The Theoretical Side Of Teaching Entrepreneurship

THE THEORETICAL SIDE OF TEACHING ENTREPRENEURSHIP JAMES O. FIET Jonkoping International Business School, Jonkoping, Sweden

There is an on-going debate in the entrepreneurship academy about whether we can actually teach students to be entrepreneurs. Its resolution is inextricably connected with our theoretical assumptions because they affect how and what we teach. This article is the first in a set of two contained in this issue that argues that we should develop more refined, cumulative theory and teach it to students in a way that emphasizes learning by doing, which should accelerate student mastery. This first article treats the theoretical side of teaching entrepreneurship, whereas the second addresses the pedagogical side of entrepreneurship theory. Those who advocate that entrepreneurship can be understood and taught to students assume that researchers will eventually develop a more general theory of entrepreneurship. Theory is an essential part of what we teach because we do not know any other way to help students anticipate the future, which is a key to entrepreneurial success, unless we counsel them to rely on luck or intuition. The limitation of luck and intuition is that we do not know how to teach either of them. If students could accurately anticipate the future, they could allocate their resources in the most productive manner, which would ensure their survival, satisfaction and prosperity. Despite the current limitations of our theorizing, theory still offers the most promise as course content for students. This article sides with Kuhn (1970) who argued that theory is the most practical thing that we can teach to students. Its purpose is to comment on the progress to date in developing entrepreneurship theory. It begins by analyzing the contents of 18 syllabi provided by participants at a retreat for entrepreneurship scholars. It notes a wide divergence in topics, and possible causes for this divergence, which seem to be characteristic of a developing academic discipline. It appeals for more theory in our courses and suggests questions to which entrepreneurship scholars can provide distinctive answers when compared with those offered by scholars from other disciplines. One way to add more theoretical content to entrepreneurship courses is to teach students what they ought to do, which is coded language for theory. In addition, instructors should not merely describe what entrepreneurs do, particularly in light of the observation that most of them fail and accordingly have been described as ill-fated fools. Finally, assuming that scholars can offer a more general theory of entrepreneurship, they would be able to emphasize more deductive approaches as opposed to inductive ones.

EXECUTIVE SUMMARY

Address correspondence to Dr. J. O. Fiet, Jonkoping International Business School, P.O. Box 1026, SE-551 11, Jonkoping, Sweden; Phone: ⫹46 36 15 62 58; Fax: ⫹46 36 16 10 69; E-mail: [email protected] I acknowledge the helpful comments of Robert Baron, Lowell Busenitz, Donna Kelly, Patti Green, Moren Levesque, Murray Low, Gideon Markmam, Steven Michael, Atul Nerkar, Phil Phan, Mark Rice, Dean Shepard, Page West, Andrew Zacharakis. In particular, I acknowledge the encouragement and advice of Michael Hitt and S. Venkatraman. Errors or omissions are my responsibility alone. Journal of Business Venturing 16, 1–24  2000 Elsevier Science Inc. All rights reserved. 655 Avenue of the Americas, New York, NY 10010

0883-9026/01/$–see front matter PII S0883-9026(99)00041-5

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These appeals for more theoretical content depend on several assumptions, which include: (1) the improbability that students can encounter circumstances that would be similar to anecdotal lessons learned in entrepreneurship school; (2) the existence of a process that can be explained theoretically; (3) studying ideal types can be discouraging to aspiring entrepreneurs if they do not fit a special profile; (4) the high failure rate among entrepreneurs makes suggesting to students that they ought to pattern their activities after them seem illogical; (5) studying average profiles, anecdotal recommendations, rules of thumb or war stories can only lead to average returns, given semi-strong information efficiency; and (6) leveraging the motivational benefits of studying successful entrepreneurs may have detrimental, unintended consequences, among others. This article notes possible causes of non-cumulative theory building and suggests several opportunities to build cumulative theory. Although it acknowledges that the field of entrepreneurship currently lacks cumulative theory, it offers a contingency approach for teaching entrepreneurship, which is actually very similar to the scientific method used by scholars to develop hypotheses about the future.  2000 Elsevier Science Inc.

INTRODUCTION Recent efforts to develop entrepreneurship theory have tended to accumulate separate rather than cumulative theories. Researchers have developed separate theories instead of building upon those that relate to each other and discarding those that are invalid or irrelevant (Camerer 1985; Fiet, Busenitz, Moesel, and Barney 1997). Sometimes, it appears that entrepreneurship research commences from the very beginning each time a project is begun, as if it were the first time that a phenomenon were studied, even though it has been studied many times before. In addition, entrepreneurship researchers may have focused excessively on describing entrepreneurial phenomenon rather than on developing theory to enable aspiring entrepreneurs to make predictions. This phenomenological emphasis seems to predominate in textbooks and research, perhaps to the exclusion of developing theory (c.f., Phan 1998). The result of emphasizing entrepreneurial conduct in research is that much of it lacks a theoretical basis. Furthermore, the majority of published research focuses on issues that are not interesting to aspiring entrepreneurs, which has impeded further the development of a body of entrepreneurship theory. These concerns and others were recently the subject a 3-day retreat of entrepreneurship scholars, which was hosted by Rennselear Polytechnic Institute. Last year, S. Venkatraman provided the theme for the gathering, which dealt with the distinctive domain of entrepreneurship research (c.f. Venkatraman 1997). This year, the retreat focused more on the learning aspects of entrepreneurship. I presented a workshop on the topic of what we teach and how we should teach it. The present article and the one that follows it originate from the arguments that I presented at the last two Rensselear retreats. This article mirrors the structure of my workshop. First, I review the results of a survey of the entrepreneurship courses taught by the participants. This review identifies three possible causes for concern. Second, I share the results of a theory building exercise. Third, I appeal to entrepreneurship scholars to emphasize theoretical content in their courses. Fourth, I offer some suggestions concerning how scholars can develop and teach cumulative, relevant theory that addresses the distinctive domain of entrepreneurship, which also has implications for how to conduct entrepreneurship research.

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SURVEY RESULTS Retreat participants shared 18 of their syllabi, which were analyzed topically. The analysis found that the 18 syllabi encompass 116 different topics. More striking was the finding that they only overlapped on about one third of the topics. Although there were no clean categories, the 18 syllabi include enough different topics to create six and a half different courses. This finding does not indicate anything about the quality of individual courses. It does suggest, however, that members of the group teach very dissimilar courses, which could be a warning for the field because of its implications for pedagogy and curriculum development.1 These differences in course content were surprising considering that each respondent specializes in teaching entrepreneurship. As a group, either we did not agree on a paradigm for teaching entrepreneurship or perhaps we are searching for one. The content of our courses varies so much that it was difficult to detect if they even have a common purpose. The next section describes the leading topical coverage areas.

