Studying Entrepreneurship as an Institution
The authors propose a research agenda based on the premise that entrepreneurship can and should be viewed as an institution. This approach assumes that typical structures and processes involved in founding new businesses reflect common social understandings held by members of a group about the value of entrepreneurship and how it should be undertaken. It also assumes that these behavioral patterns and social understandings vary by geographic region and over time.
An important task in furthering entrepreneurship research based on this approach is identifying key dimensions along which such institutional variation occurs. Here, the authors discuss two main dimensions that we argue merit more focused attention: modes of entry and modes of governance. Drawing on existing literature, they offer a number of hypotheses about conditions that are likely to be associated with group-level variation in each of these dimensions, and the impact of such variations on organizational outcomes.
KeywordsEntrepreneurship institutional theory culture structure governance
Research on entrepreneurship, which became a key part of organizational scholarship in the late twentieth century, was initially dominated by studies of individual dispositions and attitudes that make a given person more or less likely to become an entrepreneur. This work gave little attention to the structural factors that might facilitate or inhibit the actual expression of such dispositions and attitudes in entrepreneurial activities (Aldrich & Wiedenmayer, 1993; Katz & Gartner, 1988). More recent research, however, has begun to redress this neglect, documenting the important influence of contextual conditions, such as kinship and friendship ties, and the size and sectoral location of former employers on individuals’ likelihood of becoming an entrepreneur (Buenstorf & Klepper, 2010; Halaby, 2003; Kacperczyk, 2013; Sorensen, 2007). These influences operate by affecting both individuals’ readiness to consider entrepreneurship as a viable employment option (Nanda & Sorensen, 2010; Stuart & Ding, 2006) and their possession of skills, knowledge, and resources needed to become an entrepreneur (Dencker, Gruber, & Shah, 2009; Gambardella, Ganco, & Honore, 2015; Hiatt & Sine, 2014).
While recent organizational studies thus have considerably expanded the view of the nature and determinants of entrepreneurship, they generally have maintained the focus of older work on the individual as the unit of analysis (for an important exception see Kwon, Heflin, & Ruef, 2013). Yet a variety of literatures, including work on racial and ethnic groups, gender studies, and economic geography, implicates characteristics of collectivities as determinants of entrepreneurship and suggests consequent group-level variation in both rates and forms of entrepreneurship. Hence, analyses focusing on the question of what conditions encourage and shape the form of entrepreneurial activities at the group or community level offer potentially important new insights for scholars interested in understanding such economic phenomena.
This paper seeks to spur research on this topic by identifying and discussing two key aspects of entrepreneurship that are likely to vary across collectivities: modes of entry, or common pathways to founding business enterprises, and modes of governance, or forms of ownership and hence decision making in new enterprises. Although there are other relevant dimensions that could be studied, these two tap ones that existing research has shown to be significantly related to group differences and are also likely to be influential in shaping critical organizational outcomes.
Our approach reflects theoretical arguments about the utility of examining entrepreneurship as an institution (Brandl & Bullinger, 2009; Tolbert, David, & Sine, 2010) and dovetails with recent work in institutional theory emphasizing the need to understand how a general institution may vary in specific ways over time and in different locations (Ansari, Fiss, & Zajac, 2010). We begin by briefly summarizing the logic of this broad theoretical framework and reviewing a number of independent streams of work on entrepreneurship with the aim of showing how an institutional perspective helps link these currently disparate streams. We then draw on existing research to suggest some of the key social conditions likely to predict variations in the two institutional dimensions that are the focus of our discussion, and offer a number of propositions to help lay a foundation for (and we hope, inspire) further research in this area.
Connecting Institutional Theory and Entrepreneurship Research
Because both institution and entrepreneurship are used in very different ways in existing work, we start by briefly clarifying our own definitions of these terms. In our use, similar to that of Meyer and Rowan (1977), an institution is a pattern of behavior (or an observable behavioral artifact—for example, a formal law or organizational rule) based on commonly shared beliefs and understandings that justify the behavior. The latter aspect, the justifying beliefs and understandings, represent what we refer to as an institutional logic.1
The term entrepreneurship suffers from the same sort of etymological problems as institution, as reflected in the wide array of definitions found in research on this topic (Aldrich & Ruef, 1999/2006). These definitions range from ones that, mirroring Schumpeter’s (1911/1968) concern with the creation of new markets, reserve the term for new firms that introduce major innovations in products, services, or technology to those that focus on new firms in high technology industries (regardless of the novelty of the products or produced services) and ones that include all efforts to establish new, independent business organizations. The latter definition fits most closely with common measures used in empirical research, which often rely on self-employment, or actions designed to lead to self-employment, as an indicator of entrepreneurship (e.g., Acs, Audretsch, & Strom, 2009). We follow the latter, big-tent approach to defining entrepreneurship as the act of creating new economic organizations. This approach seems preferable, because it is generally not possible to identify which innovations will lead to market destruction or creation, a priori, and we believe that limiting entrepreneurship research to a select set of industries or types of firms is unnecessarily confining.
Thus, treating entrepreneurship as an institution entails examining patterns of behavior involved in the founding of new economic organizations, specifically, patterns that are characteristic of a group and are based on commonly shared beliefs and understandings that support that behavior. In this context, seminal work in institutional theory explicitly recognized the utility the perspective provides for studying entrepreneurship, noting:
Our addition to this view is to focus on understanding existing differences in these building blocks among different social groups and in different time periods.
