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6
Entrepreneurs as Organizational
Products Revisited
Pino G. Audia
Christopher I. Rider
Macro studies of entrepreneurship emphasize how environmental condi-
tions—social, economic,andpolitical—facilitatethe creation of new orga-
nizations. Examples include how periods of political turbulence create
favorable conditions for the emergence of new organizations (e.g.,
Delacroix & Carroll, 1983), how market concentration driven by the
movement of generalist organizations favors the emergence of specialist
organizations (e.g., Carroll, Dobrev, & Swaminathan, 2002), and how dis
-
solutions of organizations influence the emergence of new ones (e.g.,
Delacroix & Carroll, 1983). Because individuals rather than local condi
-
tions actually create organizations, this perspective is often criticized for
lacking a theory of agency (e.g., Shane, Locke, & Collins, 2003; Thornton,
1999). However, in recent years, a strand of macro research has emerged
that promises to address, at least in part, this problem and offers stronger
links to micro researchonentrepreneurship. This body of work focuses on
organizations as key components of the environment and proposes that
organizations are social contexts within which individuals acquire many
of the critical psychological and social resources necessary to create new
organizations (e.g. Aldrich & Wiedenmayer, 1993; Freeman, 1986;
Romanelli, 1989; Sorenson & Audia, 2000). To use Freeman’s (1986) felici
-
tous expression, the key idea underlying this line of work is that entrepre
-
neurs often are organizational products.
The origins of this idea can be traced in the organizational literature to
Stinchcombe’s (1965) seminal piece on social structure and organizations,
113
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Cooper’s (1973, 1985) work on high-technology firms, and Brittain and
Freeman’s (1980, 1986) research on organizational life cycles, and in eco
-
nomics the origins can be traced to Jacobs’s (1969) study of the economy of
cities and Beesley’s (1955) analysis of entrepreneurs in England’s West
Midlands region. Nonetheless, it is only recently that a body of theoretical
and empirical work has begun to accumulate (e.g., Dobrev & Barnett, 2005;
Gompers, Lerner, & Scharfstein, 2005; Shane & Kurana, 2003; Sorenson &
Audia, 2000). This chapter reviews the progressmade in this line ofinquiry.
We begin by delineating the micro processes linking organizational con
-
texts to individuals’ motivations and abilities to create new organizations.
We then review empirical evidence supporting the view of entrepreneurs
as organizational products. We conclude by identifying gaps between the
theory and the empirical evidence and by highlighting directions for future
research.
THEORY
The notion of entrepreneurs as organizational products is that, in compari-
sons between otherwise similar people,those employed by existing organi-
zations are more likely to become entrepreneurs. Organizational contexts
increase the probability that individuals may start a new organization in
threerelatedways. First, organizations createopportunities for individuals
to build confidence in their ability to create new organizations (Sorenson &
Audia, 2000). Second, organizational contexts provide varying access to
broad industry knowledge and fine-grained information about entrepre-
neurial opportunities, neither of which is readily available to outsiders
(Freeman, 1986; Romanelli, 1989). Third, organizations help individuals
form social networks that facilitate resource mobilization (Freeman, 1986;
Aldrich & Zimmer, 1986).
Confidence
Confidence in “judgment and disposition” is essential to performing the
entrepreneurial function (Knight, 1964, p. 268). Creating a new organiza
-
tion is a time-consuming, complex process that discourages many individ
-
uals from trying and also causes many motivated individuals who do try to
give up after they start. New organizations usually start small, and small
companies suffer from liabilities of smallness (Freeman, Carroll, &
Hannan, 1983) and high rates of abandonment (Aldrich & Auster, 1986).
The difficulties inherent in creating a new organization render confidence,
one’s belief in the ability to perform a task (Bandura, 1986), a critical differ
-
entiating factor between persons who start a business and those who do
not. The reason is that confidence provides individuals withthe psycholog
-
114 AUDIA AND RIDER
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ical strength necessary not only to initiate activities preceding organiza
-
tional creation but also to persist in the face of obstacles and uncertainty.