Leading Topical Coverage Areas Based on the analysis of the syllabi from retreat participants, there were six leading topical coverage areas. These areas are listed below in the order of their emphasis in the 18 syllabi: Strategy/competitive analysis Managing growth Discovery/idea generation Risk and rationality Financing (mainly business angels) Creativity With the exception of discovery/idea generation, each of these topics comes from the established literature of other disciplines. Strategy/competitive analysis clearly comes from the strategy/industrial organization literature. Managing growth is not distinctive to entrepreneurship, although it is emphasized often in courses in small business management. The topic of managing growth is also a common subject in organization theory, as well as many other areas in the management literature. Risk and rationality come from finance and economics. Financing (mainly business angels) is a stepchild of the finance literature. Moreover, creativity comes from the psychology literature. Despite these common topical themes, together they only represent a small proportion of the topics covered by the syllabi. The fact that most of these themes have their roots in other disciplines indicates that the syllabi do not emphasize a distinctive domain. Entrepreneurship scholars should incorporate truth into their discipline wherever they can find it. Eclecticism is especially appropriate for a new discipline. Nevertheless, after 1 The differences in course content could only be partially explained by individual differences in course design.

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more than 25 years of studying entrepreneurs, it is time to begin to make our own contributions to what we know about what entrepreneurs should do to succeed. There are clearly many influences on the diversity in content of these courses. Three possible influences that should concern entrepreneurship scholars are academic autobiography, lack of theoretical rigor and entrepreneurship textbooks. Each of these is addressed in the following sections. Afterward, I defend an appeal for more theoretical content in entrepreneurship courses. This defense will include an examination of the assumptions underlying what we should teach.

Academic Autobiography One possible cause of course differences is academic autobiography. This term describes a compulsion to view the world from the perspective of one’s own training. It also suggests an unwillingness or inability to view the world through other lenses. The convenience sample of syllabi does not prove conclusively that academic autobiography guided course design. However, it was interesting that many of the teaching choices were highly correlated with the training and research streams of individual respondents. To the extent that academic autobiography dictates what we teach, we could subject our students to a narrow view of the entrepreneurship world. One way to ensure that our views are not biased by academic autobiography is to learn and teach paradigms that are outside of our personal training. This is not an argument for including all possible paradigms in our courses. However, we should strive to be highly informed before concluding that an approach used since graduate school is the best or only way to teach a particular concept.

Lack of Theoretical Rigor The diversity in our courses was not solely a reflection of different ways of teaching a topic, which should be expected. Nor was it the natural result of pursuing academic freedom. Instead, it may be an indication that the entrepreneurship discipline lacks sufficient theoretical rigor to arrive at a consensus on fundamental questions. If lack of theoretical rigor is a problem, critics may be accurate that the entrepreneurship field is not ready to be taken seriously as an academic discipline. The level of theoretical rigor in entrepreneurship courses is strongly influenced by the level of theoretical rigor in entrepreneurship research. If researchers do not conduct theoretically rigorous research, the content of entrepreneurship courses will suffer. Thus, it is appropriate to consider the link between entrepreneurship research and teaching. Whenever researchers perform similar, related or follow-up tests on variables, whether or not they are from the same sample, they have the opportunity to add to the theoretical understanding of their findings. Moreover, if research can be used to inform received theory, rather than new theory, the probability is higher that it will have a strong influence on the thinking of those who will study a phenomenon. Less informative than introducing new theory, though, is not imputing a theoretical interpretation to research findings. This is not an argument against the generation of new theory. It is merely an observation that it takes a field longer to assimilate new theory and to use it to make progress than it does to build on existing theory. However, it is an argument to reconsider the usefulness of atheoretical research and teaching. Most journal reviewers appropriately require an answer to the “so what” question

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in our research, which is “why should others care about our findings?” As teachers, we should also ask ourselves if we are answering the “so what” question in our classes. If we will interpret findings within the context of an existing theory, if possible, there should be less difficulty answering the “so what” question. If we teach students to apply entrepreneurship theory to their special circumstances, they will be able to answer the “so what” question for themselves.

Textbooks Among textbooks, there were no clear favorites. Eighty-three percent of the respondents used reading packets, which suggest some dissatisfaction with current texts. However, there was no agreement on what should be included in a course readings packet. It is possible that a general lack of theoretical rigor in many texts is a major cause of the indicated ambivalence over textbook preference. Why should entrepreneurship texts not be as theoretically rigorous as an economics or finance text? If they were, it would indicate that the field was reaching a consensus on answers to important questions. A lack of theoretical consensus may result in the entrepreneurship field having a reputation for low rigor, superficial courses.

Theory-Building Exercise The participants at the Rensselear Retreat were divided into five different groups and each group was assigned the same four questions to answer. The questions were selected on the basis of how they could be classified on three different dimensions. It was necessary that a potential question be evaluated positively on each of these dimensions before it was included. These dimensions were (1) whether or not a question fell within the distinctive domain of entrepreneurship, (2) whether or not it was interesting to scholars, and finally, (3) whether or not it was interesting to students? If a question fell outside of the distinctive domain of entrepreneurship, its answer probably would not satisfy external critics. If a question were not interesting to scholars, its answer would probably fail to contribute to advancing entrepreneurship theory. If a question were not interesting to students, its answer would probably fail the “so what” requirement, which is really a question of relevancy. Based on these criteria, the following four questions were selected and assigned: 1. How should entrepreneurs discover economically lucrative opportunities that others miss? 2. How should entrepreneurs identify the most attractive industries? 3. How should entrepreneurs marshal the resources to launch an entirely new business? 4. How should entrepreneurs create competitive advantage? The assignment was to identify and be prepared to explain at least three theories that help to answer these four questions. Each group was also assigned the task to suggest two additional questions and three theories to explain each of their questions. The results of this theory building exercise are contained in Table 1. A couple of observations stand out from the results in Panel A of Table 1, which summarizes the group’s suggested theories for addressing the assigned questions. First, just as there was no consensus concerning what to include in course content, there was no consensus on the much narrower issues posed by this exercise. Second, it is not enough to