The growth of rationalized institutional structures in society makes formal organizations … both easier to create and more necessary. After all, the building blocks for organizations come to be littered around the societal landscape; it takes only a little entrepreneurial energy to assemble them into a structure. (Meyer & Rowan, 1977, p. 345)
Despite the prominence that institutional theory has attained in contemporary organizational studies (Greenwood, Oliver, Sahlin, & Suddaby, 2008), its use by researchers interested in the problems of understanding the nature and sources of entrepreneurial activity has been relatively rare (see also Tolbert et al., 2010).
Prior Entrepreneurship Research: From Dispositions and Motives to Institutional Influences
This probably reflects, at least in part, the disciplinary dominance of economics and psychology in much of the work on entrepreneurship. Both disciplines encourage a focus on the personal motives and calculations of individual entrepreneurs in deciding to found a business (Kirzner, 1973; McClelland, 1965). And indeed, this emphasis is still prominent in some contemporary organizational literature on entrepreneurship (e.g., Gielnik, Spitzmuller, Schmitt, Klemann, & Frese, 2015; Shane & Nicoloau, 2015; Van Gelderen, Kautonen, & Fink, 2015).
Contextual Sources of Entrepreneurship: Recent Studies
As noted previously, a growing segment of entrepreneurship research highlights the importance of extraindividual, or contextual influences, on entrepreneurs. For example, early work in this vein provided evidence that self-employed parents often transmit entrepreneurial values to their children (Halaby, 2003; Miller & Swanson, 1958; though see a later study by Aldrich & Kim, 2007).
Current research suggests that a more proximal and powerful force on entrepreneurship is the context provided by individuals’ own employment experiences—particularly the size and nature of previous employing organizations, and relationships with former coworkers. For example, a study by Sorensen (2007) of entrepreneurs in Denmark found that individuals employed in smaller and younger firms were more likely to become entrepreneurs than those employed in larger, older firms. He attributes this result to the greater opportunities to gain entrepreneurially relevant managerial experiences and knowledge provided by smaller and younger firms (see also Dencker et al., 2009). Kacperczyk’s (2012) study of the career paths of employees in U.S. mutual fund organizations corroborates this argument by showing that individuals who founded new firms in this industry often came from smaller fund organizations. Similarly, another study by Özcan and Reichstein (2009) found that individuals employed in public sector firms in the United States were less likely to enter into self-employment than similar individuals employed in private sector firms.
As most authors acknowledge, selection effects may be operative in these studies as well: Individuals with inclinations to become entrepreneurs may seek employment that provides them with greater autonomy and opportunities to develop particular skills. Insofar as smaller, younger and less bureaucratic organizations attract entrepreneurial individuals, they are likely to provide a social environment that makes entrepreneurship more normatively acceptable. In line with this, studies of U.S. academics by Stuart and Ding (2006) and Kacperczyk (2013) indicate the importance of peer attitudes towards entrepreneurship in spurring faculty members’ entry into new commercialized science firms.
Work in this tradition importantly extends understanding of the social forces that shape individual decisions to become an entrepreneur, but still neglects larger, more macrolevel influences on entrepreneurial activity that manifest in varying rates of new venture formation across geographical areas and in different time periods. A variety of research—by gender studies scholars, by sociologists studying race and ethnic relations, and by economic geographers—has amply documented group-based variations in rates and forms of entrepreneurship. This work provides a good point of departure for investigating entrepreneurship as an institution.
Group-Based Variation in Rates of Entrepreneurship
A long line of work by economic geographers has highlighted marked differences in the rates of entrepreneurial activities across regions, across countries, and across cities within countries (e.g., Acs & Armington, 2006; Acs et al., 2009; Ardagna & Lusardi, 2008; Breschi & Malerba, 2001; Glückler, 2006, 2014; Sternberg & Rocha, 2007; Vaillant & Lafuente, 2007). Although scholars often focus on economic and policy-level factors, such as tax rates and other governmental regulations, in explaining variation in entrepreneurship (e.g., Eesley, 2009; Torrini, 2005), evidence of the importance of cultural or normative sources can be found in a number of studies as well (Davidsson & Wiklund, 1997; Fairlie & Meyer, 1994). For example, Vaillant and Lafuente (2007) trace the relatively high rates of entrepreneurship in rural Catalonia (compared to other rural areas of Spain) to Catalonia’s distinctive constellation of cultural values.
Likewise, the importance of group-linked, cultural influences can be adduced from research on gender differences in entrepreneurship. In general, women’s rates of entrepreneurial activity roughly follow those of their male counterparts in a given country, but a persisting gender gap in both entrepreneurial attitudes and action exists within virtually all countries (Jennings & Brush, 2013; Kelley, Brush, Greene, & Litovsky, 2011). While lower rates of entrepreneurship among women are often attributed to gender-based variations in human and social capital required for business entry (Kim, Aldrich, & Keister, 2006), the inclusion of measures of such capital in models predicting self-employment does not eliminate gender differences (Budig, 2006; Thébaud, 2015). Thus, it seems reasonable to attribute widespread differences in men’s and women’s propensity to found new organizations, at least in part, to normative, collective understandings that commonly define entrepreneurship as less appropriate for women than men (Baughn, Chua, & Neupert, 2006; Elam & Terjesen, 2010). Hence, like the research from economic geographers, studies by gender scholars also suggest the utility of studying entrepreneurship as an institution—behavioral patterns driven by shared social understandings and norms.
