Made to be broken? A theory of regulatory governance and rule-breaking entrepreneurial action

Although regulatory institutions are said to enable and constrain entrepreneurial action, ventures frequently emerge with products, processes, and business models that skirt or defy these rules. We provide a theory of rule-breaking entrepreneurial action, focusing on why entrepreneurs are only sometimes constrained by law, regulation, and other formal constraints. In this, we attend to the dual roles of social context and subjective interpretation. Drawing on the sociology of law, we position regulatory rules within a system of governance, where public actors and legal intermediaries collectively construct the meaning of rule compliance and enact sanctions to enforce this interpretation. We leverage this to describe how enforcement imperfections and heterogeneous rule interpretations give rise to the possibility of ‘black market’ and ‘gray market’ entrepreneurial actions. In turn, we theorize how actors' knowledge and motivations can lead them to identify and exploit breakable rule conditions via the creation of new ventures. We illustrate our framework with examples from startups Zenefits, Square, and Aereo. Our framework changes the way we think about regulatory institutions and entrepreneurial action by presenting governance as a multilevel, social, and subjective process—such that some actors conform their entrepreneurial activities to established rules while others recognize and exploit breakable rule conditions.     

Financial and Institutional Reforms for an Entrepreneurial Society

In this paper, we introduce the special issue on Financial and Institutional Reforms for an Entrepreneurial Society in Europe. There are many reasons for Europe to want to make the transition to a more Entrepreneurial Society. And for decades now, policy makers are trying to bring that transition about with variations on the “educate, deregulate and finance” approach to entrepreneurship. We argue that more fundamental reforms are required to improve the entrepreneurial ecosystem and bring about this transition. We then discuss the 12 contributions that pertain to five different facets of the entrepreneurial ecosystem. The first two papers address the most fundamental institutional foundations of the ecosystem. The next three papers discuss the (lack of) access to knowledge and incentives to start innovative entrepreneurial ventures. That is followed by three papers that focus on the institutions that (fail to) channel financial resources to such ventures and two papers that analyze the relevance of labor market institutions. The special issue concludes with two papers investigating how the interplay of institutions and productive entrepreneurship results in economic growth.     

Team interpersonal process effectiveness in venture partnerships and its connection to perceived success

Many business ventures are started by entrepreneurial teams, and an extensive theoretical literature suggests that the interpersonal process of these teams impact venture performance. Whereas some work has been done to identify key issues in how well such teams work together, there has been no in-depth research to develop an instrument to measure specific dimensions of interpersonal process effectiveness. This article documents the importance of venture business, develops a measure to evaluate venture team interpersonal process effectiveness, and shows the relationship of interpersonal process effectiveness and partner agreement on specific aspects of interpersonal process to reports of venture success.Over 190 venture dyads were surveyed such that each partner evaluated themselves and their partner on items describing team interpersonalprocess. We found four dimensions for team interpersonal process: leadership, interpersonal flexibility, team commitment, and helpfulness. Leadership involved partners who contributed to the leadership functions of problem-solving, setting quality standards, continually improving, and setting goals. Interpersonal flexibility described partner exchange with the other partner. Team commitment meant having enthusiasm for team performance and focusing on common team goals. The final element was helpfulness, which involved helping their partner beyond what was required and being friendly and cooperative.We defined successfully perceived ventures as those in which the two partners independently agreed on evaluating the business to be both growing and profitable. Venture businesses that were described by the partners as not growing and/or not profitable were defined as less successfully perceived ventures. Teams that evaluated themselves as more effective on team interpersonal process also regarded themselves as more successful venture businesses. The factors that were evaluated as more effective in successfully perceived ventures were leadership, team commitment, and their mutual interaction.Our agreement hypothesis held for all three interpersonal perception perspectives. The first agreement correlation is a comparison of partner self-evaluations. The more successfully perceived ventures rated themselves similarly; the less successfully perceived ventures did not. The second agreement correlation was a comparison of what partners thought of each other and is the source of many interpersonal assumptions (Wilmot 1979). Partners from successfully perceived ventures agreed with each other, whereas the less successfully perceived ventures did not. The third agreement analysis was particularly noteworthy. It involved a comparison of one partner's self-rating with how the other partner rated him/her. In addition to mere agreement, this represents an interpersonal verification or validity check between separate perceptual systems. As partners, this correlation suggests that you understand my contribution to the team in the same way that I understand my contribution to the team. When there is agreement on this perspective, miscommunication and interpersonal conflict may become less likely. As with the other two agreement indices, partners from successfully perceived ventures showed more agreement than partners in less successfully perceived ventures. An important notion is the use of these three perspectives to more fully utilize the team effectiveness instrument. Each of the perceptual perspectives is different, and a breakdown in one perspective may not always show in the others. However each view is critical to maintaining effective team interpersonal process.To develop a venture dyad, we suggest using our instrument as a tool to enhance a team's interpersonal process. When using an interpersonal method with venture dyads, there are several issues we should consider. First, team interpersonal process issues can be sensitive topics for discussion. In some cases, relationship building with a third party may be needed for this approach to be constructive. Second, a third party, familiar with team interpersonal process, should have a team meeting with the participants to establish a common vocabulary regarding our team concepts. Third, additional team interpersonal process items could be provided by the team to better fit the idiosyncrasies of each dyad.     

