I’m glad you asked. This simple question has sparked many discussions for decades. Should entrepreneurship be a discipline of its own? Is it only about new ventures? If yes, would that mean that larger organizations couldn’t be entrepreneurial? And if larger organization can be entrepreneurial, why should entrepreneurship be a discipline of its own? If that is the case, then entrepreneurship should be a part of strategy management or organizations science. After decades of discussions, Shane and Venkataraman (2000: p. 218) suggest the following definition, which in the meantime has become highly influential, for the scholarly field:

“[T]he scholarly examination of how, by whom, and with what effects opportunities to create future goods and services are discovered, evaluated, and exploited.” (emphasis: A.R.)

Opportunities … this is what makes the scholarly field of entrepreneurship distinct from its neighboring fields. In a nutshell, entrepreneurship is thus about the discovery (1), evaluation (2) and exploitation (3) of opportunities. Finally. Phew!

But wait! Are opportunities always discovered? Or is that they are created? You might think this is some useless academic debate – but hold on to your hat – grasping the difference can be important for your entrepreneurial journey and which paths you should take. So bear with me for a moment.

Alvarez and Barney (2007: 13) explain that the concept of opportunity discovery assumes that “[o]portunities exist, independent of entrepreneurs”. In other words, opportunities have an objective essence – such as the Mount Everest, for example, does. Being the first person to climb (exploit) the Mount Everest (opportunity) fits in the discovery approach. So, the first step is to be an alert entrepreneurs (Kirzner, 1973) and actually see opportunities to climb that mountain. Being alert and seeing opportunities due to exogenous shocks (e. g. political or technological shifts). Thus, alert entrepreneurs search for opportunities that are out there. A further key concept that plays a crucial role in the opportunity discovery approach is the concept of risk. A decision is risky, when decision makers can define different possible outcomes and calculate the probability of each outcome (through information gathering).

The concept of opportunity creation does not assume that opportunities exist objectively. However, that is not to say that nothing is real and there’s nothing to get hung about. But rather, that entrepreneurs develop opportunities through their actions. As Alvarez and Barney (2007) put it, in this context, a mountain is built – not discovered. Searching for opportunities is irrelevant here as each (would-be) entrepreneur travels his own subjective path through action and experience and somehow stumbles upon very specific opportunities that suit her or him. As Alvarez and Barney (2007: 14) sum it up, the concept of opportunity creation assumes “[o]portunities do not exist, independent of entrepreneurs”. Bear in mind that risk is substituted with uncertainty. Uncertainty is the crazy brother of risk. As opposed to risky decisions, it’s impossible to gather information for predicting the probability of future outcomes. Therefore highly sophisticated strategic and financial planning is seen as over-engineering.

Now let’s talk about discovery and creation in practice. The concept of Start-up Weekend serves as a good example. At Start-up Weekends people pitch a rough idea in 60 seconds in front of an audience of around 100 people. The best ideas are democratically chosen (ca. 12-13). After the voting process, people team up and work on their favorite idea for the weekend. You should definitely have this experience under your belt – it’s fun. It’s even more fun, if you play with the concepts of discovery and creation of opportunities. You often sense if the pitcher were deliberately searching for an idea before pitching or if she or he has stumbled upon an idea because of her or his actions and thought: “This is not how x should work. There must be a better way”.

In the internet/software world it’s probably easier to create opportunities than being preoccupied with the search for opportunity discovery. The latter “opportunities” often end up being what Paul Graham calls sitcom or made-up ideas. Bear in mind, that in practice most ideas are a mix of the two. But understanding the different concepts of opportunities can help you understand much more why you follow a specific opportunity. If you have questions or other comments, shoot! I know this is a bit hard to grasp in the beginning. :)

In the next post, I’m going to describe how I came in touch with my very own opportunity.

References:
Alvarez, S. & Barney, J. 2007. Discovery and Creation: Alternative Theories of Entrepreneurial Action. Strategic Entrepreneurship Journal, 1: 11–26.

Kirzner, I. 1973. Competition and Entrepreneurship. Chicago: University of Chicago Press.

Shane, S. & Venkataraman, S. 2000. The Promise of Entrepreneurship as a Field of Research. Academy of Management Review, 25: 217–236.

Image credit: clappstar on Flickr