Finally, research by U.S. sociologists on race and ethnicity has often implicitly investigated entrepreneurship as an institution that varies across identity groups (Aldrich & Waldinger, 1990; Light, 2003; Light & Rosenstein, 1995). Zhou, reviewing the literature in this area, notes, “It is generally known that certain groups of immigrant and ethnic minorities are more entrepreneurial and more likely than others to adopt small business ownership” (2004, p. 1041). She then lists Jews, Japanese, Koreans, Chinese, Iranians, and Cubans as examples of such groups. Just as in studies by economic geographers and gender scholars, such variations are often attributed to differences in both material and human capital resources (Light & Rosenstein, 1995), but it is important to note that, net of these influences, group-level patterns of social ties (Kwon et al., 2013) and norms supporting entrepreneurship (Raijman & Tienda, 2000) have been found to act as independent influences on rates of entrepreneurial activity.
Group-Based Variation in Forms of Entrepreneurship
There is also evidence of the role of normative influences on the forms that entrepreneurial activities take, as well as on rates. Work on ethnic entrepreneurs, in particular, has investigated how particular aspects of entrepreneurship vary across different nationality groups. Studies in this tradition have documented group differences in processes through which individuals acquire relevant skills and knowledge needed to found their own firms, differences in founders’ aims for such enterprises, and differences in the structural arrangements that characterize the enterprises (e.g., Portes & Zhou, 1999; Raijman & Tienda, 2000; Zhou, 2004).
We note that these aspects are relevant to the distinction often drawn between opportunity and necessity (or voluntary and involuntary) entrepreneurship. This distinction explicitly taps the extent to which individuals’ engagement in entrepreneurial activity is more or less by choice (Block & Wagner, 2010). It reflects, at least implicitly, the assumption that entrepreneurs with more resources and alternative employment options are more likely to be characterized by voluntary entry, while those with fewer resources and options are often driven into entrepreneurship, lacking alternative means of making a living. Some key sources of cross-national data on entrepreneurship, such as the Global Entrepreneurship Monitor, which has collected survey data regularly since 1999 on new business activities in a variety of countries, gather information on this by asking respondents about their dominant motives for undertaking such activities (Wennekers, van Stel, Thurik, & Reynolds, 2005, p 305).
We are sympathetic to the case for distinguishing different forms of entrepreneurship (this is quite consistent with the approach we take here), but this bifold distinction seems overly simplistic and hard to draw in practice. Many entrepreneurs have mixed motivations, regardless of their level of resources (Williams & Williams, 2014). Hence, like Katz and Gartner (1988), we argue that scholarship on entrepreneurship can benefit from focusing more on activities and behaviors associated with creating new economic organizations, rather than on differences in psychological motives. Although several survey and ethnographic studies have noted that the entrepreneurial process appears both complex and chaotic (Aldrich & Ruef, 1999/2006), greater attention to patterns that characterize particular social groups may reduce some of the seeming unpredictability of these activities. Viewing entrepreneurship through an institutional lens encourages greater attention to group-level variation in the processes and the context of entrepreneurial foundings than does a reliance on a simple necessity–opportunity distinction.
An Institutional Approach to Entrepreneurship
In sum, different lines of research have documented group-based variations in rates of entrepreneurship (regardless of whether the group is defined by geography, gender, or other social markers), and suggested the importance of cultural or normative sources of such variation. Conceptualizing entrepreneurship as an institution provides a vantage point for integrating much of this research. Again, in this conception, entrepreneurship entails a behavioral component, activities aimed at founding economic enterprises, and an ideational component, shared cultural understandings (logics) that define the general acceptability and desirability of such activities, as well as the typical form of enterprises.
This approach meshes well with recent organizational studies suggesting greater attention be given to understanding the way in which institutions may vary, depending on both time and location. This is in contrast to most early empirical work based on institutional theory, which typically focused on explaining the diffusion of particular institutions—whether a type of law, a personnel practice, or a newly formalized organizational position—over time and space (e.g., Davis, 1991; Fligstein, 1985; Tolbert & Zucker, 1983). Almost invariably, the diffusing institution was treated as being identical from one adoption to another. However, recent studies have drawn attention to the variable nature of institutions (Ansari et al., 2010; Colyvas & Jonsson, 2011; Hipp, Bernhardt, & Allmendinger, 2015; Kennedy & Fiss, 2009) and the need to understand factors that affect such variation.
One example is provided in a study by Fiss, Kennedy, and Davis (2012) of the adoption of severance packages—often referred to as golden parachutes—for executives of companies acquired by outside investors. Such arrangements emerged among large U.S. corporations in the late 1970s, and spread rapidly as an anti-takeover measure, one promoted as enhancing shareholder value. While the original studies treated all adoptions as identical (Davis & Greve, 1997), closer examination by Fiss et al. (2012) revealed a number of ways in which the content of the packages varied across organizations, including the number of top-level managers who were covered, the conditions under which this measure would be activated, and the range of benefits provided. Moreover, such variations were found to be significantly related to both firm-level and temporal factors: Over time, adopters of golden parachutes expanded the range of benefits provided, but this was contingent on characteristics that affected organizations’ visibility, including news media scrutiny of a firm, and how dispersed its stock ownership was. That is, the nature of this institution was dependent on both the time period and the conditions facing organizations that enacted it.
The study by Fiss et al., as well as a number of others (Ansari et al., 2010; Djelic, 1998; Zilber, 2002), helped illuminate the important insights that can be gained by exploring both the forms and sources of institutional variability. We think that empirical studies of entrepreneurship, in particular, can be enriched by this approach for several reasons. First, it provides a unifying framework for the varying definitions of entrepreneurship within the field. What have been treated as competing definitions can be viewed as simply tapping institutional variations, and the social, economic, or other conditions that give rise to these variations can become the focus of research. Relatedly, this approach facilitates the organization of past empirical work and, in guiding future work, allows theoretical insights to be more carefully explored.