Imprinting with purpose: Prosocial opportunities and B Corp certification

Certified B Corporations are ventures that have chosen to embrace third party voluntary social and environmental audits conducted by an entrepreneurial non-profit enterprise called B Lab. In this special issue, we focus on the lifecycle of Certified B Corporations and its relation to the entrepreneurial journey. We highlight research at the intersection of opportunities and prosocial certification to identify patterns and processes which add significant value to ongoing conversations in the field of entrepreneurship while charting new research pathways. We develop a framework of prosocial venturing and certification that pinpoints several elements of likely consequence and curiosity. This offers new insights about the entrepreneurial process that hint at the importance of opportunity, identity metamorphosis and sedimentation/superseding work. We thereby interpret how the exploration of prosociality may add to conversations on how and why ventures resist or embrace change over time, to what effect and ultimately, how opportunities may be reBorn.     

Momentum for entrepreneurial internationalization: Friction at the interface between international and domestic institutions

In response to profound and emerging challenges arising from changes in the international order that affect international entrepreneurship, we address a gap in explanations for how the system for international relations shapes entrepreneurial internationalization. To do so, we develop a model that further explains the role of institutions in supporting international new ventures. We focus on how frictions in the interface between international and domestic institutions can influence momentum for entrepreneurial internationalization. We theorize how institutional work on the international-domestic interface can facilitate entrepreneurial internationalization that occurs in that interface. As such we provide additional understanding regarding factors that influence entrepreneurial internationalization.     

Challenges in predicting new firm performance

Research examining predictors of new firm performance is clearly of interest to entrepreneurs and to those who provide advice and funds for their ventures. A growing body of research has examined the influence upon performance of such variables as entrepreneurs' characteristics, processes of founding, venture attributes, and environmental characteristics. However, considered as a whole, this research has shown mixed results and limited findings to date.This paper considers some of the challenges that arise in attempting to predict new firm performance. A key factor is the heavy dependence of new ventures upon environmental developments, many of which may be very difficult to predict. All firms are impacted by the environment, but new ventures have a concentration of risk upon a few products or services, narrow markets, and a few key resources. Thus, well-conceived ventures can fail because of unforeseen environmental shocks and the lack of “deep pockets” to ride out hard times. These same factors can cause new firm performance to swing widely, confounding attempts to identify predictors of good or poor performance.There are also challenges because many entrepreneurs pursue personal goals, some of which are noneconomic in nature. Thus, decisions about whether to found ventures, about how vigorously to grow them, or about whether or not to close down marginal businesses are all influenced by the personal values of entrepreneurs.The diversity of ventures, encompassing firms that differ greatly in scale and potential, complicates the task of determining predictors of performance. It may be that the influence of a particular variable, such as management experience, varies by type of venture. Previous research has also used a variety of performance measures, making comparisons across studies more difficult. Little has been done to determine whether the factors that enhance one measure of performance, such as survival, are the same as those that lead to others, such as growth or profitability.Previous research has been hampered by inadequate theoretical frameworks and, in some cases, by inappropriate methods of analysis. In addition, past research often could have been characterized by a tendency to examine variables that were easy to study, rather than those that were important.Despite limited success to date, we should not forsake research on predictors of new venture performance. The challenges discussed probably put limits on our ability to predict performance of individual ventures. However, the field of study is young and there is much that can be done to add to our understanding. The paper then develops recommendations for future research, noting that each of the challenges considered raises specific research opportunities.     