Empirical evidence that confidence is a critical factor in organizational cre
-
ation comes from several studies. Cooper, Woo, and Dunkelberg (1988)
found that 95% of entrepreneurs surveyed perceived their own business’s
chances of success to be better than or equal to the chances of any similar
business. In a laboratory study, Camererand Lovallo (1999) found evidence
of excess market entry—entry into crowded markets that offered slim suc
-
cess chances—ostensibly instigated by individuals who held biased (e.g.,
overconfident) assessments of their competitive abilities. Additionally,
Markman, Balkin, and Baron (2001) found confidence to be a strong predic
-
tor of whether or not patent holders chose to start a new venture or to li
-
cense their invention.
How do individuals develop confidence in their ability to create new or
-
ganizations? Bandura’s (1986, 1994) social cognitive theory suggests that the
social context plays a critical role in fostering or hindering the development
of confidence and implies that organizations may increase individuals’ con-
fidence through mastery and vicarious experiences (Sorenson & Audia,
2000). Individuals accumulate mastery experiences through success on tasks
important to organizational functioning, thereby building coping skills and
forming a belief in their abilities to exercise control in the face of potential
threats (Bandura, 1994). As individuals achieve success on organizational
tasks, especially tasks similar to those performed in the role of entrepreneur,
confidence rises. For example, drawing upon past success at Apple, Steve
Jobs founded NeXT in 1988 with confidence that the NeXT computer would
“change the world of computing” (Barker, 2000). When questioned on the
delayed launch date of his product, Jobs is said to have responded, “Late?
This computer is five years ahead of its time” (Barker, 2000). Such self-confi
-
dence in the face of obstacles like a delayed product launch may be attrib
-
uted, at least partially, to Jobs’s mastery experiences at Apple and Atari.
Vicarious experiences, on the other hand, occur as individuals observe so
-
cial models that they perceive as similar (i.e., their organizational peers)
succeeding through sustained effort (Bandura, 1986). Successful individu
-
als serve as proficient models and transmit knowledge, vicariously, to other
employees. Exposure to successful entrepreneurs of similar social and oc
-
cupational backgrounds may stimulate individuals to entertain notions of
also becoming entrepreneurs. For example, Saxenian (1994, p. 19) quotes a
founder of a minicomputer firm: “Those guys [entrepreneurs] were just
like you and me. There was nothing unique or special about them. I figured
if they can do it, why can’t I?” In short, the role of organizations in enhanc
-
ing employees’ confidence is critical in preparing individuals for entrepre
-
neurship. These opportunities to build confidence are less available to
those not employed by organizations.
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Information About Entrepreneurial Opportunities
The motivation to create a new organization is strengthened not only by
an individual’s confidence in his or her abilities to succeed but also by ac
-
cess to information about entrepreneurial opportunities (Burt, 1992;
Kirzner, 1973; Shane, 2000; Stinchcombe, 1965; Venkataraman, 1997). In
micro terms, Vroom’s (1964) expectancy theory suggests that specific and
timely information about entrepreneurial opportunities might increase
an individual’s expectation that entrepreneurial effort will lead to entre
-
preneurial rewards, thereby increasing entrepreneurial motivation.
Much of this information originates within existing organizations and is
not easily available to outsiders (Freeman, 1986; Romanelli, 1989). Conse
-
quently, individuals employed by organizations in a particular industry
will have greater access to this information than individuals located else
-
where in the social structure. For example, as vice-president of engineer
-
ing at Grid Systems, JeffHawkins met frequently with Grid’s customers—
vending machine route salespeople—who used Grid’s devices to record
sales data on-site. These customers expressed an interest in similar de-
vices for personal use (Brush, Greene, & Hart, 2001). Shortly thereafter,
Hawkins founded Palm Computing to commercialize just such a device.
As Romanelli (1989) notes and as this example illustrates, organizational
contexts filter information on markets, technologies, and resources to
employees.
Individuals employed by existing organizations enjoy an additional ad-
vantage. Recognizing an opportunity requires knowledge of the business,
and such knowledge is often acquired through work experience
(Venkataraman, 1997) and the repetitive activities of employment. For ex
-
ample, customers may express their frustration regarding the functionality
of existing products(e.g., VonHippel, 1986), but only individuals who have
in-depth knowledge of the business may view this information as indica
-
tive of an entrepreneurial opportunity. Shane (2000), in a field study of
eight business opportunities conceived to exploit a patented MIT inven
-
tion, found that knowledge of specific businesses gleaned from prior em
-
ployment and education conditioned individuals’ abilities to envision uses
for the invention. This is because individuals obtain blueprints (Hannan &
Freeman, 1977) or mental models (Burton, 2001; Schoonhoven & Romanelli,
2001) fromtheir employing organizationsrelatedto appropriate and, often,
inappropriate ways of organizing and conducting business. Individual ca
-
reer trajectories, then, constrain the activities and processes that compose
individuals’ body of knowledge (Shane & Khurana, 2003; Sorenson &
Audia, 2000). Possession of this knowledge increases individuals’ abilities
to recognize entrepreneurial opportunities and, as a result, increases the
probability that those individuals will create a new organization.