A review of various streams of extant work suggests a variety of potential dimensions along which entrepreneurship may vary. These include processes of employee recruitment and selection (Baron, Burton, & Hannan, 1999), chances and criteria of receiving external support (Chen, Yao, & Kotha, 2009; Ding, Sun, & Au, 2014), and structural stability (Beckman & Burton, 2008; Boeker & Wiltbank, 2005), among others. However, to date there has been no systematic program of research on any of these dimensions. Below, we focus on just two dimensions that seem likely candidates for concentrated research, where findings could substantially advance both theoretical understandings and social policy decisions: modes of entry and modes of governance. We draw on existing work to propose specific variants within each of these modes.
Two Dimensions of Entrepreneurship: Entry and Governance Modes
Modes of Entry
Research on ethnic entrepreneurship in the United States, in particular, has drawn attention to distinctive paths leading to the formal founding of new businesses that typify different immigrant groups (Banerjee, 2013; Light, 2003; Raijman & Tienda, 2000). Although there is little or no cross-referencing of this research by studies of nonimmigrant entrepreneurs in Western countries, the latter provides some evidence of similar types of pathways (Baron et al., 1999; Sorensen, 2007). Based on our review of these literatures, we distilled three ideal typical modes of entry into entrepreneurship that vary in terms of the degree to which they are associated with prior experience relevant to the new enterprise, and the nature of that experience. We label one an emergent mode, a second as an apprenticeship mode, and a third as a neophyte mode, and discuss each in turn.
The emergent mode of entry is well-documented in the literature on ethnic entrepreneurship as a common route to self-employment. This route involves business activity that often begins in the informal economy—that is, economic activities that are not registered with or regulated by government (e.g., producing goods for local distribution at farmers markets, providing in-home services, etc.), and are often done on a part-time or casual basis. However, these activities can, over time, provide the basis for establishing officially recognized, ongoing business organizations, even if this was not the initial objective of the founders.
Raijman and Tienda’s (2000) study of an immigrant neighborhood in Chicago suggests that this is a relatively common route into entrepreneurship among Hispanic immigrants to the United States, and more generally, among immigrants with lower levels of education and skills. Research on self-employment among nonimmigrant women also suggests this as a common path to entrepreneurship, both in the United States (Budig, 2006; Carr, 1996) and other countries (Kelley et al., 2011), particularly among nonprofessionals. When family responsibilities make participation in the formal economy difficult, women may turn to activities in the informal economy—for example, providing childcare and other personal services—that later receive licensing and become part of the formal economy.
This mode of entry provides would-be entrepreneurs with the gradual acquisition of experience in production and organizational activities and with opportunities to test the market for their product. Thus, it may be common among those who have been characterized as hybrid entrepreneurs (Raffiee & Feng, 2014), that is, individuals who hold regular paid employment while undertaking activities that ultimately lead to full-time self-employment. There is probably more variation among the individuals who take this route in terms of their initial commitment to creating an ongoing, formal enterprise, but if they experience some success we would expect them to be motivationally indistinguishable from other entrepreneurs who are characterized by different modes of entry (see also Williams & Williams, 2014).
What we call the apprenticeship mode entails entry into entrepreneurship after having previously served as an employee of a firm in the same or a closely related industry. This is often discussed in the ethnic entrepreneurship literature in terms of coethnic employment (see also Light, 2003). In the latter case, a more established member of an immigrant group hires comparatively recent immigrants from the same national background, often providing relatively low pay and demandingly long working hours. Although this arrangement is exploitive in the short run, studies have pointed out that it enables the acquisition of knowledge, experience, and contacts required to start a business (as well as time to acquire new language skills and gain familiarity with customs). It is a common basis for the founding of new enterprises among Korean, Cuban, Indian, and other immigrant groups (Banerjee, 2013; Raijman & Tienda, 2000). The propensity of some groups to rely on this entry mode accounts, in part, for the concentration of ethnic groups in certain industries and businesses (Uzzi, 1996).
Other research has also provided evidence of the apprenticeship route by nonimmigrant entrepreneurs. A classic example is provided by the case of Fairchild Semiconductor, a company founded by eight former employees of Shockley Semiconductor Laboratory. Fairchild Semiconductor served as a jumping-off point of entrepreneurship for its employees, their newly founded Silicon Valley firms being referred to as Fairchildren (Lécuyer, 2006). This pattern, of former employees leaving a firm to found their own because of dissatisfaction with operations or concerns about the long-term survival of an employer, often characterizes industries based on new technologies, and a research literature on spinoffs has begun to explore the conditions that produce and shape it (e.g., Baltzopoulos, Braunerhjelm, & Tikoudis, 2015; Bathelt, Kogler, & Munro, 2010; Brittain & Wholey, 1988; Klepper, 2009; Klepper & Thompson, 2010). To date, most of this work has focused on questions about the kinds of firms that generate spinoffs, the role of universities in this process, and the relation of parent company performance to that of spinoffs.
Although related to our discussion of apprenticeship, this literature has not systematically examined questions about the kinds of industries, regional conditions or social groups that are most likely to be characterized by this mode of entry, relative to other modes. As noted, the literature on spinoffs has concentrated on industries with new technologies; but the literature on ethnic entrepreneurship suggests that spinoffs are common in other, low-technology industries as well. The juxtaposition of these two literatures highlights the utility of considering apprenticeship as a distinctive form of entry to entrepreneurship and examining the conditions under which it is most likely to occur. We underscore the importance of retaining a focus on entry into economic sectors that are related to prior employment, as part of defining this mode; this is what distinguishes it from other modes (for a related point, see Baltzopoulos, Braunderhjen, & Tikoudis, 2016).