A cross-national study on the impact of management teams on the rapid internationalization of small firms

While the importance of top management teams in the formation and development of new ventures is well recognised, their impact on the rapid internationalization of such firms remains relatively under-researched. This article presents the findings of a cross-national study conducted in Australia, Canada, Ireland and New Zealand that demonstrate the significant impact that such teams have in creating the core internal capabilities and leveraging the external resources required for rapid and dedicated internationalization. The need to augment the management team in order to address key resource or knowledge gaps and/or to expand international networks is also evident among many firms, as is the impact of changes in team structures on business strategy and internationalization. Directions for future research and implications for public policy in support of rapidly internationalizing small firms are presented and discussed.     

Accelerating strategic fit or venture emergence: Different paths adopted by corporate accelerators

Corporate accelerators (CAs) are a fast-emerging form of corporate engagement with startups. Equating them with independent startup accelerators and/or corporate venturing limits our understanding of how and why corporations run CA programs and to what end. In this inductive grounded theory study, we explore how corporations design and run CAs and to what effect. This study of four CAs reveals that corporations manage accelerators via one of two distinct processes: namely, accelerating strategic fit or accelerating venture emergence. Our inductive models of these corporate acceleration processes provide new insights into how CAs operate within corporations. Strategic posture and investment time horizon influence corporations' choice of acceleration path and their identification of potential ventures for acceleration. Our study deconstructs what comprises the core corporate acceleration processes and explains how the two pathways result in distinct outcomes—nurturing innovations or nurturing ecosystems. We believe these findings can open up rich research opportunities for understanding how corporations engage with entrepreneurial ventures to enhance their entrepreneurialness.     

The power of arguments: How entrepreneurs convince stakeholders of the legitimate distinctiveness of their ventures

Entrepreneurs gain positive evaluations when their stakeholders are convinced that a new venture is simultaneously legitimate and distinct. Prior research highlights that analogies are a powerful device for constructing such legitimate distinctiveness. We extend this work by providing a more comprehensive typology of arguments that, besides analogies, contains five additional arguments that entrepreneurs can use to gain legitimacy and support for their ventures. We use this rhetorical typology in turn to consider how the nature of the business concept associated with a new venture constrains the choice, and effects, of certain arguments. Our typology provides a base for future research on the micro-discursive processes through which entrepreneurs claim, and in turn achieve, legitimate distinctiveness for their ventures.     

Stakeholder identification as entrepreneurial action: The social process of stakeholder enrollment in new venture emergence

There is growing interest in understanding the role of stakeholders—including financiers, employees, customers, suppliers, and communities—in the process of new venture emergence. We see potential to advance this stream of research by bridging a gap we observe between recent research on stakeholder enrollment in new ventures and longstanding research on stakeholder identification in established firms. To do so, we seek to explain why, how, and when, through social action, stakeholder identification and enrollment may (or may not) occur as an entrepreneur goes from an imagined opportunity to a new venture with enrolled stakeholders. To this end, we develop a model that conceptualizes stakeholder identification and enrollment as iterative, recursive, and constitutive social processes involving action in: refining and justifying to result in commonality with other actors; probing and positioning to result in mutuality with specific stakeholders identified; and enrolling and engaging to result in reciprocity with identified stakeholders. We argue that these social processes constitute the means through which opportunities are formed, specific stakeholders are identified, and stakes in new ventures are created and maintained, respectively. In doing so, we offer a more nuanced explanation of the dynamism implied in stakeholder identification and enrollment in emerging ventures.     