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Empirical studies support the contentionthat knowledge of opportunity
is often obtained via employers. Astudy of 201 firms with at least eight em
-
ployees found that 58% of the ventures’ founders listed the source of their
business idea as a “prior job” (Cooper, Woo, & Dunkelberg, 1989). Simi
-
larly, a survey of 100 founders of the 1989 Inc. 500 fastest growing compa
-
nies found that 71% of the founders sampled “replicated or modified an
idea encountered through previous employment” (Bhide, 1994, 2000). In
addition, Klepper and Sleeper’s (2000) study of 465 producers in the U.S.
commercial laser industry indicates that entrepreneurs in that industry
tended to draw on highly specific information from parent organizations.
In summary, information about entrepreneurial opportunities strengthens
the motivation to create a new organization, and this information is more
easily available and more easily recognized by individuals employed by
existing organizations.
Social Ties to Resource Providers
Information on entrepreneurial opportunity is typically accessed via social
ties formed through employment and is most useful when knowledge of
the opportunity is specific and timely (Burt, 1992; Granovetter, 1974). By
providing access to information, cohesive social ties are instrumental in
providing the psychological resources (i.e., motivation) necessary for new
venture creation. However, the creation of a new organization is not condi-
tioned solely by confidence and information about entrepreneurial oppor-
tunity; entrepreneurs must also bring their idea to market (Schumpeter,
1934). To that end, entrepreneurs rely on social relationships not only for
gaining access to information on entrepreneurial opportunities, but also for
mobilizing resources to build new organizations (Aldrich & Zimmer, 1986;
Burt 1992; Freeman, 1986). Especially critical are social ties to people who
are well connected within the particular industry into which the potential
entrepreneur intends to enter. These ties provide access to information that
increases the probability of knowing how to pitch the venture in a way that
is appealing to potential customers, suppliers, and other resource provid
-
ers, as well as the probability of identifying the most appealing individuals
to pitch. Such ties also provide a basis for referrals to customers, suppliers,
and potential employees, who are more likely to back the new organization
if the reliability of the potential entrepreneur can be substantiated by
trusted informants. Finally, network ties, based on the trust that arises from
long-term relationships, can buffer the potential entrepreneur from oppor
-
tunistic behavior and make it possible for him or her to count on the sup
-
port of resource providers in challenging situations.
Established organizations provide a social context that allows would-be
entrepreneurs to develop the social ties critical to the creation of a new ven
-
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ture because of the relationship between physical proximity, interaction,
and friendship (e.g., Festinger, Schachter, & Back, 1950). Regular interac
-
tions with colleagues, customers, and suppliers enable would-be entrepre
-
neurs to develop social relationships in the course of everyday
employment. Resource providers are generally reluctant to back strangers.
However, the intertwined social and economic aspects of the relationships
established during prior employment motivate parties to act fairly, to trust
one another, and to respect a general sense of obligation in the exchange
(Granovetter, 1985; Gulati, 1995). Other social ties link the potential entre
-
preneur to key resource providers through third parties who have strong
ties to both. These so-called weak ties (Granovetter, 1973) help potential en
-
trepreneurs overcome resource provider reluctance by facilitating the flow
of reputational information that mitigates the uncertainty inherent in the
new venture.
