Entrepreneurship Theories

Dynamic Capabilities: How Startups Survive in Changing Markets Do entrepreneurs exhibit dynamic capabilities? The short answer is: they must if they want to survive. At the core of Dynamic Capabilities Theory is a simple but brutal truth: an organization's current resources, which may be perfect for today, will likely be irrelevant tomorrow. Recognizing that technologies, policies, and consumer tastes are in a state of constant flux, an organization needs the ability to adapt. What are Dynamic Capabilities? According to David Teece (2007) : "The competitive advantage of firms stems from dynamic capabilities rooted in high performance routines operating inside the firm, embedded in the firm’s processes, and conditioned by its history." In simpler terms, while "ordinary capabilities" help you do things right (efficiency), "dynamic capabilities" help you do the right things (adaptation). This involves a continuous cycle of sensing new op...

Ambidexterity Theory: The Art of Balancing Innovation and Execution Why do some individuals excel at navigating uncertainty while others struggle? The answer may lie in their ability to be "Ambidextrous" —the mental agility to manage two contradictory thought processes at the same time. While this theory originated in organizational behavior, it has become a critical framework for understanding successful entrepreneurship. It suggests that a founder cannot just be a "dreamer" or a "doer"—they must be both. Exploration vs. Exploitation According to March (1991) , organizational learning requires a delicate balance between two distinct activities. Mom et al. (2015) propose that individuals are ambidextrous if they are effectively involved in both: Exploration: Activities such as search, play, experimentation, ideation, and radical innovation. (The "Dreaming" phase). Exploitation: Activities such as refinement, execution, sele...

Resilience Theory: The Art of Getting Back Up What is the single most important trait for a founder? Many argue it isn't intelligence or funding, but Resilience . Resilience is defined as the ability to recover quickly from difficulties—to "get up after you fall down," whether physically, psychologically, financially, or socially. Because entrepreneurs typically face numerous failures on their way to eventual success, resilience is expected to be a critical capability. More Than Just "Toughness" The idea of resilience is appealing because it soothes the failing entrepreneur. It reinforces the belief that continuing on despite setbacks is better than withdrawing. In the startup world, this is often manifested as the "Pivot" —the ability to change directions rapidly as reality comes into focus, rather than quitting. Evidence from the Field Academic research supports the link between resilience and business survival: Ayala and Manzano...

Ambiguity tolerance theory can be traced back to Polish psychologist Else Frenkel-Brunswik , whose work in 1949 focused on authoritarianism and ethnocentrism in children. Ambiguous information is everywhere. For many, it leads to the conclusion that there is "no way out," no way to understand, or no viable way to proceed. The decision-making process can become paralyzed by ambiguity that prevents conclusive prescriptions. The Entrepreneurial Advantage When there exist high levels of uncertainty about a particular entrepreneurial venture, those individuals who exhibit higher levels of tolerance of ambiguity are more likely to succeed. The ability to tolerate conflicting information and deal with missing information makes the difference. The more uncertain a particular business opportunity, the more important this trait becomes: Traditional Industries (e.g., Restaurants): Market information is generally consistent and known. New Industries (e.g., Tech): Marke...

What is the jack of all trades theory of entrepreneurship? The jack of all trades theory of entrepreneurship was proposed by Stanford University economist Edward P. Lazear in a working paper that was eventually published in The American Economic Review in 2004, entitle Balanced Skills and Entrepreneurship . The theory seeks to explain and predict who becomes and entrepreneur, and which entrepreneurs will be successful. According to Lazear, individuals that become entrepreneurs may have more balance in their investment strategy (on average) as compared with individuals that specialize employee roles. Jack of all trades, master of none, still better than a master of one? Lazear's core idea is that entrepreneurs need to be good at many different things, that is, they are generalists rather than specialists. For instance, when first starting out, a restaurant entrepreneur needs to select vendors for inputs such as food, furniture, equipment, and construction. He or she may als...