Entrepreneurial visions in founding teams: Conceptualization,emergence, and effects on opportunity development

Prior research on entrepreneurial visions has typically taken a leadership perspective and explored how the founders’ future images of their ventures motivate themselves and followers. Drawing on an upper echelon perspective and longitudinal case studies of eight founding teams, this study finds that founders’ entrepreneurial visions do not only capture the future images of their ventures, but also the future images of the founders’ relationship with it. Taking into account this personal aspect of visions, we show that within a founding team, the members’ visions can be incongruent, i.e., they cannot be realized simultaneously within the current venture. While our data reveal that vision incongruence tends to occurs when all team members perceive to have an equal status, vision congruence emerges when the attributed status in the team is heterogeneous. Founding teams with more congruent visions tend to follow a focused opportunity development path, while those with less congruent visions tend to follow a comprehensive opportunity development path. Depending on the teams’ behaviors in the face of challenging situations either path can lead to successful opportunity commercialization or failure. We discuss the implications of these findings for the literatures on entrepreneurial visions, opportunities, and upper echelons.     

Home country institutions,social value orientation,and the internationalization of ventures

We examined how home country formal institutions and the venture’s value orientation influenced the venture’s likelihood of internationalization based on a data set that was adapted from the Global Entrepreneurship Monitor (GEM) data in the year 2009, covering 7668 individual ventures in 25 countries. Better-developed home country formal institutions are found to have a supportive impact on the venture’s likelihood of internationalization. The supportive impact is also found to be weaker for socially oriented ventures than for profit-oriented ventures. The venture’s social value orientation negatively moderates the home country formal institutions–likelihood of internationalization relationship. The negative moderating effects can be explained as follows: Socially oriented ventures in the better-developed home country institutional environment are less likely to develop coping skills against uncertain and risky institutional environments, which are common in their host countries. Besides the theoretical contributions, this paper also highlights the implications for both business researchers and policy makers.     

The impact of formal processes for market information acquisition and utilization on the performance of Chinese new ventures

The authors examine the performance impact of formal market information processes. Specifically, a theoretical model is developed that hypothesizes that formal processes for market information acquisition and utilization have direct and positive main effects on new venture success and is then tested using a sample of 222 new ventures located in China. Findings indicate that new venture success is positively correlated with the use of formal processes for market information acquisition and use. Moreover, the relative importance of formal processes to the acquisition and use of market information depends on whether the new venture serves an emerging or established market. In particular, the impact of formal processes for information acquisition is higher among new ventures that serve emerging markets. In contrast, the impact of formal processes for information use is higher among new ventures that serve established markets. We present managerial implications of our results. For example, a new venture with a strong market orientation can respond quickly to emerging marketplace needs, and can even seize the advantage from incumbents. If it is in an emerging market, however, the new venture management team should strive to excel at information acquisition; in an established market, it is important for the management team to excel at information utilization.     

What happens to international new ventures beyond start-up: An exploratory study

Since its inception, research in international entrepreneurship has focused mainly on how and why international new ventures internationalize early on. To date, there has been hardly any research regarding the issue of continuing corporate growth in such ventures beyond their start-up phase or initial internationalization. Theoretically, we ground our study within the dynamic capabilities view of the firm and through an inductive theory building research explore how and whether international new ventures made-it beyond the start-up phase, aiming to generate early theoretical constructs to guide international entrepreneurship research in this substantive area. Grounded in data, we develop the following constructs related to made-it points: strategic experimentation, tensions in organizational gestalt, and legitimacy lies. To get to a made-it point, entrepreneurs experiment with their venture at several levels: organizational, business model, and operational. These experimentation efforts are fueled by tensions that exist in the organizational gestalt, such as ownership structure, business proposition to the market, and product development process. To legitimate themselves and their venture in the stakeholders’ eyes, entrepreneurs may tell legitimacy lies. We maintain that international new ventures do not reach a made-it point if they only manage to develop substantive capabilities to produce desired outputs at various levels within the venture but fail to create dynamic capabilities to change and reconfigure existing substantive capabilities.     