The empirical evidence supports the importance of social ties in the en
-
trepreneurial process. Ruef, Aldrich, and Carter (2003) analyzed multi-in
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dustry data from the Panel Study of Entrepreneurial Dynamics (PSED) and
found that trust and familiarity are more critical to founding team composi-
tion than are complementary skill sets. The importance of trust, familiarity,
and cohesion of founding teams was also noted in a study of semiconduc-
tor companies that found that prior joint work experience of top manage-
ment teams contributes to higher growth in new ventures (Eisenhardt &
Schoonhoven, 1990). The empirical evidence shows that, in addition to le-
veraging networks to attract employees, nascent entrepreneurs rely on net-
work ties to attract financing. For example, venture capitalists rely on
information from network contacts in deciding which startup companies to
fund and in monitoring pursued investments (Florida & Kenney, 1988;
Freeman, 1999). In a sample of 202 seed-stage investors, Shane and Cable
(2002) found that both direct and indirect ties between entrepreneurs and
investors positively influenced investors’ decisions about which ventures
to finance. Finding that entrepreneurs’ reputations mediate the effects of
both types of ties, the authors concluded that network ties function primar
-
ily as a mechanism for information transfer. In addition, Sorenson and Stu
-
art’s (2001) findings of geographic concentration in venture capital (VC)
investing also support the importance of social ties in sourcing and moni
-
toring investments. Organizational contexts, then, provide opportunities
for employees to form social ties to the critical resource providers, who
enable nascent entrepreneurs to pursue entrepreneurial opportunities.
EMPIRICAL EVIDENCE
Three distinct bodies of work support the notion of entrepreneurs as orga
-
nizational products:(1) careerhistory studies that focus on individuals’ expe
-
118 AUDIA AND RIDER
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riences prior to entrepreneurship; (2) spatial distribution studies that focus on
the location of entrepreneurial activity; and (3) differential fertility studies
that explore whether certain organizations are more conducive to generat
-
ing new entrepreneurs than others. Next, we review representative studies
within each stream of research.
Career History Studies
Careerhistory studies share a focus on the educational and professional ex
-
periences of entrepreneurs prior to formation of a new organization. The
key finding is that a large proportion of founders of new organizations
come from the ranks of preexisting organizations operating in similar busi
-
nesses. Cooper found that 70% of 890 founders from a cross section of in
-
dustries started businesses closely related to their prior employment and
that 85% of 250 technicalentrepreneurs did the same (Cooper, 1970; Cooper
& Dunkelberg, 1981). In a subsequent study of 161 new firms, Cooper
(1985) found that in most technical industries entrepreneurs started busi-
nesses related to their previous employment. For example, 78% of 46
founders of electronics and computer ventures had previous employment
in electronics and computer industries.
Other studies examine how organizations promote regional develop-
ment by expanding the pool of potential entrepreneurs. For example, in a
longitudinal study of 73 business and researchorganizations,Mitton (1990)
analyzed the patterns of proliferation and growth in the San Diego area
biotech industry. This study found that the founders of 13 spin-off compa-
nies were previously employed by Hybritech, while a sizeable number of
other companies were created by individuals linked to local research insti
-
tutions (e.g., Scripps and UCSD) and other local biotech firms. Neck et al.
(2004), using surveys and semistructured interviews in a study of the Boul
-
der County, Colorado, region, traced the roots of local high-tech spin-off
organizations to seven primary incubator organizations.
Additional career history studies examine the role of prior experience in
conditioning an individual’s ability to recognize and exploit entrepreneur
-
ial opportunities. For example, in a study of all 1,397 U.S. patents assigned
to MIT from 1980 to 1996, Shane and Khurana (2003) estimated the effectsof
inventors’ career experiences on the likelihood that an invention would
lead to commercialization via the founding of a new organization. For 363
founding events, the authors found that valuable information acquired
over the course of one’s career influenced the motivations of individuals to
found new organizations as well as the motivations of resource providers
to support the new organizations. The impact of career histories was found
to be substantial even when controlling for factors related to the industry
and the technology.
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Other career history studies observe the effects of management teams’
joint work experience. For example, a study by Eisenhardtand Schoonhoven
(1990) examined 102 new entrants in the semiconductor industry between
1978 and 1985 and found thatmanagementteams with prior joint work expe
-
rience achieved greatersales growth. The authors attributed their findings to
the notion that these strong teams “appeared to move more quickly, get more
done, and make fewer mistakes than other teams” (Eisenhardt &
Schoonhoven, 1990, p. 525). Additionally, Higgins and Gulati (2003) ana
-
lyzed the career histories of over 3,000 top management teams from 1961 to
1994 and found that the executives’ prior employment relationships were
crucial in gaining the endorsement of the investment banks that underwrite
initial public offerings (IPOs). In a separate study, Higgins (2005) found that
in 23% of the biotech firms that went public in the period 1979–1996, at least
one member of the IPO team had previous employment at Baxter, a promi
-
nent biotech firm. In the biotech industry, Baxter gained a prominent reputa
-
tion for producing entrepreneurs (Higgins, 2005), as former Baxter
employees were management team members of 29 venture-backed startups
from 1986 to 1999 (Gompers, Lerner, & Scharfstein, 2005). Higgins refers to
career imprinting as the process by which certain organizations such as Baxter
can cultivate employees’ capabilities, connections, and confidence to pursue
emerging industry opportunities.