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TABLE 1 Rensselear Retreat Theory-Building Exercise PANEL A: Assigned Questions and Theoretical Responses* 1. How do entrepreneurs discover economically lucrative opportunities that others miss? Alertness Search and discovery Divergent thinking Options theory Garbage can model General equilibrium theory (straw man) Information Persistence (hardly a theory, more of a philosophy) Communication theory Luck Arbitrage Path dependence Cognition Network theory Biases and heuristics Corridor principle 2. Why are some industries simply more attractive than others are? Dynamism Recency bias 5 forces model (2 votes) Punctuated equilibrium Commitment theory (economic, psychological, Stakeholder theory social) Industry structure (S-C-P) [Industry strucInformation asymmetry ture⇒firm conduct⇒firm performance] (2 votes) Product life cycle (wrong level of analysis) Public choice Resource & suppliers sophistication IO economics Industry life cycle Fun-ness: Preference theory Resource-based 3. How should entrepreneurs marshal the resources Networking 4 F’s: friends, family, finance companies, and fools Resource-based theory Capital markets Social capital/networking Institutional theory Social skills Social exchange theory

to launch an entirely new business? Alliance building Agency theory Network theory and social capital Require fewer resources Knowledge Liability of newness Network theory Self-efficacy-enactment (Weickian)

4. How do entrepreneurs create a competitive advantage? Product leadership Barriers to entry Industry standard Resource-based theory (2 votes) HRM theories Five forces model Network externalities/standards Learning Knowledge (new) New combinations Hustle is strategy Tacit knowledge (specialized resources) Resource-based IO economics Continuous innovation (continued)

specify the research questions, if our purpose is to make progress toward building a general theory of entrepreneurship. Scholars must focus purposefully on building cumulative, relevant theory. Otherwise, progress is much less certain. Panel B of Table 1 contains the questions that the retreat participants viewed as being important. Notice that there was no consensus view. If we assume that the answers to the suggested questions were included in an entrepreneurship course, they would probably not be very interesting for students. If we assume that the answers to the suggested questions were not included in an entrepreneurship course, have we not lost a

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TABLE 1 Continued PANEL B: Group-Volunteered Questions and Responses • Why do some people engage and persevere in entrepreneurship pursuits Heuristics, biases Cognitive psychology Financial theories • How do we get out of an entrepreneurial venture and when do we get out? Financial theories Escalation of commitment Succession • What functions are inside the entrepreneurial firm? Agency theory Social network theory Personality, traits and attidues How do entrepreneurs recover from failure? Transaction cost economics Learning Change theory • How to turn current failures into future success? Learn Adapt Decisiveness • What is the process of entrepreneurial emergence? Behavioral theory Person-fit Four Ps of Marketing • Why do some choose to become entrepreneurs whereas others do not? Birth order Career theory Need for achievement Locus of control Self-action * The only purpose of the columns in Table 1 is to facilitate the presentation of the responses. They do not represent separate categories or have any other meaning.

major audience for the dissemination of research results? The lack of consensus regarding course content may result from often failing to develop cumulative, relevant theory within the distinctive domain of entrepreneurship. The next section is a concerned appeal to reconsider what we teach.2

AN APPEAL FOR THEORETICAL CONTENT The theoretical concerns posed by the respondent information can be resolved if entrepreneurship teachers will take the following steps to evaluate what they teach. First, they should ensure that they teach students what they ought to do, which is coded language for theory. In addition, they should not merely emphasize descriptions of what entrepreneurs do. Finally, their teaching should emphasize more deductive approaches as opposed to inductive ones. These suggestions presuppose that scholars should be focusing on developing cumulative, relevant theory. Many who favor descriptive approaches use them for inductive purposes, supposing that there is an optimal mindset that can be instilled in students. Some of these same instructors believe that entrepreneurship cannot be taught, but it can be learned by students by studying the successes of others. In addition, these descriptive approaches seem to be favored by those who perceive a need to deliver entertaining content. However, teaching theory that will help students to understand the consequences of their decisions 2

The issue of how to teach entrepreneurship will be considered primarily in the next article.

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will be highly important to them in the future. We should teach students how to apply theory deductively to their special circumstances. Why would students want to know about what entrepreneurs do, if ordinarily they fail to survive five years? If students study how entrepreneurs fail, they may be alerted to pitfalls that they should avoid, which may improve their chances for success. However, even the “avoiding pitfalls” argument is a theory that we should test. If such a test were to find support, we could then teach the theory of avoiding pitfalls.

Assumptions Underlying the Teaching of Theory This article will now review some assumptions that should hold if teaching theory to students is better than merely exposing them to what entrepreneurs do. It is important that these be made explicit to understand the rationale underlying the appeal, as well as its implications. Studying only the conduct of successful entrepreneurs depends on the assumption that students will encounter a similar set of circumstances in the future for which they will be better prepared. This approach focuses excessively on the particulars of their action to be generalized for the benefit of students. This is because the variance in what they do is a function of the many contingencies and resources bases that constrain them. Thus, studying a single entrepreneur cannot explain the differences in contingencies and resources that they must manage. There is no general recipe for successful entrepreneuring. However, entrepreneurs, with help from scholars, should be able to develop contingency frameworks in which they examine facts and make predictions based on insights gained from divergent theoretical perspectives. In addition, the appeal depends on the assumption that there is an ideal process that can be explained theoretically. It must be simple enough to be taught to students. The appeal does not suggest that we must have the theory now. Nor does it suggest there must be agreement on what the theory should be. Nor must the theory be proven valid at this point. In fact, there is value in teaching students imperfect theory, if we caution them about possible shortcomings. Students can use imperfect theory to examine necessary assumptions, practice thinking critically, and in fact, improve theory themselves. Finally, no apology is necessary for having imperfect theory if the field is moving forward to improve it. However, we cannot substitute anecdotal accounts, coverage of functional responsibilities and skill development for theory. Studying ideal entrepreneurial behavior can be demoralizing to aspiring studententrepreneurs. For example, one of the presenters at the retreat joked that “90% of entrepreneurs are the first born sons of emigrant parents.” The chances are minimal that very many students would actually match such a profile. The risk is that we could convince unknowing students that the odds are against them if they do not match a certain ideal profile. There is a high failure rate among nascent entrepreneurs, so teaching students to pattern their efforts after this population seems illogical. Although estimates vary, we assume that about 20% of nascent entrepreneurs fail each year for the first five years of their ventures. Thus, after 5 years, about 33% of those who begin a new venture are still in business. Although this is better than the 80% failure rate commonly used for many years, it is difficult to conclude that a typical nascent entrepreneur has learned enough to generalize his or her experiences to other situations. It is also difficult to conclude

