THE LESSON LEARNT FROM Alvarez & Barney. 2005. How do entrepreneurs organize firms under conditions of uncertainty?

In this paper, the authors separated the risk from uncertainty. This separations was treated as the criteria of deciding who is entrepreneur or non-entrepreneur. Under the conditions of uncertainty, entrepreneurs solve the problem of firms' decision rights and of residual claims so that they could organize a firm to facilitate the assembly and coordination of the resources needed to exploit a market opportunity (p. 777).

Even though managers or many people could use various ways to increase the certainty of the outcomes associated with making their decision, such as using the data on consumer preferences, "it will often the case that - even after all that can be done - the outcomes of decisions will often not be certain" (p. 778).

Thus, when exploiting a market opportunity, there often have two types: First, the risky investments. Furthermore, there were two conditions existed: (1) "when all possible future outcomes of exploiting that market opportunity are known at the time the decision is made; and (2) when the probability of each of these outcomes occurring is also known at the time a decision is made. The outcomes of these decisions are governed by well-defined probability distributions" (p. 778). Also, under these conditions, "as long as the discounted present value of the cash flows generated by making a risky investment in a market opportunity is positive, those seeking to maximize their economic wealth will have an incentive to make this investment" (p. 778).

Second, the uncertain investments. This is the situation where "the decision to invest in a market opportunity is uncertain when the possible outcomes of this decision and the probability of those outcomes are not known when a decision is made" (778). People are often so overconfident about themselves' anticipation to the result of decision that they underestimate the level of uncertainty in their environments.

All in all, when the outcomes of a decision are not certain, they are either risky or uncertain.

Under the conditions of uncertainty, the two currently dominate discussions of how firms are organized - that is, transactions cost economics and incomplete contract theory - could hardly work. In transactions cost economics, since there is a cost associated with using markets to govern certain economic exchanges, the hierarchical governance could address this issue by bringing a problematic exchange within the boundaries of a firm where a manager can monitor and control the behavior of all parties to that exchange. This process of reducing the treat of opportunism is known as "managerial fiat" (p. 780).

The reason why this hierarchy could work is based on the assumption that managerial fiat had sufficient information to manage an exchange in ways that are acceptable to all parties to that exchange. However, when the value of each party is unknown and the outcomes is unknown, such government to exploit opportunities might be ineffective.

In incomplete contract theory, it was suggested that "it is frequently not possible to write and enforce detailed and complete contracts to manage economic exchanges when those exchanges are initially conceived. In such settings, a firm emerges as an institutional framework where the rights to make specific decisions in an exchange are assigned to different parties to that exchange. The key decision rights are 'residual rights of control'" (p. 781).

However, when the information of who might benefit the most from an exchange is not known at the time when a firm is being organized under uncertainty, the people in the company cannot know who should control residual rights in that exchange.

To solve foregoing problem at the conditions of uncertainty, the authors argued several typologies:

First, Clan-based entrepreneurial firms. To make transaction-specific investments under uncertainty, the decision making in this firm would not be hierarchical, rather decision making would be more "democratic and consistent" with searching for a consensus among all those who have made specific investments in the firm. It should be emphasized that (1) the value of both productivity and value of an exchange may not be known, ex ante; and (2) an exchange only becomes possible if a clan already exists. People in clan-based entrepreneurial firms share all decision rights and residual claims, so that everyone is creating the value of firms and trusted by others. This process would bring decision-making leadership among all essential firm employees.

Second, Expert-based entrepreneurial firms. The decision of whether participating in the market opportunity exploitation is not dependent on the value pf people' opportunity, but on how they can use the assets they control in other economic settings. Thus, although the probability distribution of outcomes associated with making a specific investment may not be known, by examining the total value of the opportunity costs of parties to an exchange, it will be possible to identify who in an exchange has the strongest incentive to maximize the value of that exchange and who in an exchange should have the decision-making rights in that exchange (p. 785).

It should be emphasized that: (1) if the party have opportunity costs that are approximately equal in value, then these individuals will have difficult problems organizing a firm under uncertainty; and (2) the person with the most valuable opportunity costs should have decision-making rights of control in any firm that is organized - that is, they should be the "expert" in this expert-based entrepreneurial firm (p. 785).

Third, Charisma-based entrepreneurial firms. It is a sense that some individuals have of themselves of their vision of the future and of the inevitable success of their cause. Charismatic individuals can sometimes gather others around them in a form of hierarchical organization. In the extreme, the values, beliefs, and logic of subordinates are replaced by the vision of the charismatic leader. Thus, the firm will also be hierarchical.