Other research in this vein examines the development of industries and
market niches. For example, Rindova and Fombrun (2001, pp. 244–245) ex-
amined the emergence of the specialty coffee industry and described how
the founders of Starbucks Coffee Company, Coffee Connection, and other
key firms learned from Alfred Peet (founder of Peet’s Coffee and Tea Com-
pany) how to select, define, roast, and distinguish specialty coffees from
mainstream coffee. Additionally, several studies of the hard-disk-drive in
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dustry (e.g., Agarwal et al., 2004; Christensen & Bower, 1996; Franco &
Filson, 2000) document the high degree of intraindustry mobility of em
-
ployees from existing to new firms. This pattern of entry by firms started by
ex-employees of preexisting firms was accompanied by repeated introduc
-
tions of disruptive innovations (Christensen, 1993; Christensen & Bower,
1996) that created new market niches such as the specialty coffee niche doc
-
umented by Rindova and Fombrun (2001). Career history studies like
these, and those discussed earlier, highlight the role that existing organiza
-
tions play in exposing individuals, via professional experiences, to the con
-
fidence-building tasks, information on entrepreneurial opportunities, and
social contacts that often lead to the production of entrepreneurs. In the
process, industries are shaped and transformed. The available evidence,
though, is not limited to studies tracing the work histories of founders.
Macro-level studies also provide strong evidence for the role of existing
organizations in ongoing entrepreneurial activity.
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Spatial Distribution Studies
Spatial distribution studies demonstrate geographical areas that have a
greater number of organizations of a certain kind tend to generate a greater
number of new firms of that same kind. Researchers explain this spatial re
-
lationship by noting that existing organizations expand the pool of poten
-
tial entrepreneurs available in a locale by employing individuals in
organizational roles conducive to acquiring information about entrepre
-
neurial opportunities and to developing the social contacts necessary for
resource mobilization. Because entrepreneurs rely on supportive social
structures in creating new organizations (Stinchcombe, 1965) and because
those individuals tend to develop social networks that are geographically
localized (Festinger, Schacter, & Back, 1950), they are more likely to start
new organizations in close proximity to their homes and their current orga
-
nizations of employment (e.g., Cooper & Dunkelberg, 1987; Johnson &
Cathcart, 1979; Katona & Morgan, 1952; Mueller & Morgan, 1962). For ex
-
ample, a study of Portuguese manufacturing plants found a significant
home bias—the tendency to locate new organizations in the founders’ region
of residence—such that Portuguese entrepreneurs were willing to accept
labor costs three times higher than in alternative locations to locate the new
businesses in their current geographic areas (Figueiredo, Guimaraes, &
Woodward, 2002). This geographical inertia is typically attributed to the
presumably high costs, both social and financial, faced by entrepreneurs
who relocate in pursuit of entrepreneurial opportunity; such entrepreneurs
must simultaneously form new social ties and a new organization. For
many organizational researchers, then, the constraints that space poses on
individuals’ positions within the social structure coupled with the role of
existing organizations in preparing individuals for entrepreneurship jus
-
tify an empirical focus on the role that the spatial distribution of organiza
-
tions plays in promoting entrepreneurial activity.
Sorenson and Audia (2000) examined the constraints that the existing
spatial distribution of production poses on entrepreneurial activity in the
U.S. footwear industry from 1940 to 1989. Their analyses of the founding
rate of shoe manufacturers by state showed that greaterlocal density (num
-
ber of plants in the state) substantially increased the rate of founding
events. Sorenson and Audia argued that the current geographic distribu
-
tion of production places important constraints on entrepreneurial activity
because nascent entrepreneurs need existing organizations to build confi
-
dence, acquire knowledge of the business, and establish social ties. Stuart
and Sorenson (2003a) replicated this finding in another industry (biotech)
and at a finer geographic unit of analysis (ZIP code). The authors analyzed
644 biotech firm founding events over the period 1978–1995 to investigate
potential explanations for spatial heterogeneity in firm founding rates.