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that we can learn much from studying those who survive because of mediating factors such as luck and bias. This analysis suggests caution in using entrepreneurs as guest speakers if our purpose is to teach students what they should do to be successful. Guest speakers can work exceedingly well if we use them to illustrate theory, which means that we should thoroughly brief them in advance so that they understand the specific purpose of their participation. Students who are not prepared in advance with theory may be influenced unduly by personal success stories. Students could unknowingly pattern their careers after an entrepreneur who is about to fail or whose circumstances are quite different from what the students will encounter. Thus, the entrepreneur’s formula may (will) not work for the students. Students must learn theory in order to understand the future consequences of their entrepreneurial decisions. Thus, it seems improbable that adjuncts can effectively teach the course. Teaching theory is rarely a strength of adjuncts. However, adjunct or clinical faculty (as they are sometimes called) have proven to be very effective in team teaching with tenure-track faculty who have theoretical training. The tenure-track faculty member teaches theory. Afterwards, it is illustrated by the mature adjunct from his or her entrepreneurial experiences. Third, the tenure-track faculty member summarizes what the students should have learned about theory. Finally, the tenure-track faculty should help the students to interpret the adjunct’s experiences using the theory introduced in the session. Studying average entrepreneurial profiles, anecdotal recommendations, rules of thumb or “war stories” can only lead to average returns, given semi-strong informational efficiency, which assumes that economic actors respond to historical and public information (Fama 1980). Although information efficiency varies across markets (Fiet 1996), and the actual level in a particular market is an empirical question, there is support for this level of efficiency in public equity markets. Entrepreneurial profiles, anecdotal recommendations, rules of thumb and “war stories” consist of general information that is readily available to others because it can be transferred at a very low cost. In the shortrun, first movers who formulate their strategy using general information will divide any profits that they could make with others who have similar ambitions and information. This occurs because others enter the market. Entry continues until all entrants are earning average returns. Under this scenario, no aspiring entrepreneur would take a risk to earn the same as anyone else. It follows that to earn above average profits, economic opportunities that are unknown to others must be discovered. Thus, entrepreneurial success is typically an individual accomplishment. If it could be fully described, it would be imitated, which would result in average returns. Books that attempt to describe how to get rich quickly by following a particular formula will in the long-run only lead to average profits. These conclusions are based on the theory of market efficiency and rational expectations (Copeland and Weston 1988). Inductive or cross-sectional research cannot detect opportunities for wealth creation. Each of these is limited in its effectiveness if we assume that wealth creation is the result of unique, costly to imitate discoveries. This is one reason students often find it boring and irrelevant when we teach the results of such research. Even case study research may not be valuable because discoveries are often dependent upon arbitraging intertemporal differences that may be ephemeral and path dependent. The pedagogical value of re-

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TABLE 2 Assumptions of the Appeal for Theoretical Content 1. Studying only the conduct of successful entrepreneurs depends upon the assumption that students in the future will encounter a similar set of circumstances for which they will be better prepared. 2. Studying ideal entrepreneurial behavior can actually be demoralizing to aspiring student-entrepreneurs. 3. There is a high failure rate among nascent entrepreneurs, so teaching students to pattern their efforts after this population seems logical. 4. Studying average entrepreneurial profiles, anecdotal recommendations, rules of thumb or listening to “war stories” can lead to average returns, given semi-strong informational efficiency. 5. Most of our research cannot detect opportunities for wealth creation. 6. There is no apparent reason to study irrational behavior if our purpose is to teach students how to succeed. 7. Leveraging the motivational benefits of studying successful entrepreneurs may have detrimental, unintended consequences.

search about how entrepreneurs succeed is that it may provide illustrations for teaching theory. There is no apparent reason to study irrational behavior if our purpose is to teach students how to succeed. Even if entrepreneurs do not act rationally when they launch a business, we will not suggest to students that the way to be successful is to act irrationally. Such observations as, “the only reason that they succeeded is because they did not know what they were getting into when they started, otherwise they never would have done it,” concede the argument that we do not have much to ameliorate the problem. Leveraging the motivational benefits of studying successful entrepreneurs may have detrimental, unintended consequences. Clearly, there are motivational benefits to studying successful entrepreneurs. The danger in leveraging them is that they may beguile students with uninformed zeal. Uninformed zeal could lead to the destruction of entrepreneurial wealth over time. Students rarely lack the motivation to be entrepreneurs. What they need is direction, a code word for theory. Table 2 summarizes the assumptions of the appeal communicated herein, which is based on the need to teach theory if we expect to deliver the content demanded by increasing numbers of new students. The next section discusses the value of using theory as a guide for students.

USING THEORY TO GUIDE STUDENTS We weaken our teaching effectiveness when we try to teach the answers to questions that have not been addressed in the literature of a theoretical stream of research. Atheoretical teaching has limited usefulness as a guide for instructing aspiring entrepreneurs about their prospects for future success. According to Alfred North Whitehead (1917): The importance, even in practice of the theoretical side of . . . [entrepreneurship] arises from the fact that action must be immediate, and takes place under circumstances that are excessively complicated. If we wait for the necessities of action before we commence to arrange our ideas, in peace, we shall have lost our trade, and in war, we shall have lost the battle. Success in practice depends upon theorists who led by other motives of exploration, have been there before, and by some good chance have hit upon the relevant ideas. By a theorist, I do not mean a man who is up in the clouds, but a man whose motive for thought is to formulate the rules according to which events occur. A successful theorist should be excessively interested

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in immediate events, otherwise he is not at all likely to formulate correctly anything about them (p. 15).

The objective of entrepreneurship theory is to help entrepreneurs to understand the consequences of their decisions. Why else should students study entrepreneurship? If we do not move toward the development of a general theory of entrepreneurship, in the end, our courses will have little more than motivational value.3 According to Professor Whitehead (1917): My contention is that this world is a world of ideas, and that its internal relations are relations between abstract concepts and that elucidation of the precise connection between this world and the feelings of actual experience is the fundamental question of scientific philosophy (p. 16).

Like Professor Whitehead, my contention is that our classrooms should be a world of ideas in which we elucidate the relations between abstract concepts and how they can help our students to succeed. Standing in the way of this goal is the development of relevant, cumulative theory within the distinctive domain of entrepreneurship. After considering possible causes of separate, noncumulative research findings, this article identifies opportunities for the aggregation of related findings into a more general theory. Next, it outlines an approach for building theory so that it can be more easily taught in our courses. This article will argue that there can be both appropriate4 and inappropriate theoretical syntheses5 from the incautious application of such a process, which can lead to conflicting and fallacious conclusions, as well as additional confusion about course content. Finally, it argues that it is important for us as researchers not only to conduct theory-based research, but also to emphasize its importance in both our teaching and research.

