Three Critical Assumptions of Theories of Entrepreneurship and Two
Internally Consistent Sets of These Assumptions
Discovery Theory Creation Theory
Nature of Opportunities Objective, exist Emerge as a function
independently of the process of of individuals searching for economic wealth
Nature of Entrepreneurs Entrepreneurs are Entrepreneurs may be
different than the same or different non-entrepreneurs than non-entrepreneurs Critical differences include Any differences reflect alertness the effect of search and are not the cause of search
Nature of Decision Making Risky Ambiguous or Uncertain
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Table Two. Definition of Risk, Ambiguity, and Uncertainty.
Possible Outcomes Probability of Outcomes
Risk Known or Knowable Known or Knowable
Ambiguity Known or Knowable Unknown
Uncertainty Unknown Unknown
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Table Three: Applying Discovery Theory and Creation Theory to Three Entrepreneurial Phenomena
Discovery Theory Creation Theory
Decision Making Entrepreneurs collect Entrepreneurs use
information about their biases and opportunities from heuristics and/or focus groups, government iterative learning to reports, etc. make decisions about which opportunities to They use this information pursue to calculate the present value of exploiting opportunities Focus groups, reports, and present value tools Cognitive biases and iterative can be used to evaluate a learning play a limited role particular opportunity but cannot be used to describe the entire search process
Business Planning Assumptions about the nature Assumptions about the
of opportunities may be nature of opportunities modified, but rarely may be abandoned several abandoned times
Numerous large changes Numerous large changes
in a business plan in a business plan suggests poor planning suggests good planning skills, e.g., the inability skills, e.g., flexibility, the to collect and analyze ability to learn, creativity. available data
Finance Outside sources of capital Self-funding, or funding
including banks and from people closely venture capital firms associated with a firm is preferred (bootstrapping) is preferred
Outside sources of Related sources of
capital invest in opportunities capital invest in they can understand entrepreneurs they trust
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