The apprenticeship mode of entry offers would-be entrepreneurs the opportunity to gain critical experiential learning in a relatively protected context. It may foster the acquisition of relevant knowledge, ties, and other resources more quickly than an emergent mode of entry, but it is also apt to be associated with initial costs in terms of foregone earnings and promotion opportunities (Bidwell & Briscoe, 2010).
What distinguishes this mode of entry from those previously discussed is that it entails little or no relevant industry-based production or management experience. It may result from the independent invention of a new product or service, which is then patented and developed, perhaps with the support of investors, and used as the basis for the founding of an organization to produce and sell it. This is what, we surmise, is imagined by most people in response to the term entrepreneur, and is an image often valorized in the popular press (e.g., depictions of Thomas Edison or Mark Zuckerberg). But it may also involve the founding of a quotidian enterprise in an existing industry, such as the opening of a bed-and-breakfast inn by a former programmer, or a firm producing improved headrests for infant car seats, developed by an end-user (Shah & Tripsas, 2007).
As indicated, the key feature of this entry mode, for our purposes, is the lack of strong connections between individuals’ previous job history and the new enterprise. As a consequence, the ability to develop needed organizational skills and knowledge and to make adaptive changes in products and processes in response to market reactions are comparatively limited. This clearly has implications for the survival of new enterprises, although survival also may be affected by the presence of entrepreneurial infrastructures in a given industry that can provide support to nascent entrepreneurs.
Modes of Governance
A separate institutional dimension of entrepreneurship involves the various forms of ownership in new enterprises. As discussed below, although popular notions of entrepreneurship often conjure up the image of owners as solo pilots, braving both bumpy weather and mechanical failure alone, in reality entrepreneurial organizations are more likely to have multiple owners, in other words, founding teams rather than single founders (Ruef, 2010). Variations in ownership arrangements are likely to affect decision making, access to resources, and other organizational features; hence, we refer to these arrangements as modes of governance.
In this context, we argue that it is useful to distinguish first, between solo and team forms of governance as a broad cut, and second, between teams in terms of family and nonfamily membership. The latter distinction is not a clean one, since the governance arrangements in new firms can involve a mix of family and nonfamily members. However, extant work (e.g., Ruef, 2010, p. 67) suggests that such mixed ownership is a relatively uncommon mode of governance. Both because it appears uncommon and for the sake of simplicity, here we simply contrast teams made up of family members with those made up of nonfamily members.
Classic research and theory often implies a conception of the entrepreneur as a heroic loner (Harper, 2008; Schumpeter, 1911/1968). Shane and Venkataraman’s (2000) seminal work, for example, argued that entrepreneurship sits at the nexus of two phenomena, the occurrence of opportunities for profit and the existence of individuals able and willing to pursue such opportunities. Likewise, Schumpeter’s original theory on economic dynamism suggested the entrepreneurial actor as a solitary figure endowed with “pioneering vision” who disturbs the economic status quo through innovation (Harper, 2008, p. 615). Others have been even more explicit in insisting that entrepreneurship necessarily involves single individuals (see also Kirzner, 1973, 1979; Casson, 1982), because both the identification of opportunities and the ability to act freely to take advantage of such opportunities require independent actors, unhobbled by constraints and coordination costs of collaborative decision making and action.
However, research on entrepreneurship in the United States, using the same general definitional approach that we do, suggests that a little less than half of all entrepreneurial efforts involve a single owner (Ruef, 2010). While the advantages of sharing decision-making responsibilities, as well as financial risk, make the attractiveness of a team form of governance understandable, decentralized or shared decision making often entails problems of conflict and coordination, as classic organizational studies have amply documented (Scott & Davis, 2007; Tolbert & Hall, 2009/2016). This suggests there may be significant differences between firms led by solo entrepreneurs and those led by teams in both functioning and outcomes, but to date there has been little systematic study of such differences (for a notable exception, see also Ruef, 2010).
An additional, useful distinction can be drawn within team-led enterprises, involving a comparison between those constituted by family members and those based on extra-familial ties, such as shared occupational membership, common organizational history, and ethnic or national identity. Research on the United States suggests that between two-thirds and three-fourths of all new team-led enterprises are family based (Brannon, Wiklund, & Haynie, 2013; Ruef, 2010), but this may underestimate the true distribution because it is not uncommon for husbands to report themselves as the sole owners of new firms despite the critical contributions made by wives (Portes & Zhou, 1999, p. 151). Married couples and live-in partners constitute the majority of family-owned new enterprises (Ruef, 2010, p. 67).
Data on self-employment among different ethnic groups in the United States suggests that some are much more likely to rely on spouses and family members to create founding teams than others. For example, being married is a strong predictor of self-employment among Koreans in the United States; this is less true of white, native-born Americans, and it is unrelated to self-employment among U.S.-born blacks (Portes & Zhou, 1999). Likewise, some work also suggests international differences. For example, Cruz, Howorth, and Hamilton (2013) find that the percentage of family-based firms is relatively low in the United States compared to other countries.