POSSIBLE CAUSES FOR NON-CUMULATIVE THEORY A possible cause for non-cumulative theory may be the performance of tests of statistical significance on the influence of theoretically uninteresting variables. In contrast, variables are especially interesting when they provide concomitant support for competing theoretical perspectives. Research that pits perspectives against each other is useful for evaluating the underlying assumptions of each perspective, which eventually may lead to more valid and reliable theory. In addition, pitting theories against each other may be useful for identifying the domains within which each of them provides predictive power. Another possible cause of the accumulation of unrelated results is that they are generated by the persistent appearance of descriptive research, which often makes no effort to contribute to our understanding of the variance in dependent variables. This persistence is understandable because it is much easier to describe observations than 3 However, like trade schools, we could claim that we are training students in skill development such as, incorporating a new business, patenting a product, or running an ad in the newspaper. If we opt for that argument to support what we teach, our students will not be able to utilize what we teach them to earn above normal returns because it is easily codifiable and transferred to others. Thus, students with trade school-like knowledge can only earn average returns by using it, unless they are lucky. 4 Agency theory and procedural justice will be set forth as highly complementary in their approaches and candidates for theoretical synthesis. 5 Agency theory and transaction cost economics will be discussed as similar but less appropriate as candidates for a theoretical synthesis.

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TABLE 3 Theories that Address Similar Questions about Entrepreneurship Research Question How should entrepreneurs discover economically lucrative opportunities that others miss? How should entrepreneurs identify the most attractive industries?

How should entrepreneurs marshal the resources to launch an entirely new business?

How should entrepreneurs create a competitive advantage?

Theories Addressing Research Question

Representative Researchers

Informational Economics Decision Making Theory

Hayek; Arrow; Fiet Busenitz & Barney

Industrial Organization Economics Austrian Economics Game Theory Agency theory Procedural Justice Social Embeddedness Transaction Cost Economics Resource-Based Theory Hypercompetition

Porter Jacobson Nielson Fama & Jensen Greenberg Granovetter Williamson Barney D’Aveni

it is to predict outcomes using theory. One way to justify the prevalence of descriptive research is to label it as “exploratory.” The underlying justification for exploratory research is that not enough is known to formulate testable hypotheses. If we substitute the word “hunch” for “hypothesis,” there are very few instances when we do not have a hunch about the results of even the most preliminary research. Often our hunches are based on our understanding of theories that have generated satisfactory research outcomes for us in the past. If no known theory can assist us to develop insight about a hunch, we are free to propose a new one. Proposing a new theory when we cannot interpret a research question with an existing one is better than conducting atheoretical research. All that we do when we propound a new theory is tell a story. Theory building is no more than story telling (Daft 1987).

OPPORTUNITIES FOR THE AGGREGATION OF RELATED THEORIES All theories in the social sciences, including those that examine entrepreneurs, are in some ways inaccurate, contradictory, or incomplete. Consequently, it is not surprising that many of these separate theories do not easily cumulate, especially because most of them do not have their origin in entrepreneurship research. Nevertheless, they provide penetrating insights on many aspects of entrepreneurial conduct and wealth creation. The purpose of this section is to identify groups of theories that address the questions posed in the Rensselear theory building exercise.6,7 Ideally, it would have been possible to demonstrate how most of the Rensselear submissions could be incorporated into a general theory of entrepreneurship that could be easily taught to students. However, such a task may be impossible and beyond the scope of this article. Table 3 summa6 Space limitations prevent providing an extensive analysis and comparison of each of the theories reviewed in this section. Those wishing more information about particular theories than is provided in this section or in Table 1 should consult the references in this section. 7 Some minor changes were made in the actual questions to make them editorially consistent in this article.

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rizes possible groupings of theory. The discussion that follows illustrates how divergent perspectives provide insights into different aspects of each question.

Question One: How should entrepreneurs discover economically lucrative opportunities that others miss? Serial entrepreneurs seem to have a special knack for repeatedly discovering hidden value. Are they simply luckier than the rest of us? If their discoveries depend upon luck, it follows that the rest of us should resist the urge to be entrepreneurial, unless of course, we feel especially lucky. Two perspectives provide insights into this conundrum.

Informational Economics It is the study of how entrepreneurial discoveries should be made, not necessarily how they are made. It assumes that not all information is equal in value when it comes to making entrepreneurial discoveries. Information that is related to the time, place, or special circumstances of a potential deal is more valuable in making an entrepreneurial discovery than general information (Fiet 1996, in press; Gifford 1992, in press; Hayek 1945). It suggests that information, like any other commodity, can be purchased at a price, however, ex ante, its acquisition is partially a gamble on its unknown value. Nevertheless, entrepreneurial discovery is viewed as a rational investment process that can be understood and mastered.

Decision-Making Theory Busenitz and Barney (1997) argue that entrepreneurs often substitute biases and heuristics for well-reasoned analysis and investments in specific, risk-reducing information about a deal. They do this to economize on decision-making effort in the face of the many choices that they encounter when launching a new business (c.f., Kahneman and Tversky 1984; Tversky and Kahneman 1981). We would know much more about how to discover lucrative opportunities if the insights from informational economics and decision-making theory were integrated. For example, when is it optimal to invest systematically in the acquisition of risk-reducing information and when is it acceptable to circumvent this rational process by using short cuts, such as biases and heuristics?

Question Two: How should entrepreneurs identify the most attractive industries? The pharmaceutical, medical devices and semiconductor industries have been historically much more profitable than inter-city buses, steel, and corn farming. If we knew the causes for these differences in industry attractiveness, we could coach entrepreneurs to avoid competing in certain industries or alternatively, to attempt to restructure them through cooperative strategies, regulation, and government lobbying. This section examines three approaches for understanding industry attractiveness.

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Industrial Organization Economics Michael Porter (1980) summarized 40 years of research on the structure of industries. He argued that the critical competitive factors were buyers, suppliers, substitutes, potential entrants, and rivals. The important dimension connecting these factors is interdependence, which prevents one competitor from earning above normal returns without it lowering the profits of other firms in the industry. The greater the competitive interdependence among firms, the less attractive are the prospects of the average entrepreneur to earn above normal profits (Copeland and Weston 1988). The way to prosper in Porter’s five forces world is “[colluding] behind strategically erected entry barriers . . .” (Jacobson 1992, p. 783; c.f., Rumelt 1988). The problem for entrepreneurs is that without erecting barriers to entry, there is no incentive to incur the risk of possible losses associated with discovery and innovation.