In sum, basing on the distinction between risk and uncertainty, current transactions cost and incomplete contract theories apply quite well under conditions of risk; they must be extended and modified under conditions of uncertainty. Furthermore, these arguments help distinguish between entrepreneurial and non-entrepreneurial firms: entrepreneurial firms are organized under uncertainty, whose "primary purpose" is to solve transaction difficulties associated with the inability to know the value of an exchange at the time that exchange is commenced; non-entrepreneurial firms are organized under conditions of risk. The typology developed here showed that entrepreneurial firms could vary in some systematic ways.

Without these entrepreneurial firms, uncertainty is not likely to evolve into risk because there would be no coordinated resources brought together to try to exploit market opportunities. Without this initial coordination of resources, information about the probability distribution of outcomes associated with an exchange may not become known.

In the case where entrepreneurial firms could not transform themselves into non-entrepreneurial firms, the costs of renegotiating decision rights and residual claims may simply be too great to enable the exchanges around which a firm is organized to continue.

THE LESSON LEARNT FROM Busenitz. 1996. Research on entrepreneurial alertness

This is the re-test of Kaish & Gilad (1991)'s test of entrepreneurial alertness. While the gathering and interpreting of information is central to the entrepreneurial activity, "entrepreneurs are inclined to explore opportunities that are not obvious, and they identify these opportunities by linking different pieces of information in new ways" (p. 37).

Two hypotheses were tested: first, entrepreneurs exhibit more general alertness than do managers by spending more non-business time "searching" for opportunities and ideas (alertness); then, entrepreneurs are less likely than managers to rely on conventional economic analysis in appraising an opportunity and more likely to value their own subjective impressions (information cues).

All in all, Busenitz found that Kaish & Gilad tried to answer "How do entrepreneurs position themselves to encounter these opportunities?" and "When entrepreneurs look for new opportunities, what kind of information will get them interested immediately?"

THE LESSON LEARNT FROM Eckhardt & Shane. 2003. Opportunities and entrepreneurship

In this paper, authors reviewed the existing ideas about entrepreneurial opportunities. First of all they indicated several problems in the dominant theories in entrepreneurship. It was found that these theories "have sought to explain entrepreneurship as a function of types of people engaged in entrepreneurial activity and, as a result, have largely overlooked the role of opportunities" (p. 334). In particular, the authors demonstrated four "strict constrains" within equilibrium model of entrepreneur theory (p. 335).

Following Venkataraman (1997), they define entrepreneurship as the discovery, evaluation, and exploitation of future goods and services (p. 336). About entrepreneurial opportunities, they defined it as situations in which new goods, services, raw materials, markets and organizing methods can be introduced through the formation of new means, ends, or means-ends relationships. Entrepreneurs are different from non-entrepreneurs in that they created or identified the new ends and means previously undetected by market participants.

Towards entrepreneurial opportunities, they further argued why prices are incomplete indicators. First, it is because entrepreneurs had to believe the price of their resources would have value in the future rather than at a given point in time. "Prices fail to provide all of the necessary information to make all decisions about resources" (p. 337). Second, "in the absence of futures markets for goods and services, there is no way to use current prices to determine if there would be an opportunity to serve a market that is not yet in existence" (p. 337). The similar situation would repeat at the introduction of different innovations.

Thus, entrepreneurial profit and loss lies not in the information by the price change, but in the entrepreneurial conjecture as to the cause of that information. In these situations, individuals must make decisions based on information not incorporated in prices, and do so through mechanisms other than optimization. "Entrepreneurs bring new means-ends decision making frameworks into the price system by forming perceptions and beliefs about how to allocate resources better than they are currently allocated" (p. 338). And formulating a profitable conjecture about an opportunity is far from the trivial exercise of optimizing within existing means-ends frameworks since it requires forming expectations about the prices at which goods and services that do not yet exist will sell (p. 339). The individual must conjecture that a positive probability exists that the future price of the item will exceed its costs and that future demand will exist. Predicting such things with certainty is not possible, as it requires individuals to possess information that does not yet exist at the time of individual discovery. The only reliable confirmation that a previously unseen or unknown valuable opportunity does in fact exist occurs when a market has been created for the new item.

After the opportunity has been discovered, the entrepreneurial profit that opportunity generated is likely to be transient due to external and internal factors (e.g., competition). So, there needs to be certain mechanisms to make opportunity life longer (e.g., patent).

Entrepreneurial opportunities manifest themselves in a variety of different ways. First and foremost, they can occur as a result of changes in a variety of parts of the value chain. Opportunities also vary as to their resources: in prior research there are four important ways of categorizing opportunities by sources:

1. information asymmetry vs. exogenous shocks. Here, Kirzner and Schumpeter disagreed over where exogenous shocks of information are the primary catalyst of entrepreneurship.