Families are often assumed to represent a strong, closed form of network that enhances trust and ongoing commitment among members to one another (Coleman, 1990; Hurlbert, Haines, & Beggs, 2000; Uzzi, 1996). Insofar as family members’ economic fates are tied together (Becker, 1981; Oppenheimer, 1997), conflicts of interest and self-serving motives are apt to be minimized (Lim, Busenitz, & Chidambaram, 2013), and this may ease some of the problems that are common to group-based decision making. These factors presumably facilitate entrepreneurial efforts by family-based teams.
On the other hand, ownership teams composed of nonrelated individuals can also offer some important advantages, including social ties to a wider network of potential resource providers, and recruitment of individuals with relevant technical knowledge and skills. This may account for Ruef’s (2010) empirically based estimates that, among team-led enterprises in the United States at the turn of the twenty-first century, approximately a quarter to a third had owner teams composed of nonfamily members.
His work, as well as other studies (Saxenian, 2006; Sorenson & Audia, 2000), suggest that nonfamily teams typically exhibit a high degree of homophily in terms of gender, ethnicity, age, and/or professional membership. Such homophily may serve, at least in part, as a substitute for kinship-generated trust (Williams & O’Reilly, 1998). The strong tendency toward occupationally based similarity among team members, common in U.S. firms, could also partially reflect the fact that new firms frequently have their genesis within existing firms (Saxenian, 1994; Zucker, Darby, & Brewer, 1998). Members of a firm who interact frequently may develop the sort of social trust and norms that lower the risks of starting a new enterprise together (Zucker, 1986).
Data on startup firms in the United States also provides evidence of industrial-level variation in the reliance on nonfamily founding teams (see also Ruef, 2010, p. 69): startup firms in the wholesale and retail sector (including restaurants), for example, are much more likely to have family-based ownership than those in finance, real estate, and consulting. This may partly reflect differences among occupational groups. Some occupations cultivate strong shared identities among members that can serve as a basis for trust (Tanis & Postmes, 2005), thus facilitating collective decision making, which increases the viability of nonfamily governance. Insofar as occupations with strong shared identities are more prevalent in certain industries, this could produce industry-level differences in foundings by nonfamily teams. Likewise, if some ethnic groups are prone to use common ethnic identity as a basis for founding-team formation and are concentrated in certain businesses, this could also produce observed industry variations in nonfamily-team foundings.
Explaining Institutional Variations in Entrepreneurship
The preceding discussion cited research showing patterned differences in entrepreneurial activity across social groups in terms of modes of entry and governance. Understanding why one mode is more dominant among some social groups or in certain contexts is important to gaining a better theoretical understanding of entrepreneurship as a social phenomenon. In addition, from both a theoretical and a more policy-oriented perspective, linking these institutional variations to associated outcomes (e.g., probabilities of entrepreneurial persistence and enterprise survival) is an important task for entrepreneurship scholars.
Thus, we now turn to these issues, and offer a number of propositions concerning the kinds of community or group-level characteristics and social conditions that are apt to affect the predominance of certain modes of entry and governance in a given setting. In formulating these propositions, we have drawn partly on existing research, but we also rely on our own intuitions and understandings to suggest a variety of potential avenues for future research.
Sources and Outcomes of Different Entry Modes
As previously noted, research on immigrant-founded enterprises suggests that this entry route is more common among Hispanics than Koreans, a difference that is usually attributed to Koreans’ preemigration experience with entrepreneurial ventures and to lower average levels of education and other resources possessed by Hispanics (Raijman & Tienda, 2000). This is also consistent with cross-national evidence from the Global Entrepreneurship Monitor’s survey data, which indicates a noticeably higher rate of nascent entrepreneurial activity in factor-driven economies (countries that are less developed in terms of technological capabilities, financial institutions, etc.) than in more developed economies (Bosma & Levie, 2010).2 Together, this work suggests emergent entry is likely to be a dominant mode of entry in social groups whose members typically lack access to formal employment, either because they lack necessary human capital (have limited education attainment, accumulated work experience, etc.) or because of an underperforming economy. Of course, much nascent entrepreneurial activity does not result in the founding of formal business enterprises (Carter, Gartner, & Reynolds, 1996). However, we posit that the greater the amount of participation by a group in informal economic activities, the greater the chance that its members will become entrepreneurs via this route.
Proposition 1: An emergent entry mode will be more common in geographical areas with lower levels of formal employment overall.
Proposition 2: An emergent entry mode will be more common among groups and communities whose members have less education, work experience, or other aspects of human capital.
Proposition 3: An emergent entry mode will be more common among women than men.
Proposition 4: An emergent entry mode will be more common in communities with less stringent regulation of economic activities.
Proposition 5: Groups and communities in which emergent entry is a dominant mode will have higher rates of failure among new enterprises, ceteris paribus, than those in which apprenticeship entry is dominant.
Existing research suggests that the apprenticeship mode is common among ethnic entrepreneurs in small, service-sector industries, such as restaurants, information technology staffing, clothing, and beauty shops catering to ethnic clientele. Thus, it is more likely to occur in communities with greater numbers of smaller, service sector firms and in those with a concentration of individuals with distinctive tastes, in other words, in a niche market. It may also be the case that smaller, service sector firms have fewer pathways for upward mobility as an employee; thus, founding one’s own business may become a logical option for employees of such firms who desire greater earnings and status.
It is important to note that an apprenticeship mode is not typical of all immigrant groups. Research by Raijman and Tienda (2000) found that it was very common among Korean immigrants to the United States but relatively rare among those from Mexico. Banerjee’s (2013) research on information technology entrepreneurs indicated that it was more common among members of some Indian states than others. Clearly, flows of knowledge about who is looking to hire new employees and which employees are looking for work are critical for this mode to function (Fernandez & Fernandez-Mateo, 2006). Hence, it is more likely to occur in communities and groups characterized by comparatively strong network ties (Kwon et al., 2013). Such ties may be based on common ethnic identities, but occupational groups may also serve as the foundation for this sort of dense network (Barley & Kunda, 2004; Tolbert, 1996).