Austrian Economics It assumes that entrepreneurs possess heterogeneous resources from which they can earn Ricardian rents (Rumelt 1987). In addition, they can earn quasi-rents through capitalizing on innovation and then utilizing isolating mechanisms to forestall competitive imitation (Rumelt 1987). Entrepreneurs also have a high level of uncertainty because of incomplete or inaccurate information. Finally, entrepreneurs may not know how to duplicate each other’s strategies without suffering from a cost disadvantage. The assumptions of Austrian economics are actually the opposite of the equilibrium assumptions of such neoclassical economists as Walras (in 1874) and Marshall (in 1890). Industrial organizational economics is actually derived later from the least stringent assumptions of Neoclassical Economics (c.f., Kirchhoff 1997).

Game Theory This theory identifies different games that are played by competitors (Grimm and Smith 1997). These games are zero-sum, positive-sum/growth, negative-sum/decline, and change to positive-sum/growth, among others (Nielsen 1988). The rules of a game specify the ways in which competitors are allowed to compete in a given industry. Competitors have little power to change the rules of a game in which they compete. Positivesum/growth games enable competitors to increase their sales while merely maintaining market share, whereas for a negative-sum/decline game, competitors must increase their market share to hold on to their existing sales. The most promising way for rivals to improve the outcomes from their game is to cooperate with each other to stimulate primary demand. Unless competitors cooperate to change the rules of their game, they may be consigned to a competitive equilibrium in which none of them will really prosper. Deciding which of these industry descriptions (theories) is the most appropriate indicator of industry attractiveness is an empirical question. It seems apparent that Austrian economics describes most industries. However, the other two are also plausible, as are others that are not reviewed here. Ideally, each of these could be integrated in one theory that could provide contingent insights.

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Question Three: How should entrepreneurs marshal the resources to launch an entirely new business? Aspiring entrepreneurs and public policy makers have lamented the capital gap that purportedly exists, which may prevent those with deserving ideas from being funded. Several theories contribute to understanding how this capital gap can be overcome.

Agency Theory It assumes that resource suppliers and entrepreneurs may have divergent self-interests (c.f., Eisenhardt 1989; Fama and Jensen 1983; Jensen 1994; Jensen and Meckling 1976). If entrepreneurs are to succeed in acquiring needed resources, they must provide resource suppliers with incentives to compensate for their different interests. Agency theory contributes greatly to our understanding of incentive alignment problems, such as those associated with venture funding. It suggests that entrepreneurs can substitute monitoring for bonding, if they lack necessary capital, and vice versa, if they do not wish to be monitored (Barney, Fiet, Busenitz, and Moesel 1996).

Procedural Justice Theory It suggests that preserving an effective ongoing relationship between the entrepreneur and venture capitalists requires that the parties be able to maintain the perception that their exchange partner is acting fairly in compensating them for contributed work (Fiet, Busenitz, Moesel, and Barney 1997; Greenberg 1987, 1990; Korsgaard, Schweiger, and Sapienza 1995; Sapienza and Korsgaard 1994). Whereas agency theory emphasizes possibly different interests, procedural justice suggests how these differences may be overcome.

Transaction Cost Economics It also contributes to our understanding of the availability of financing for new businesses. Although agency theory relies upon the assumption of market efficiency, transaction cost economics presupposes that firms actually come into existence when markets fail to be informationally or allocationally efficient. Williamson (1975, 1985) notes that many factors may contribute to market inefficiency, particularly those mentioned in Table 2 under human and environmental assumptions. Transaction cost economics shares with agency theory the observation that one way to overcome any opportunistic tendencies of providers and users of capital is to monitor the capital user.

Social Embeddedness Theory Entrepreneurs acquire needed resources through exchange relationships. Over time, these relationships may socialize the exchangers so that they become trustworthy (Fiet 1995; Granovetter 1985), which lowers acquisition costs. In contrast, infrequent exchangers have higher acquisition costs due to possible malfeasance. The network of exchange relationships serves as an implicit monitoring device to forestall opportunism. Granovetter (1985) would argue that opportunism is unlikely when exchange relations

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become socially embedded because repeated reciprocal exchanges supplant opportunism with trust. To the extent that entrepreneurs can increase the frequency of exchanges, trust increases and decreases acquisition costs. Clearly, improving our understanding of market efficiency, incentive alignment and trust, as suggested by these approaches, would greatly add to our understanding how to advise aspiring entrepreneurs to launch their ventures.

Question Four: How should entrepreneurs create a competitive advantage? Michael Porter (1985) heightened our awareness of the desirability of a competitive advantage in his second book. He suggested that firms that possessed a competitive advantage would be positioned to earn higher profits. The following theories address this issue of competitive advantage.

Resource-Based Theory This approach attends to a firm’s heterogeneous collection of resources, which are housed internally (Penrose 1959; Wernerfelt 1984; Barney 1986; 1997). These resource bundles (or capabilities) enable a firm to generate quasi-rents, which are an attribute of the resources. Barney (1997) suggests that there are four major criteria that these resources must satisfy to serve as potential sources of sustainable competitive advantage. These criteria are (1) valuable, (2) rare, (3) imperfectly imitable, which includes both non-duplicatability and non-substitutability, and (4) the degree to which a firm is organized to exploit a resource. The implication of this approach is that entrepreneurs can chose strategies, which are consistent with their resources, to gain a sustainable competitive advantage for their firms.

Hypercompetition This reframing of Austrian Economics by D’Aveni (1994) argues that all competitive advantages are temporary because of increased and increasing competitive rivalry. Therefore, rather than attempting to protect their competitive advantage, entrepreneurs should continually strive to obsolete them before they are used by a competitor as a platform for creating the next innovation. Alternatively, a competitor could attempt to destroy a competitor’s advantage, which would also serve to protect the distance between competitive products or services. The correct approach, according to D’Aveni, depends upon the perceived stage of competitive rivalry. Resource-based theory and the theory of hypercompetition use differing assumptions about the viability of a strategy intended to generate a sustainable competitive advantage. In fact, they do not even agree that the generation of such an advantage is possible or even advantageous. Should a firm continually innovate to obsolete its own advantages and those of its competitors or should it invest in protecting what it already possesses? These are the questions posed by these two theories of sustainability. All of the theories summarized in Table 1 provide plausible premises that instructors can use to teach entrepreneurship theory.8 Entrepreneurship students can utilize 8 There is some disagreement about whether each of these “theories” is in fact a theory. Because they originate from different disciplines, it is quite difficult to arrive at a consensus about what constitutes a theory.

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them also in certain circumstances if they are careful to follow the recommendations in the next section. Problems develop when students assume that these theories can be applied generally without taking into account various contingencies. Moreover, these are only some of the theoretical platforms that we can use.

