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Opportunity and Explanation

Tuesday 08 July 2014

The paragraphs below represent the introduction and conclusions of a paper to be fully elaborated: the relationship between “opportunity” as it is invoked in entrepreneurship research and “explanation” as it is conceived in the philosophy of science. This is an exercise based upon Thomas Basbøll’s methods as a writing coach, wherein each paragraph is meant to contain one supported claim, to be constructed over 27 minutes. The six paragraphs that follow were constructed over 2 hours and 35 minutes.

 

§ 1. The World

The field of entrepreneurship is relatively young within the broad domain of organization and management studies. As such, scholars in the field spend a great deal of time with the self-conscious processes of legitimation: definition, codification, consensus-seeking, and territory-claiming. In part, this is because the conceptual roots of entrepreneurship research are planted in economics, sociology and psychology, as well as the other sub-fields of management: finance, strategy, organizational behavior, and marketing. Another source of the legitimation crusade is that entrepreneurship became important in business schools because of the demands for practical training for entrepreneurs-in-waiting and by stakeholders for describing the phenomena of business founding, innovation, venture planning, and noncorporate behavior in some coherent manner. Fields of study where theory lags practice are self-conscious. So it was with strategic management. So it is with entrepreneurship.

§ 2. The Science

In little more than a decade, the ontology of entrepreneurship research has fastened to the construct of the opportunity, much as a colony of mussels cling to a derelict dock piling. As Short, Ketchen, Shook, and Ireland write in their 2010 review article on this construct, ““Indeed, opportunities are one of the key concepts that define the boundary and exchange conditions of the entrepreneurship field” (p. 41). In a workshop at the 2013 Academy of Management, Jay Barney pronounced the opportunity to be the sine qua non of entrepreneurship research. As an editor of the Strategic Entrepreneurship Journal, he sees the construct invoked often in current research manuscripts. One can point to Shane and Venkataraman (2000) as the seminal piece in the ontological process – the first mussel spat. The subsequent elaboration of the opportunity as a construct distinct from the human qua entrepreneur that exploits the opportunity is the core of current entrepreneurship research.

§ 3. My Thesis

This paper critically examines the construct of the entrepreneurial opportunity for its value in explanation. What does the opportunity do as explanandum and explanans? I will use an historical perspective, in part, to answer this question. For the long period of time beginning with Cantillon (1755) and ending (more or less) with Schumpeter (1911, 1934, 1942) and Kirzner (1973, 1979, 1997), entrepreneurship was the explanans for some phenomenon of interest: sectoral growth, the functional distribution of income and wealth, market dynamics, or the creation of non-land wealth. The young Schumpeter created an idealtypus entrepreneur as an explanans to the phenomenon of innovation, but later abandoned this project by retreating to entrepreneurship qua innovation as an economic function to explain economic evolution. We do not see much work on entrepreneurship as explanandum until the 1960s, when the investigations into personal attributes of entrepreneurs began with McClelland (1961). Now, it appears that the opportunity is being used as explanandum (where does it come from?) and explanans (how does it explain new venture formation?) I will argue that its value in explaining entrepreneurship is limited and therefor is of limited interest as an explanandum.

§ 4. The Roadmap

The paper has four sections. First, I will present a brief history of entrepreneurial thought to locate entrepreneurship as explanandum and to highlight the various forms of the entrepreneurial function that have been used as explanation. Then I will review the lack of consensus on the definition of the opportunity construct and how that will affect its value in scientific explanation. The third section reviews the very recent literature on whether opportunities (as explananda) are inherently objective or subjective. From the perspective of scientific explanation of entrepreneurship, one might regard this issue as a red herring. A thorough investigation of the literature reveals it to be more like the Fish-Slapping Dance, if I might be excused for extending the metaphor. The fourth section makes the case that the separation of opportunities into the categories of Schumpeterian (creation) and Kirznerian (discovery), which is an extension of the objective/subjective categorization, unfairly and incorrectly reifies the economic functions proposed by Schumpeter and Kirzner. Thus, it closes the argument by returning to the historical perspective.

§ 39. The Claim

We have examined the construct of the opportunity as a component in scientific explanation. Where does it contribute as explanans to an argument about entrepreneurial outcomes? If the outcome is at the macro-level, such as sectoral growth or the functional distribution of income, then one can argue that opportunities can pre-condition the payoffs if and only if the opportunities are concrete and observable. To the extent that one maintains that opportunities are subjective, then there is no way to aggregate subjective beliefs and conjectures into any explanation of macro- outcomes. If the outcomes are seen at the micro-level, then what is the payoff from knowing the specific beliefs or conjectures of an entrepreneur or entrepreneurial team? And if the opportunity is objective and available to multitudes, it explains almost nothing about individual ventures and their profitability. Such micro- explanations have limited value in entrepreneurship research for generalization, for modeling, and for theory-building.  Given the limitations of the explanatory power of the opportunity, there is no compelling reason to study it as explanandum. And with the current status on the construct as ill-defined, subject to debate over whether it is objectively or subjectively known, it holds no more value in scientific explanation than the vernacular term.

§ 40. Whither Next?

If entrepreneurship is to develop as a research field and  fulfill Shane and Venkataraman’s (2000) “promise”, then scholars must get past the sloppy language of opportunities. Constructs must be confirmed in empirical research so that the shared understanding will exist. Endless theorizing about the existence and nature of constructs, based upon appeals to prior (and unconfirmed) definitions will not advance the field. Care must be taken to develop constructs with respect to their value in explanation. What is to be explained? Is it a micro- or macro-phenomenon? Consider the alternative constructs that preceded the invocation of the opportunity: the functions of risk and uncertainty bearing, arbitrage, innovation of production processes, opening new markets, coordination of the enterprise. These are well codified and we can explain economic outcomes (new revenue streams, profits, and employment) by them. For much of the research agenda in the field of entrepreneurship, this is sufficient.

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