failures on their way to eventual success.

The idea of resilience as a virtue for entrepreneurs is appealing because it soothes the failed or failing entrepreneur. It involves a belief that continuing on despite setbacks is better than withdrawing from entrepreneurial activities. For example, the popular idea of the pivot implies the need to change directions as reality comes into focus.

Ayala and Manzano (2014) find that Spanish small business owners are more resilient than the general population, highlighting the sub-construct of resourcefulness.  Bullough, Renko and Myatt (2014) focus on entrepreneurs during times of war, who show great resilience in the face of danger.

Entr…

Spinout versus spinoff: What's the difference?

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What is the difference between a spinout and spinoff? When I talk to entrepreneurs and managers, there is much confusion about the difference between spinouts and spinoffs. This confusion is due to the ambiguous use of these terms both in practice and academia. Although there exist many opinions about the differences between spinouts and spinoffs, I will focus here on the authority behind a spinout or spinoff.

Spinoffs (often called "corporate spinoffs") are the outcome of a corporate decision making process (Agarwal, Audretsch, and Sarkar, 2007). A parent company's managers decide to make a division or subsidiary of the corporation into a separate legal entity with different (albeit often overlapping) owners. Spinoffs are often used to increase corporate coherence and to give new ventures the independence they need to flourish. Spinoffs are a form of corporate restructuring decision that involves divestment. Owners of shares in the parent receive shares in the spinoff, …

Hoselitz theory of entrepreneurship

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What is Hoselitz theory of entrepreneurship? Burt F. Hoselitz was a professor of economics at the University of Chicago. Hoselitz argues that entrepreneurship tends to come from socially marginalized groups in a given society. This is very similar to the withdrawal of status respect theory and the misfit theory of entrepreneurship, which both deal with marginalized populations.

Hoselitz assumes that entrepreneurship can only come out of a developed cultural base. Marginalized populations must be considered culturally developed in order to be considered eligible for entrepreneurship. He refers to entrepreneurship by marginalized groups as "pariah entrepreneurship".

U.S. Coast Guard Photo

Hoselitz claimed that his theory helps to explain to the highly entrepreneurial behaviors of Greeks and Jewish people in medieval Europe, Lebanese in West Africa, Chinese in Southeast Asia, and Indians in East Africa.

The concept of cultural development is ambiguous and potentially problemati…