Proposition 6: An apprenticeship entry mode will be more common in communities with a relatively high proportion of small, service sector firms.
Proposition 7: An apprenticeship entry mode will be more common in communities with denser social networks.
Proposition 8: An apprenticeship entry mode will be more common in communities with cultural norms that mitigate economic competition.
Proposition 9: Groups and communities in which apprenticeship entry is a dominant mode will have lower rates of failure among new firms than those dominated by other modes of entry.
We suspect that a neophyte mode is a relatively uncommon pathway into entrepreneurship. In our conception, it is distinguished from other modes largely in terms of individuals’ preexisting experience (or lack thereof) in the industry in which they found a new enterprise, or a closely related one.4 Founders who base their business on genuinely new products or services necessarily become entrepreneurs via this mode (insofar as they create an industry as well as a new business), but we would characterize a person who quit (or lost) a job in a financial services firm and opened a restaurant as also representing the neophyte mode.
Taking this route into entrepreneurship is likely to require a more rapid acquisition of the resources needed for ongoing production by an enterprise because these could not have been gradually gained through previous employment, as in the case of emergent and apprenticeship modes. Moreover, insofar as it entails genuinely new products and services, this mode may rest on substantial preinvestment in innovation activities—the devotion of time, labor, specialized knowledge, and often financial capital to experimentation and the successive development of ideas. In consequence, we expect the neophyte mode typically to be found in more developed economies, and within those economies in wealthier communities.
Proposition 10: A neophyte entry mode will be more common in wealthier communities.
Proposition 11: A neophyte entry mode will be more common in communities with more developed legal and financial support systems for new ventures.
Proposition 12: Groups and communities in which a neophyte entry mode is dominant are more likely to have higher rates of failure among new enterprises than those dominated by other modes of entry.
Sources and Outcomes of Variation in Governance Modes
Solo versus Team-Based Modes
We expect that broad cultural values will be an important influence on the likelihood that new enterprises will have a single individual at the helm, rather than a team. In individualistic cultures, personal goals and achievements are valued above those of groups in which a person is a member (Hofstede, 1980; Rothwell, 1999/2010, pp. 65−84), and this is likely to enhance the attractiveness of solo entrepreneurship (Brandl & Bullinger, 2009).
Even within individualistic cultures, differences in attitudes and values associated with social class membership may affect preferences for solo entrepreneurship. Researchers have noted that self-reliance and self-direction are values most strongly held by middle and upper classes (Kohn, Naoi, Schoenbach, Schooler, & Slomczynski, 1990; Pearlin & Kohn, 1966; Ruef, 2010, p. 11).5 These values are likely to be associated with individuals’ willingness to—and even preferences for—taking on the responsibilities of managing an organization on their own.
Proposition 13: A solo governance mode will be a more common in groups with more individualistic than collectivistic cultures.
Proposition 14: A solo governance mode will be a more common among groups and communities with a high proportion of middle and upper class members.
Proposition 15: A solo governance mode will be more common in groups and communities who are perceived in the larger society as lacking entrepreneurial abilities.
Proposition 16: Groups and communities in which a solo governance mode is more dominant are likely to have higher rates of new venture failure than those with team-based governance modes.
Family versus Nonfamily Team Modes
Much of the research on entrepreneurial teams thus far has focused on determining whether and when founding teams are more likely to form from strong or weak networks (homophilous versus heterogeneous ties) (see also Gedajlovic, Honig, Moore, Payne, & Wright, 2013; Ruef, 2010, pp. 60−84). Family and friendship or occupational ties are often lumped together in one strong-ties category, and scholars have yet to specifically tackle questions of why entrepreneurial teams may form along family or nonfamily bases.
Proposition 17: Family teams will be a more common governance mode than nonfamily teams in communities and groups where state-based support systems are weaker.
Proposition 18: Family teams will be a more common governance mode than nonfamily teams in communities and groups in which cultural values emphasize family obligations.
In addition, reliance on family or nonfamily members in forming entrepreneurial teams is apt be affected by the existence of alternative trust-producing arrangements (Guseva & Rona-Tas, 2001; Zucker, 1986). These arrangements may be formal, including the development of organizations that certify claims of financial responsibility and enforce contracts. They may also be informal, including occupationally or ethnically based strong network ties that serve the same functions of certifying individuals and enforcing agreements.
Proposition 19: Nonfamily teams will be a more common governance mode than family teams in communities and groups with more developed legal and financial support systems for new ventures.
Proposition 20: Nonfamily teams will be a more common governance mode than family teams in communities and groups with denser informal social networks.
Proposition 21: Family teams will have lower rates of failure in comparison to other governance forms.
While the family-team mode of governance may lead to higher probabilities of survival, it may contribute to lower rates of growth. Some research suggests that family-owned firms are more likely to emphasize nonfinancial goals than others (Farrington, Venter, & Van der Merwe, 2011), and in some cultures, running a business is viewed as less desirable than pursuing a career in an established profession (Zhou, 2004). In this context, the goals are to create a business that supports one generation and underwrites the education and occupational transition of the next; maximizing revenues and growth are not paramount. Moreover (and in contrast to arguments about the dominance of a stewardship perspective in family firms), some work indicates that members of family firms may be less likely to distinguish the firm’s resources from their own personal resources. Based on a survey of 673 family-owned businesses, Zuiker et al. (2002) concluded that, “The intermingling of financial resources … leads to decisions that are good for the short-term but not for the long-term viability of the family business” (p. 69).
