Missing the boat or sinking the boat: a study of new venture decision making |
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| Institution: | 1. Department of Management and Engineering (IEI), Institute of Analytical Sociology (IAS), Linköping University, Sweden;2. Ratio Institute, Stockholm, Sweden;3. Sten K. Johnson Centre for Entrepreneurship, School of Economics and Management, Lund University, P.O. Box 7080, S-220 07 Lund, Sweden;4. Department of Entrepreneurship & Emerging Enterprises, Whitman School of Management, Syracuse University, 721 University Ave., Syracuse, NY 13244, USA;1. School of Economics and Management, Beijing Information Science and Technology University, Beijing, China;2. Business School, Beijing Normal University, No. 19, Xin Jie Kou Wai Street, Beijing 100875, China;3. Institute of Industrial Economics, Chinese Academy of Social Sciences, Beijing, China;1. Chemical and Environmental Engineering, School of Engineering, RMIT University, Melbourne, VIC 3000, Australia;2. ARC Training Centre for the Transformation of Australia''s Biosolids Resource, RMIT University, Bundoora, VIC 3082, Australia;3. School of Engineering, Deakin University, VIC 3216, Australia;4. Department of Chemical Engineering, Manipal University, Jaipur, Rajasthan 303007, India;5. South East Water Corporation, Frankston, VIC 3199, Australia;1. Research School of Management, The Australian National University, Australia;2. School of Business Administration, University of Vermont, USA;3. People and Work Laboratory (PaWL) |
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| Abstract: | Taking two conceptualizations of risk, Dickson and Giglierano's J. Mark. 50 (1986) 58] nautical analogy of entrepreneurial risk (sinking vs. missing the boat) to represent the likelihood of loss element of new venture risk, and March and Shapira's Manage. Sci. 33 (1987) 1404] risk as hazard (boat size) to represent the magnitude of loss element of new venture risk, we investigated how two contextual factors, the suitability of entrepreneurs' skills and their sources of funds, and two individual differences factors, the entrepreneurs' risk propensities and their perceptions of risk, influence their new venture decision making. Metaphorically speaking, we found that most entrepreneurs would rather risk missing than sinking the boat, and that they preferred to pilot bigger craft than smaller ones. Perhaps surprisingly, our sample of highly successful entrepreneurs made relatively risk-averse choices, with 83% choosing either of the two ventures for which the chances for loss were lowest. We also found that the source of new venture funding—the entrepreneur's own money versus that of investors—influenced our subjects' choices between ventures whose chances for loss or gain differed. A similar effect was found for the entrepreneur's risk propensity. On the other hand, we found that the risk the entrepreneurs perceived in the choice set also influenced choices, but only where the magnitude of the new venture's potential gain or loss varied. When viewed in total, our study and results suggest a risk- and reward-based typology of new venture opportunities, one that may provide a conceptual foundation for future explorations of a variety of questions relevant for entrepreneurs and theorists alike. |
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