2. the state of research on exogenous shift-based opportunities. There are usually several different types of exogenous shift exist - say, shifts in social demographics; the creation of new knowledge; and the shift in the properties of technology regimes (opportunity conditions, appropriability conditions, cumulative conditions, and the nature of the knowledge).

3. supply vs. demand side changes. "In general, the entrepreneurship literature implicitly focuses on supply side changes. [...] But changes in demand alone can generate opportunities. Customer preferences influence the allocation of resources because producers need to respond to the preferences and purchasing habits of customers" (p. 343).

4. productivity-enhancing vs. rent-seeking opportunities. As economics are made more efficient owing to the entrepreneurial activity, most researchers thought that entrepreneurship is productive entrepreneurship. However, it is also possible to think that entrepreneurial actions as private rent-seeking. It means that the opportunity generate personal value but no social value.

5. initiator of the change. Most studies focused on the technological opportunities which included two sets of actors: specialized knowledge creating agencies and firms within the industrial chain.

In the end, the authors emphasized that the study of opportunity-based perspective should use the tools like the longitudinal process studies, experiments, simulation models, and historical studies. This is because the dynamic processes that occur over time is crucial to the opportunity discovery.

THE LESSON LEARNT FROM Ronstadt. 1988. The corridor principle

"The Corridor Principle states that the mere act of starting a venture enables entrepreneurs to see other venture opportunities they could neither see nor take advantage of until they had started their initial venture" (p. 31).Previously, there is a single venture myopia among researchers and practitioners: it is assumed "a venture has a prestart-up period, a start-up phase, followed by poststart-up phase that may, or may not include the founding entrepreneur(s)" (p. 32) . Example of this linear model are Ken Olsen of DEC and Ray Kroc of McDonald's.

In former multiple venture research, Lamont (1972) mentioned that "Learning is a property of almost all business activity. Applied to technological entrepreneurship it means that experienced entrepreneurs exhibit substantial learning when they form a second technology based enterprise." So, the key point for this principle is that the knowledge and opportunities revealed most often after one gets into business (p. 34).

In this study, author abstracted data from 1537 respondents, and separated entrepreneurs into practicing entrepreneurs and ex-entrepreneurs. He found that (1) a positive relationship appears to exist between finding at least a second venture and realizing a longer entrepreneurial career; (2) significant shares of entrepreneurs are creating their second venture very early in their entrepreneurial careers; (3) relatively young career starts that are anticipated may allow future entrepreneurs to exploit the phenomenon of the Corridor Principle and enjoy longer lives as entrepreneurs; (4) many entrepreneurs are not visualizing their initial venture as a stepping stone to their second venture.

The reason why people from one entrepreneurial corridor to another may relate to: the need of the entrepreneur to do something new and different; the need to expand, or realize changing goals by starting a more promising venture; the need to bolster a declining initial venture by starting a second, third, etc. venture (p. 38).

THE LESSON LEARNT FROM Pavia. 1991. The early stage of new product development in entrepreneurial high-tech firms

The new product process is often divided into seven basic steps: new product strategy development, idea generation, screening, business analysis, development, testing, and commercialization. In this paper, the first three of these stages were argued. By making use of 118 high-tech manufacturing firms and software development firms, the author answered 4 questions: what are most valuable methods for identifying new products? what screening criteria did firms use? are idea generation and screening approaches associate with success? are the answers to these questions related to the educational background of decision makers?

When identifying potential new products, it was found that only about a third of the firms systematically gather potential new products ideas from customers (p. 23). Informal discussions and inter-departmental meetings are quite important activities for new product development. Similarly, although firms try to incorporate a discussion of new products in their annual strategic plans, only about a third of all the firms find this to be a very important activity; entrepreneurial high-tech firms still rely heavily on customer input for new product direction and utilize informal methods to identify new products. Firms that utilize informal identification methods may use either internal or external sources; but firms with formal methods would only use internal resources while rating annual strategic plan and market research as important parts (p. 25). With respect to screening, firms without formal procedures are more likely to use phrases like "ad hoc" and "gut feel" to describe their methods, and smaller number of them agreed that they use a consistent set of criteria for evaluation. The decision maker with business training has little effect on the aspects of idea generation but they may lead firms to rely more on short-term financial screening hurdles.

Finally, this study strongly suggests that the annual strategic plan has the potential for being an effective new product identification tool; and the information that would accrue through the use of environmental scanning and a database of potential new products. This is to say, the entrepreneurial high-tech firms with formal new product development process and plans are more favorable.

