Entrepreneurship Theories

What is Digital Entrepreneurship? Ecosystems, Theory, and Future Trends Digital Entrepreneurship: Theory, Ecosystems, and the Future When we think about a digital entrepreneur , we might imagine a single person making millions of dollars through a fully automated website or app. That seems very different from the traditional view of entrepreneurship as a process of organization-building. Where is the organization in digital entrepreneurship? The Rise of Digital Business Models According to a literature review by Zaheer et al. (2019), the specific focus on 'digital entrepreneurship' is relatively new, gaining traction around 2013. Before that, research focused primarily on the transformation of existing business models due to the internet and e-commerce. It only became a distinct research stream when entrepreneurs started making waves with digital business models that possess very small human organizational footprints but massive reach. Di...

What is a Born Open Startup? Definition and Strategies What is a Born Open Startup? Definition & Strategy A startup that is "Born Open" is one that rejects the traditional notion of proprietary knowledge appropriation (e.g., obtaining patents). For these companies, software patents are often viewed as an obstacle rather than an asset. Instead, a Born Open startup views itself as part of an ecosystem . These firms typically operate autonomously but share interconnected goals, participating in a community with shared governance to prevent the exclusive appropriation of technology. [Image of diagram comparing closed innovation vs open innovation funnel] The Philosophy of Open Strategy According to Mekki MacAulay (2010): "Open strategy involves the collective production of a shared good in an open fashion such that the resulting product is available to all, including competitors. In the case of open entrepreneurship, ...

Architectural Innovation: Why Startups Beat Incumbents Why do established industry giants often fail to adapt to new technologies, leaving the door open for startups? The answer often lies in Architectural Innovation . Based on the seminal work of Henderson and Clark (1990) , this theory suggests that while incumbents excel at improving existing products, they struggle significantly when the underlying structure—or "architecture"—of a product changes. This weakness creates a massive opportunity for entrepreneurs. The Four Types of Innovation To understand why architectural innovation is unique, we must look at how it differs from other types of changes: Incremental Innovation: Improving individual components (e.g., a faster processor). Incumbents dominate here. Modular Innovation: Swapping a component with a new concept while keeping the system the same (e.g., replacing an analog phone dial with a digital keypad). Radical Innovation: Developing e...

Competence Destroying Innovation: The Entrant's Advantage Why do industry giants often crumble when faced with new technology? According to the seminal work of Tushman & Anderson (1986) , the answer lies in whether an innovation destroys or enhances the firm's existing strengths. The theory posits a simple rule: Competence-destroying innovations are brought to market more successfully by new entrants (startups), while competence-enhancing innovations are dominated by incumbents. Defining Competence To understand the theory, we must first define what makes a firm "competent." Competence = Abilities + Resources An incumbent firm's competence is "destroyed" when a technological innovation renders their existing abilities or resources obsolete. A classic example is Blockbuster vs. Netflix . Blockbuster’s massive retail footprint (a resource) and logistics for managing physical stores (an ability) became liabilities when Netflix introdu...

Diffusion of Innovations: How Ideas Spread (and Why Startups Fail) The diffusion of innovations has been studied by many scholars over the ages, but most notably from 1970 onward by American sociologist Everett Rogers . Dr. Rogers developed this theory while studying the agricultural sector. He was fascinated by a simple question: Why did some farmers adopt productive new equipment immediately, while others abstained despite the obvious benefits? The 5 Categories of Adopters Rogers discovered that the adoption of any new product follows a specific statistical distribution. He categorized consumers into five distinct groups, each with different psychological drivers: Innovators (2.5%): Risk-takers who want the newest technology simply because it is new. Early Adopters (13.5%): Visionaries who adopt early to gain a strategic advantage. Early Majority (34%): Pragmatists who wait for proof of concept. Late Majority (34%): Skeptics who adopt only when neces...

“The crossing or hybridizations of the media release great new force and energy as by fission or fusion…” (1964:48). Marshall McLuhan was a Canadian academic and celebrity who famously coined the phrase “the medium is the message” back in the 1960s to express his thesis about the effect of new technologies (extensions of ourselves) on culture and society. He and his son are known together for the McLuhan Tetrad , which suggests that careful analysis of the extensions, amputations, retrievals, and reversals inherent in innovations help to reveal their effects. The Medium is the Message At a time when critics railed against sex, violence, and blasphemy on vacuum tube televisions, McLuhan claimed that the content of television was irrelevant. He argued that it is the medium of television that really changes us by creating new audio/visual tribes and seating us passively in front of the tube. New environments! The implication of McLuhan’s theory is that new technologi...

First Mover Advantage: Is it Better to be First or Fast? Should entrepreneurs strive to be first? This question haunts every founder deciding when to launch. Given the option to implement two ideas—one with early entry potential and the other with late entry potential—which should an entrepreneur run with? The Case for Going First According to Kerin et al. (1992) , "studies purport to demonstrate the presence of a systematic direct relationship between order of entry... and market share." First Mover Advantage Theory posits that new entrants who capture a market niche earliest gain specific competitive edges: Brand Awareness: Being "the original" creates a reputation for innovativeness that followers struggle to match. Supplier Lock-in: First movers can "tie up factor markets" by engaging in long-term contracts with key suppliers. This makes it harder for followers to acquire the necessary materials to compete. The Experience Cur...

Disruptive Innovation Theory: Why Giants Fall How did Netflix kill Blockbuster? Why did iPhones replace Nokia? The answer often lies in Disruptive Innovation Theory . Developed by Harvard Business School professor Clayton Christensen in his famous book, The Innovator’s Dilemma (2003) , this theory explains why seemingly successful, well-managed companies often fail when faced with new technologies. The Two Types of Innovation Christensen’s core argument is that innovation comes in two forms: Sustaining Innovations: These improve existing products along traditional dimensions of performance. They make good products better. Example: A new smartphone with a faster processor and a better camera. These appeal to existing, high-end customers. Disruptive Innovations: These are initially lower performing along traditional metrics, but compensate with increased simplicity, convenience, customizability, or affordability. They appeal to new, often overlooked, custo...

Knowledge Spillover Theory: Why Smart Employees Leave Big Companies Big companies spend billions on R&D, yet startups often commercialize the most disruptive innovations. Why? Knowledge Spillover Theory (Acs et al., 2009) argues that productive innovation doesn't just come from R&D spending; it comes from the leakage of ideas. Knowledge is inherently "leaky," moving through networks and via stakeholder mobility. The Knowledge Filter The core of the theory is the concept of the Knowledge Filter . Incumbent firms create massive amounts of new knowledge. However, they are often inefficient at exploiting it. They filter out ideas that don't fit their current strategy or profit models. This unused knowledge "spills over" into the economy. [Image of knowledge spillover theory diagram] Why Incumbents Waste Knowledge Why would a company invent something and then not use it? Agarwal et al. (2010) identify several reasons why incumbents le...

Joseph Schumpeter, a prominent economist, is widely recognized as a pioneer in the field of entrepreneurship. He placed human actors at the center of economic development processes and argued that entrepreneurs played a critical role in driving innovation and economic growth. Schumpeter's view of entrepreneurship was unique in that he saw it as a disruptive force that challenged the status quo and led to the creation of new markets and industries. He believed that entrepreneurs were not simply passive actors responding to market forces, but were active agents who sought to gain power through their ability to resist social pressure and overcome limitations in existing skill sets. The Theory of Creative Destruction Schumpeter is perhaps best known for his theory of "creative destruction," which celebrates the destruction of old ways, companies, and legacies to make way for the new. According to Schumpeter, this process involves the dismantling of established industries...