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Their analyses demonstrate that new biotech firms were more likely to be
founded when proximity to other biotech firms, venture capital firms, and
research universities was greater.
Cattani, Pennings, and Wenzel (2003) found additional evidence that the
local density of organizations increases the emergence of new organiza
-
tions of the same kind in a study of Dutch accounting firms from 1880 to
1986. They argued that founding rates were spatially constrained by exist
-
ing subpopulations because new organizations relied on existing organiza
-
tions (and the knowledge and social ties those organizations offer
individuals) for cognitive legitimacy (Aldrich & Fiol, 1994), which is the so
-
cial recognition of the new organizations’ existence. However, they also
found that interregional movement of individuals provided an important
vehicle for the diffusion of organizational forms fromoneregionto another.
Collectively, these spatial distribution studies suggest that the creation of
new organizations is constrained by the geographic distribution of existing
organizations. Given such findings, many researchers find it natural to
concentrate their empirical focus on existing organizations as influential in
the production of entrepreneurs.
Differential Fertility Studies
Differential fertility studies focus on organizational characteristics to explain
employees’ motivation to pursue entrepreneurial opportunities. Organiza-
tional contexts are treated as fundamentally different in terms of their pro-
pensity to produce entrepreneurs. Two findings emerging from this body of
work provide indirect evidence regarding the micro-level processes that
govern new venture creation. First, technological innovation appears to
make organizations more fertile grounds for entrepreneurs. This is consis
-
tent with the view that organizations operating at the technological frontier
aremorelikelyto provide their employees with greateraccess to valuable en
-
trepreneurial opportunities. In a study of the semiconductor industry from
1955 to 1981, Brittain and Freeman (1986) found that firms that were the first
entrant in a primary product group were more likely to generate spin-offs.
Franco and Filson’s (2000) study of 192 firms in the rigid-disk-drive industry
from 1977 to 1997 found that firms with greater technical know-how (i.e., su
-
perior technology) and early-mover know-how (i.e., first to introduce a new
product) provided richer training grounds for entrepreneurs. Similarly,
Gompers, Lerner, and Scharfstein (2005), in a study of publicly traded firms
between 1987 and 1999, found that firms spawned more venture-capi
-
tal-backed startups if they had higher quality patents. The number of cita
-
tions received evidenced patent quality.
The second finding emerging from this body of work is that younger and
smaller firms are more conducive to the emergence of new entrepreneurs.
This evidence too seems consistent with the micro processes discussed ear
-
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lier. Arguably, employees of small, young firms are more likely to be exposed
to entrepreneurial opportunities because they have greater access to infor
-
mation regarding the entire business. They are also more likely to develop
strong ties to colleagues in different functional areas, who may join them in
the new venture, and to have more opportunities to establish contacts with
key resource providers. Finally, they can more easily build confidence in
their ability to create a new organization because they fulfill a broader num
-
ber of roles crucial to the operations of entrepreneurial organizations.
Evidence regarding the greater fertility of young and small organiza
-
tions comes from Sørensen’s (2004) systematic investigation of individual
transitions to self-employment (entrepreneurship). Sørensen used data
representative of both the population of individuals and the population of
employers in the Danish labor market from 1970 to 1997. He found that the
rate of entrepreneurship declined with the size of the individual’s em
-
ployer—employees of large firms wereless likely to become entrepreneurs.
This effect was fairly robust, holding up to alternative explanations when
controlling for individual characteristics such as occupational category
(i.e., white-collar, blue-collar), educational level and major, and financial
status (i.e., income, assets, debt). Sørensen’s analysis also indicates that
younger firms were more likely to produce entrepreneurs than older firms.
Although Sørensen’s study is probably the most systematic differential fer-
tility study to date, his results are consistent with at least two additional
studies of less representative samples of U.S. organizations. Dobrev and
Barnett (2005) used career survey data from 5,283 Stanford MBAgraduates
to advance a multilevel model of individuals’ transitions to entrepreneur-
ship. Analyzing the effects of individual, organizational, and environmen-
tal characteristics on entrepreneurial transitions, they found that
organizational members were less likely to become entrepreneurs as their
organizations grew larger and older, although founders were more likely to
become entrepreneurs as their organizations aged. Gompers, Lerner, and
Scharfstein (2005) also found that younger firms were more likely to spawn
new firms in their study of venture-capital-backed startups founded by
individuals employed by public corporations.