Proposition 22: New ventures with family teams as a governance mode are likely to grow less and more slowly than nonfamily teams.
If entrepreneurship is to become a long-lasting field of research, a broader, more developed conceptualization of the phenomenon is required, one that will help unify the otherwise eclectic existing literatures that comprise entrepreneurship studies and provide a guiding framework moving forward. We have argued that treating entrepreneurship as an institution, that is, as patterned behavior reflecting social understandings shared by members of a particular group, provides such a conceptualization. With it, what are now viewed as competing definitions of entrepreneurship can be seen simply as institutional variations, and studies focusing on specific variations can provide knowledge of the social, economic, or other conditions that produce them. Furthermore, this approach facilitates the organization of past empirical work and, in guiding future work, allows exploration of new theoretical insights.
We note that an institutional approach to examining entrepreneurship has a long pedigree, traceable at least to Weber’s (1919/1958) classic work, The Protestant Ethic and the Spirit of Capitalism, analyzing the impacts of Calvinist beliefs as a key influence on the creation of business enterprises in western Europe and the United States. In some ways, our proposed research agenda represents an extension and elaboration of this early work.
While there are a variety of institutional aspects of entrepreneurship that could be studied, in this chapter we highlighted two dimensions, modes of entry and modes of governance, which we discussed in terms of behavioral manifestations. The first refers to observed pathways that lead to the formal founding of new economic organizations. We identified three common pathways, or modes, including what we labeled emergent (foundings resulting from the evolution of part-time activities, often undertaken informally, into a business enterprise), apprenticeship (foundings by individuals based on expertise gained from employment in a particular industry), and neophyte (foundings involving entry into an industry with little or no prior experience in it). The second dimension, modes of governance, involves differing ownership arrangements that, we argue, are apt to be closely tied to decision making and risk sharing in new enterprises. We again identified three separate types, including solo entrepreneurs, family teams, and nonfamily teams.
Based on these distinctions, as well as our review of previous research streams on entrepreneurship, we generated a number of propositions concerning conditions that are likely to affect the likelihood that entrepreneurial patterns in a group along these dimensions will take a particular form. The logic of our propositions can be debated. And we would strongly encourage that, because the aim of the chapter is to generate further reflection and research on these dimensions of entrepreneurship, as well as others.
Our focus on pathways and governance reflects our belief that understanding variations in these dimensions is of both theoretical and practical importance, but we recognize that there are other dimensions of entrepreneurship that also could be explored in future research. Two additional dimensions we suggest include modes of financing and modes of exit. The first refers to the primary source of material resources used in initial stages of organizing entrepreneurial enterprises. Reliance on different sources is likely to affect the timetable of entrepreneurial activities as well as criteria used in evaluating continuance or discontinuance of entrepreneurial efforts. Contemporary research on entrepreneurial financing has investigated a variety of sources of financing, including banks, private investors, government agencies, family, and self (Pahnke, Katila, & Eisenhardt, 2015; Zahra & Sharma, 2004). However, treating this as an institutional dimension of entrepreneurship could provide a unifying framework allowing better integration of such work. Similarly, focused attention on identifying the conditions that shape different modes of exit (e.g., failure, acquisition, or morphing—a substantial transformation of goals, products, etc.) could lead to useful insights into another dimension that could be of general interest.
And while we have concentrated on behavioral aspects of entrepreneurship as an institution, the logics, or common beliefs and rationales that justify and underpin the behaviors, are clearly a necessary part of our proposed research agenda. A growing body of work has used the concept of logic to explain geographical and occupationally linked variations in organizational structures and practices. Pahnke, Katila, and Eisenhardt (2015), for example, argued that different logics held by different investor groups—venture capitalists, corporate venture capitalists, and government agencies—are the source of key differences among new ventures and their performance.
Much less work, however, has focused on the questions of how variations in logics arise and persist (or disappear) over time.6 Some provocative work by Fairlie and Meyer (1996) provided evidence that variations in entrepreneurial propensities among immigrant groups to the United States persist over generations, suggesting that different logics can survive even in a similar, homogenizing environment. In contrast, work by Zilber (2002) showed that the existence of two competing logics in the same organization led to conflict and ultimately resulted in the dominance of one and the disappearance of the other. Not only do we need documentation of the nature of logics associated with variations in entrepreneurship, but we also need research on the question of what leads such logics to survive over time or to change. Thus, there is much work to be done in order to understand entrepreneurship as an institution. Our aim is to encourage such work, and thus, we believe, move scholarship in this area forward in an integrated way.
This is a slight variation on some standard definitions of the latter term, such as that offered by Thornton and Ocasio (2008).
In these data, nascent entrepreneurs are those actively involved in starting a business that has yet to pay salaries, wages or other financial returns to owners for more than 3 months.
This includes both those classified as nascent entrepreneurs, and those who have succeeded in recording financial returns for more than 3 months, but less than 42 months.
We recognize that how to decide whether an individual’s former experience is in a closely related industry, and thus to distinguish between apprenticeship and neophyte modes empirically, will be challenging. Nevertheless, we think efforts to draw this distinction are useful for further entrepreneurship research.
Note that classic studies in this area (Kohn et al., 1990) used parental occupation—particularly that of fathers—to define social class, based on the assumption that higher status occupations permit and require members to exercise more autonomy and creativity at work, which in turn, shapes child-rearing practices.
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