A CONTINGENCY APPROACH FOR TEACHING ENTREPRENEURSHIP THEORY Until we have a general theory of entrepreneurship, as mentioned earlier, all current theories of how entrepreneurs succeed are in some ways inaccurate, contradictory, or incomplete. This contention should be noteworthy to both instructors and aspiring entrepreneurs. However, as indicated by the preceding review of attempts to address questions about entrepreneurs, we have made impressive progress in our too frequently, separate, but parallel research efforts.9 Several of the theories in the preceding review address the same research questions, although they do so using different assumptions or contingencies. The purpose of this section is to suggest a contingency approach for examining the differing assumptions of theories that address similar entrepreneurial questions. This approach, consisting of three questions, should assist entrepreneurs to understand better the consequences of their decisions. These are the three questions: (1) Upon what assumption(s) does this conclusion depend? (2) What evidence is there for this assumption? (3) What alternative assumption(s) could explain this conclusion? Each of these is reviewed below:

1. Upon what assumption(s) does this conclusion depend? This question recognizes that in order for theories to be distinct, they must rely upon different assumptions. If they did not rely upon different assumptions, they would not be internally consistent because they reach different conclusions. Table 4 summarizes five different categories of theoretical assumptions. These assumptions are (1) primary domain, (2) key idea, (3) unit of analysis, (4) level of analysis, and (5) human and/or environmental constraints. Table 4 also provides illustrations of each of these assumptions for six theories that have been recently applied in entrepreneurship research.10 The illustrations in Table 4 indicate that some approaches turn upon their degree of presumed market efficiency, notably transaction cost economics and agency theory, whereas power theory assumes that those who possess power can decide for others. Transaction cost economics also assumes that humans may act opportunistically, whereas the social embeddedness view predicts that embedded social relations will prevent it from occurring. A long-term view of the negative consequences in the relationSome may feel more comfortable referring to them as “perspectives.” For the purposes of this article, synthesis is more important than definitional precision. 9 All that is needed to substantiate this contention is to compare how entrepreneurship was taught twenty years ago with how it is taught today. Twenty years ago, entrepreneurship education consisted of drills in the fundamentals of running a business, anecdotes, successful entrepreneur guest speakers, and war stories. Today, we have several publication outlets for theory-based research and forums where we can debate what and how we teach. 10 The selection of these illustrations is not intended to elevate particular theories above others that were omitted, or to suggest that those that were omitted offer less insight. They are provided for illustrative purposes only.

Primary Domain Relationships in which principal and agency may have partially differing goals and risk preferences The reward process in exchange relationships

Markets, hierarchies, and vertical integration

The sources of power

Firms

Exchange relationships

Theory

Agency

Procedural Justice

Transaction Cost

Power

Resource-based

Social Embeddedness

Focuses on the efficiencies that can be achieved based on power that can be exercised. Firms are composed of heterogeneous resources, which in proper combination, if exploited, could be a source of sustainable competitive advantage Repeated exchanges socializing the exchangers into being trustworthy

Principal-agent relations should reflect efficient organization of information and risk-bearing costs Rewards will be meted out on the basis of the perceived fairness of the exchange Promotes efficient transactions as a basis of organizing

Key Idea

Repetition in exchange relationships

The resource or capability

Sources of power

Transactions, both inside and outside the firm

Wide variety of exchange relationships

Contract between principal and agent

Unit of Analysis

TABLE 4 Assumptions of Selected Theories Utilized in Entrepreneurship Research

Usually individual, but like agency theory and procedural justice, relationships can chris-cross the entire economy

Resources are at the functional level and capabilities are at the business level

Can occur at personal, functional, business and corporate.

Usually individual, but like agency theory, rerlationships can chris-cross the entire economy Functional, business or corporate

Usually individual but relationships can chriscross the entire economy

Level of Analysis

Humans can be trusted Well-founded trust is economical

Some of each person’s knowledge about his/her resources remains private, which could serve as a basis for a sustainable competitive advantage

Humans want to be treated fairly Self-interest Bounded rationality Bounded rationality Opportunism Information impactedness Asset Specificity Uncertainty/complexity Small numbers Self interest Opportunism

Self-interest Bounded rationality Risk aversion

Human and/or Environmental Constraints

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ship among exchangers can also prevent opportunism, as is explained by the procedural justice perspective. It is important not to attempt to integrate theories by combining ones with different underlying assumptions unless these assumptions are modified to make them compatible. For example, trying to combine agency theory with transaction cost economics is not appropriate without modifying some of the basic assumptions of each. Because one approach assumes market efficiency and the other market failure, although their human and environmental constraints appear very similar, these subtle efficiency differences generate markedly different predictions. According to transaction cost economics, firms are launched when markets fail. In contrast, agency theory suggests that firms are launched in part to resolve the problem of shirking during team production (Alchian and Demsetz 1972). Because some markets are inefficient and fail,11 agency theorists have occupied most of the last 20 years identifying conditions that explain observed market inefficiency. It may be appropriate to integrate separate theories when their assumptions are complementary. For example, Fiet et al. (1997) found that agency theory and procedural justice theory could be used jointly to understand venture capitalist-initiated dismissals of members of a new venture team because their separate insights were complementary. They found that clearly signaling the consequences of an undesirable behavior could reduce the incidence of dismissals, according to agency theory. Procedural justice entails more than signaling the negative consequences of an undesirable behavior. To act in a way that is perceived as procedurally just, exchangers must be concerned about the capacity of survivors to be productive. Procedural justice does not foreclose negative incentives, as long as they are perceived as being meted out fairly. Table 5 compares the decision-making criteria used by entrepreneurs, given the assumptions of the six different theories in Table 4. If an entrepreneur is interested in evaluating the sustainability of a competitive advantage that could be generated by developing a strategy based on proprietary resources or capabilities, he or she should consider the resource-based theory of the firm. If an entrepreneur is interested in understanding those factors that will affect the birth and survivability of his or her firm, transaction cost economics should be consulted. If an entrepreneur is interested in knowing whether he or she should be concerned about possible opportunistic behavior, he or she should consider the assumptions of both transaction cost economics and the social embeddedness view. The question of which of these approaches should be used to determine the probability of opportunistic behavior depends upon the next question.

2. What evidence is there for this assumption? This question asks us to consider the validity of a theory’s assumptions. It is impossible to evaluate the comparative validity of two internally consistent theories without considering the supportive evidence for the assumptions of each one. Fiet (1995b) pitted transaction cost economics against the social embeddedness view to predict the degree to which business angels and venture capital firm investors rely upon information from informants, information that could be changed to favor the 11 The informal market for venture capital is an example of one that fails because its business angel investors constantly complain about not having enough deals to review. Interestingly, angels are part of this problem because they have a desire for privacy and wish to preserve their anonymity (Fiet 1995a).