Together, these fertility studies provide fine-grained evidence that links
organizational contexts to the emergence of entrepreneurs. Furthermore, by
providing evidence linking specific features of the organizational context to
members’ propensities to create new organizations, these studies help to
shed light on the micro-level processes that govern new venture creation.
FUTURE RESEARCH
We can conclude from this review that a large volume of empirical studies
supports the notion of entrepreneurs as organizational products. Impor
-
tant gaps, however, remain. Empirical evidence linking the experiences of
6. ENTREPRENEURS AS ORGANIZATIONAL PRODUCTS 123
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employment to the microprocesses highlighted in the theory outlined
herein is still limited and often indirect. Studies tracing how work experi
-
ences influence the development of the psychological and social resources
that facilitate entrepreneurial activity would help provide not only a direct
test of the theory but also a better understanding of the conditions under
which organizations are more likely to be conducive to generating entre
-
preneurs. These studies might ask which organizational contexts are more
likely to provide the mastery and vicarious experiencesthat help build con
-
fidence in one’s ability to create a new organization and, in so doing, might
establish a microfoundation for future differential fertility research. For ex
-
ample, Baron and Markman (2000) suggest that many sales and customer
relations employees develop social skills, through training programs, that
help entrepreneurs persuade financiers, customers, and potential
cofounders to support their new ventures. Building on their argument, fu
-
ture research on mastery and vicarious learning experiences might investi
-
gate the influences of organizational training programs in producing
entrepreneurs.
Much of the recent evidence supporting the notion of entrepreneurs as
organizational products concerns the effects of organizational characteris-
tics such as size, age, and technical innovation (i.e., Gompers, Lerner, &
Scharfstein, 2005; Sørensen, 2004). In addition, the study of Dobrev and
Barnett (2005) emphasizes an individual’s organizational role in assessing
the likelihood of engaging in entrepreneurial activity. Although this work
provides insights to macro researchers regarding research topics such as
bureaucracy, generalism versus specialism, technical innovation, and role
theory, micro researchers have much to add to this emerging body of evi-
dence. For example, one challenge for investigators in the entrepreneurs-
as-organizational-products tradition is accounting for individual self-se
-
lectioninto the types of organizations and organizationalrolesmostcondu
-
cive to producing entrepreneurs (Sørensen, 2004). By investigating the
individual constructs that predict employment with certain types of orga
-
nizations (i.e., small vs. large, hierarchical vs. flat, young vs. old, product
vs. service, etc.) and in certain organizational roles (i.e., externally vs. inter
-
nally oriented, sales vs. finance vs. engineering, etc.), micro researchers
may contribute profoundly to entrepreneurship research by separating
organizational characteristics from the effects of self-selection.
Our understanding of entrepreneurial outcomes may be further ad
-
vanced by identifying the micro-level mediators of entrepreneurial action
as it relates to the work settings argued to be so important in providing in
-
formation and motivation to would-be entrepreneurs. In explaining the re
-
lationship between social networks and entrepreneurial activity, Burt
(1992, p. 35) argues that structural position is “simultaneously an indicator
of entrepreneurial opportunity and of motivation” that both pulls and
124 AUDIA AND RIDER
PAGE PROOFS
pushes individuals to entrepreneurship. Micro-level researchers seem best
equipped to untangle the effects of structural position and individual cog
-
nitions and motivations. For example, network researchers have investi
-
gated the relationship between personality characteristics and network
centrality (Klein et al., 2004) as well as the relationship between personality
and individuals’ perceptions of networks (Casciaro, 1998). Furthermore,
studies have found that individuals possessing more accurate cognitions of
formal networks tend to be viewed as more powerful by their peers
(Krackhardt, 1990). Identifying the network positions most conducive to
enabling entrepreneurial behavior as well as the individual-level determi
-
nants (i.e., personality traits, cognitive styles, etc.) of attaining such posi
-
tions seems to be a promising avenue for future micro research. This
research strategy might also shed light on the specific aspects of prior expe
-
rience that condition individual abilities to recognize and exploit
entrepreneurial opportunities (i.e., Shane, 2000). At the least, such a multi
-
level approach suggests new directions for traits-based research.