THE LESSON LEARNT FROM Ardichvili, A., et al. 2003. A theory of entrepreneurial opportunity identification and development

The entrepreneurial activity is not one time thing. The creation of successful businesses follows a successful opportunity development process which is cyclical and iterative (p. 106). In this paper, the authors discusses how entrepreneur's personality traits, social networks, and prior knowledge as antecedents of entrepreneurial alertness to business opportunity; and entrepreneurial alertness is the condition for the success of the opportunity identification triad: recognition, development, and evaluation.

What is opportunity? It appears as an "imprecisely-defined market need" or so-called value thought, or "un- or under-employed resources or capabilities" or so-called value creation capability (p. 108). The latter may include basic technologies, inventions, or ideas for products and services.

As this opportunity progresses from its elemental form and a business concept begins to emerge, the core notions of how the market need might be served or the resources deployed will be contained. And, as this more precise and differentiated business concept matures, it grows into a business model, which juxtaposes market needs and resources. A complete business model will also include a financial model. Finally, as an opportunity develops into its most elaborated form, the business concept will ultimately metamorphose into a full business plan.

What is opportunity development and recognition? They include perception, discovery, and creation - not simply "recognition." Business concept creation involves redirecting or recombining sources in order to create and deliver value superior to that currently available.

What is opportunity evaluation? Opportunities are evaluated at each stage of their development, although the evaluation might be informal or even unarticulated. If a business concept has yet to be developed, a feasibility analysis can specify it; or the "stage-gate" procedure can explicitly call for evaluation at each of several levels of development. As the result, the number of opportunity perceived will greatly exceed the number of successful businesses formed.

There are six major factors influencing this opportunity development process. First, entrepreneurial alertness or awareness, which might be high or low (p. 114); Second, information asymmetry and prior knowledge, which included two domain (special interest and industry knowledge); Third, accidental discovery versus systematic search, where accidental discovery may result from heightened entrepreneurial alertness while the entrepreneur is in a mode of "passive search" (p. 115); Fourth, social networks where casual acquaintance is more likely to provide unique information than are close friends because most people have more weak ties; Fifth, personality traits (optimism and creativity); Sixth, types of opportunities including four types which accord to different level of value sought and value creation capability (p. 117).

This theory was expected to hold in the domain of new business creation and development, both as independent businesses and as new businesses created within existing corporations.

THE LESSON LEARNT FROM Parker, S. C. 2005. The economics of entrepreneurship: What we know and what we don't

"Economics brings a large set of versatile and powerful theories and methods to the study of entrepreneurship. They are usually but not always quantitative, are often based on models of optimizing behavior under uncertainty, and utilize empirical approaches founded on the econometric analysis of large and representative data samples" (pp. 2-3). Also, "it seems fair to acknowledge that the economics approach focuses on a few aspects of entrepreneurship rather than the totality of this complex phenomenon" (p. 4).

There are many building blocks for thinking the research questions that have been raised by economics of entrepreneurship:

(1) occupational choice under uncertainty, (2) credit rationing that have shaped the understanding of small business lending as well as the potential role of governments to intervene in credit markets to assist entrepreneurial start-ups, (3) innovation.

In innovation, there are two theoretical models have been particularly influential (p. 12). One is that entrepreneurs learn from a series of stochastic draws that come in from the market. Based on constantly arriving new information, entrepreneurs adjust their beliefs and their market strategies (Jovanovis, 1982). Second, it is the product life cycle and the evolution of industries in which different types of innovation are performed at different stages of firm maturity (Klepper, 1996).

Following Schumpeter's insights on innovation and entrepreneurship, literature on "patent races" has emerged that pits established firms against each other in the drive to discover new innovations that yield monopoly profits. Also, growth is enhanced through individual entrepreneurs exploiting knowledge by creating new ventures even though they are not contributing to the production of knowledge (p. 13).

The above argument provided the theoretical models, whereas in the following the canonical empirical models would be summarized.

Economics distrust individuals' declared intentions and forces them to undertake the harder but more objective task of inferring their preferences from their actual behavior. Or, economics often apply advanced and innovative statistical techniques to overcome thorny empirical problems., like sample selection bias, unobserved heterogeneity, endogeneity, and non-stationarity.

In particular, there are models: (1) discrete choice models to analyze people's participation and survival in entrepreneurship, (2) sample selection models to analyze entrepreneur's profit, (3) hazard models to analyze how long people will remain in entrepreneurship and survive in the market, (4) cointegration estimators for time series entrepreneurship data to analyze how multiple aggregate variables covary over time, (5) decomposition techniques to analyze how entrepreneurial outcomes differed between socio-economic groups, and (6) earnings functions to analyze how schooling and other human capitals influence the earnings of entrepreneurs.