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TABLE 5 Important Decision Criteria of Select Theories Utilized in Entrepreneurship Research Theory

Key Decision Criteria

Agency

Agents have separate and possibly divergent interests from those of the principles. Monitoring may be utilized to detect agent behavior that is harmful to principals. It may be further reduced through incentive alignment, being careful to not shift excessive risk for loss of compensation for work performed to the agent. Risk of loss is more efficiently borne by principals who can diversify their risk of loss. Because a fair distribution of rewards can not always be determined, it may be possible to substitute the installment of a fair reward system and then to ensure that the procedures themselves are scrupulously followed. In this way, the procedures become a proxy for fair distribution. Firms exist when the cost of doing business, including transaction costs, is less within the hierarchical structure of the firm than it would be in the market. The process of shifting transaction within the boundaries of a firm is referred to as vertical integration. Dependency, financial resources, centrality, nonsubstitutability, and the ability to cope with uncertainty are potential sources of power. If a resource (or capability) is valuable, rare, imperfectly imitable (including, nonduplicable, and non-substitutable) and if a firm is organized to exploit it, it may generate a sustainable competitive advantage and above normal returns. An exchange relationship becomes embedded in a larger network of exchange relationships after repeated, and preferably frequent exchanges. The result is that participants become socialized to a network’s norms of reciprocity and fairplay. Once socialization takes place, the embedded relationship serves as a governance mechanism to ensure against opportunistic, end-game power plays.

Procedural Justice

Transaction Cost

Power Resource-based

Social Embeddedness

informant. He found that when exchanges of information among informants were frequent, as in the case among venture capital firm investors, trust was high. In fact, trust among venture capital firm investors was higher than among business angels, who complained about inadequate requests for funding, as well as less frequent contacts with informants, which could have developed greater trust. Fiet’s (1995b) results suggest that each theory is valid, depending on the number and frequency of exchanges that occur among the informants. A more recent study by Fiet et al. (1997) compared the validity of predictions made about the dismissal of new venture team members (NVT) by venture capitalists. It compared predictions made by agency theory, procedural justice and power theory. They report the following results: Poor performance is associated with NVT dismissals, as predicted by agency theory. However, the actual occurrence of dismissals seems to be moderated by the power of the board of directors (i.e., the smaller the size of the board and the greater the number of VC-controlled seats) and the necessity to act in a procedurally just manner so NVT survivors will not feel threatened (p. 363).

This study found that each of these theories provided an incomplete explanation of NVT dismissal. However, when their interpretive insights were integrated, it found them to be complementary and synergistic. These studies by Fiet and his colleagues suggest that each of the competing theories tested by them is at least partially valid.12 However, their individual validity was contin12 Busenitz, Fiet, and Moesel (1998) studied the effects of strategic intervention by venture capital firms on the performance of their investee firms. In their longitudinal study, they contrasted the predictions of

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gent upon the circumstances of the encounter. Given the partial and contingent nature of only these conclusions, it is important to be willing to accept other explanations for phenomenon. If we are willing to be open to other explanations, we will probably be surprised and delighted by unexpected outcomes. Until we arrive at a general theory of entrepreneurship, entrepreneurs may obtain valuable insights from considering the predictions of multiple theories, which will be useful for ensuring that they are asking pertinent questions about the future effects of their decisions.

3. What alternative assumption(s) could explain this conclusion? Considering possible alternative assumptions underlying our conclusions is important for several reasons. First, it is important to consider that our judgments about the consequences of our decisions can often be influenced by the views of others, as in the case of groupthink (Janis 1982). It is safe to argue that when everyone agrees with the correctness of a particular argument, there is some aspect of the argument that is being overlooked. These are complex matters and reasonable researchers ought to disagree until they understand a phenomenon very well. Second, a psychological process that sometimes obscures our judgment is escalation of commitment (Staw 1981). Students of this process have observed that personal commitment to the correctness of former judgments may increase with the passage of time and investment. Reaching an early consensus may indicate that it is appropriate to reconsider implicit assumptions. Third, Fiet et al. (1997) describe an impatient discussion about the relative value of organizational economics and traditional management theory between Lex Donaldson (1990a, 1990b) and Jay Barney (1990) in which the latter cited Clay Alderfer: Professor Alderfer argued that many of the conflicts between academic disciplines [read, entrepreneurship theory] could be analyzed using models of “intergroup conflict” (Barney 1990, pp. 389 & 390). According to Barney (1990), these debates often devolve into turf battles with the combatants erecting intellectual barriers to entry presumably by influencing gatekeepers who guard the most influential publication outlets. These turf wars, Barney (1990) argued, inhibit intellectual inquiry and stifle debate, which ultimately eviscerates the most potentially interesting and productive inquiry (p. 363).

Two requirements for building a general theory are that its assumptions be both internally consistent and valid. It would be quite rare that a theory could survive the peer review process and yet still have internal inconsistencies in its assumptions. Thus, if we wish to understand theoretically generated predictions, our primary concern should be to check for contradictory evidence that could invalidate a theory. For researchers, contradictory evidence means that we must ask ourselves the following question: “Can this theory’s assumptions be modified to correct for contradictory evidence?” In addition, entrepreneurs can modify a theory’s assumptions to correct for biased and inaccurate predictions. The process is similar for both groups because in reality, all that entrepreneurs are trying to do is construct a theory about the consequences of their decisions. Can we teach aspiring entrepreneurs to predict the future using research-generated learning assistance theory, agency theory, and procedural justice theory. Learning assistance theory was not supported, agency theory predictions were actually found to be negatively related to actual performance, and procedural justice theory was supported. This study is important because it not only pits three theories against each other, but it does so using 6 years of longitudinal data.

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theory? Probably not yet, but we can at least teach them to be systematic as they go through the same assumption-checking process as researchers. In addition, if they attempt to do it without the assistance of theoreticians who have already done most of the pioneering work, it will be a much more difficult and time-consuming. Should researchers conduct atheoretical research? They can but they still need to ensure that their work does not contradict received assumptions so that it contributes to the eventual development of a general theory of entrepreneurship. As scholars, we have the responsibility to teach aspiring entrepreneurs the value of theory. We also have a larger institutional responsibility to the field to move it toward a general theory of entrepreneurship. Meanwhile, we can teach aspiring entrepreneurs to use what is known on a contingent basis. We do not have to promise more than our theory-building efforts can presently deliver. We should be able to admit theoretical limitations without becoming apologists that current entrepreneurship theory represents unfinished business. In this sense, we have a great deal in common with entrepreneurs. The business of our separate endeavors is to construct a more accurate, general theory about the future.

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