Human resource flexibility and strong ties in entrepreneurial teams

Human resource flexibility is important in entrepreneurial ventures that need to respond to the changing challenges of growing the new business. This research investigates the impact of previously well-known people (strong ties) as entrepreneurial team members on the human resource flexibility of new ventures. Data collected from German founding entrepreneurs in technology-oriented, incubator-based firms shows that choosing a well known individual to join the entrepreneurial team increases the founder's ability to modify the team member's work role, but complicates asking the team member to leave the team if required. Hence, strong ties both increase and reduce human resource flexibility. However, the effect of strong ties on role modifiability is statistically significant only with novice entrepreneurs. These research findings counsel founders to discuss role modification and exit during partnership and entrepreneurial team membership negotiations.     

Predictive and effectual decision-making in high-tech international new ventures – A matter of sequential ambidexterity

This study investigates the international opportunity exploration and exploitation processes of high technology international new ventures (INVs) operating in the global medical devices sector. Drawing upon the effectuation and causation perspectives, we contribute to the micro-foundations of international entrepreneurship research in the early innovation development space by focusing on decision-making logics of techno-entrepreneurs of INVs. Specific focus is afforded to the phases of their exploration and exploitation of international opportunities leading to international new venture creation. In the pre-start-up and start-up stages of international new ventures, we find that sequential ambidexterity applies to how the subject firms manage the exploration and exploitation of opportunities in the delivery of their innovations to global markets.This research advances prior international entrepreneurship studies by focusing on the opportunity and innovation processes on the individual level. We identify different decision-making logics in the different phases and contrary to earlier findings in the international entrepreneurship (IE) area, we found causation logic to dominate the initial stages of exploration and effectuation logic, in the latter stages. Prior commercial experience presented itself as a key determining factor in the decision-making path chosen by international techno-entrepreneurs. Our study further extends the view of organizational ambidexterity by offering empirical insights into the relevance of sequential ambidexterity for understanding the processes of innovation exploration and exploitation in high-tech INVs and the decision-making logics driving these processes.     

Navigating compromise: How founder authenticity affects venture identification amidst organizational hybridity

Founders of hybrid ventures encounter organizational tensions that can compel compromise in both their organizations' and their own personal values. Such compromises may, in turn, undermine founders' identification with their ventures. In a multi-case study analysis we examine why social entrepreneurs differ in their responses to organizational tensions, both at the firm- and individual-level, and how such differences relate to their venture identification. Specifically, our findings reveal that strategic decisions made in the context of values-based complexity are often accompanied by concerns regarding founder authenticity—that is, judgments about the alignment between founders' actions and the commitments or responsibilities associated with their identities as entrepreneurs. Yet, because founders differ in the basis from which they seek to maintain such alignment, these differences shape both hybridity management and subsequent venture identification. By unpacking such differences, our findings contribute new theory, bridging recent scholarship on founder authenticity with longstanding research on organizational identification and hybrid organizing.     

Obsessive passion and the venture team: When co-founders join,and when they don't

We investigate how potential co-founders' perceptions of a founder's obsessive passion (OP) influence the decision to join a venture team. Using a conjoint experiment with a primary sample of 116 founder-entrepreneurs and validating it with an additional sample of 59 founder entrepreneurs, we found that potential co-founders were more likely to join if they perceived that the founder had OP for developing ventures. Potential co-founders were less likely to join if they perceived OP for founding ventures. Further, we found significant interactions between perceived OPs, as well as interactions between perceived OP and potential co-founders' own OP.     

Ethnic-immigrants in founding teams: Effects on prospector strategy and performance in new Internet ventures

We investigated differences in strategy and performance between new Internet ventures with ethnic-immigrant members in the founding team and a matched set of Internet ventures with non-ethnic-non-immigrant team members. Results showed that new ventures with an ethnic-immigrant presence in the founding teams tended to pursue a more aggressive prospector strategy than those with non-ethnic-non-immigrant founding team members. Still, performance of the two groups of ventures was comparable. However, the positive effects of ethnic-immigrant presence on founding teams depended on team size and average age of the founding team members.