Another surprising gap in the available literature is the paucity of stud-
ies that compare the likelihood of individuals who are employed in estab-
lished organizations becoming an entrepreneur to the likelihood of
individuals who are not. Such studies require drawing samples of individ-
uals from the entire population, which is often difficult for researchers to
accomplish. Data limitations may be assuaged by the PSED, a large-scale
effort to collect data on nascent entrepreneurs as well as an appropriate
comparison set from the general population. The PSED may allow future
researchers to examine not only the probability of these two groups of indi-
viduals (employed and unemployed) becoming nascent entrepreneurs, but
also the impact that work experiences have on different stages of the pro
-
cess leading to the creation of a new organization.For example, theresearch
program on nascent entrepreneurs (e.g., Carter, Gartner, & Reynolds, 1996;
Carter et al., 2003; Gartner, 1985) differentiates the stage at which individu
-
als initiate activities aimed at the creation of a new organization and the
stage at which a new full-fledged organization becomes operational. Re
-
searchers could investigate whether the psychological and social resources
that individuals acquire through their work experiences might have vary
-
ing effects at these different stages. The theory, for example, implies that so
-
cial ties to industry insiders play a critical role in the transition from being a
nascententrepreneurto creating the new organization. How differenttypes
of ties (i.e., direct, indirect) vary in importance as a new venture grows is an
open empirical question.
Future researchers might also investigate how the identity and/or repu
-
tation of nascent entrepreneurs’ prior employers affect resource providers’
impressions of entrepreneurs. In a stratified sample of 173 Silicon Valley
companies, Burton, Sørensen, and Beckman (2002) argue that entrepre
-
6. ENTREPRENEURS AS ORGANIZATIONAL PRODUCTS 125
PAGE PROOFS
neurial networks differentially situate potential entrepreneurs, based on
the prominence of their employer, to receive crucial information and valu
-
able reputation benefits. They find that those with prior experience at more
prominentemployerspossess advantages in attracting the social and finan
-
cial resources necessary for pursuing new ventures. Their measure of em
-
ployer prominence is endogenous to their data (the number of startups in
the data set generated by a focal employer), and their findings, by the au
-
thors’ own admission, would be strengthened by a better understanding of
“the criteria by which members of the entrepreneurial community rank ex
-
isting firms” (Burton, Sørensen, & Beckman, 2002, p. 254). Therein lies an
empirical opportunity for micro researchers: What employer characteris
-
tics make resource providers more or less likely to support a new venture?
Elaborating the micro foundations of employer prominence would
contribute to the theory underlining both career history and differential
fertility studies.
Another promising avenue for future research lies in asking under what
conditions organizational members prefer to create a new organization as
opposed to seeking to create a new division or productgroup within the ex-
isting organization. The potential for innovation need not imply the poten-
tial for a spin-off organization (Garvin, 1983). Leaving an existing
organization to create a new one requires not only the motivation and the
ability to be an entrepreneur but also the motivation to leave one’s em-
ployer. The existing theory specifies how individuals’ work settings en-
hance the motivation and the ability to create a new organization but says
less regarding the organizational factors that influence the motivation to
leave. Resource allocation processes and political processes may play an
important role. For example, critical moments in the life cycles of parent or
incubator organizations (i.e., chief executive officer [CEO] succession, ac
-
quisition, or bankruptcy) have been found to give rise to spin-offs (Brittain
& Freeman, 1986; Neck et al. 2004; Romanelli & Schoonhoven, 2001; Stuart
& Sorenson, 2003b). One possible explanation for these observations is that
resource allocation processes have inherent limits for absorption of em
-
ployee-led initiatives and that critical moments alter the “rules of the
game” that govern internal resource allocation. A second possible explana
-
tion for these observations is that organizational change creates greater
uncertainty and therefore greater politicization of the decision-making
processes that govern resource allocations for new initiatives (Cyert &
March, 1963; Maritan, 2001).
In conclusion, research on entrepreneurs as organizational products is
alive and well. The distinctive contribution of this body of research to the
entrepreneurship literature lies in emphasizing the importance of organi
-
zations as social contexts conducive to the development of the psychologi
-
126 AUDIA AND RIDER
PAGE PROOFS
cal and social resources necessary for entrepreneurial activity and in
providing a link between micro and macro explanations of entrepreneurial
action. Promising opportunities exist for micro researchers to strengthen
the theory that guides this growing body of research.
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