Perceptions of Opportunities – Part 1
| Peter Lewin |
The January 2012 issue of the AMR (available here for subscribers or those with academic access) features two review articles assessing the progress of the “Promise” examined in the well-known article by Scott Shane and Sankaran Venkataraman (AMR 2000: The Promise of Entrepreneurship as a Field of Research) — one from each of the original co-authors. The first is an interesting, if somewhat pedestrian, article by Scott Shane. The second is a much more profound and ambitious contribution by Venkataraman together with Saras Sarasvathy, Nicholas Dew, and William Forster.
In the decade since that article there has, indeed, been a significant shift in the focus of research in entrepreneurship. Most notable, perhaps, is the focus on entrepreneurial “opportunities” — familiar to Austrian economists from the work of Israel Kirzner, but by now a standard element in the story. Each of the articles spends considerable time revisiting questions about the nature of entrepreneurial opportunities and provides its own resolutions. Here I will provide just a quick overview of this part of Shane’s article. (I intend to provide one for the second article soon).
In considering the “nexus of opportunities and individuals” offered originally in “Promise” as a reason to shift attention from the person to the function, Shane addresses the question of whether entrepreneurial opportunities should be considered “objective” or “subjective” — a question that has proliferated in this research stream, albeit with varying focus and terminology. The problem is, it seems to me, that the notion of “opportunity” is one that depends on the formation of a mental image by some individual or individuals. Opportunity implies plan — a plan of action to use, transform, combine, existing resources in a profitable way. Without the plan there is just the world. So how can “opportunity” be objective? This is related to the question: are opportunities “discovered” (Alvarez and Barney: Organizaҫões em Contexto, 2007) or are they created; or in the words of Venkataraman, et. al. are they made or found?
Shane thinks now that the whole debate was probably unnecessary and that opportunities must be objective. If not, then there is no way to talk about unsuccessful entrepreneurial action. If, as asserted by our esteemed host Professor Peter Klein (Strategic Entrepreneurship Journal, 2008), opportunities are “imagined” and “are inherently subjective — they do not exist until profits are realized” (180) — “then unsuccessful entrepreneurship is a logical impossibility. No entrepreneur can fail to generate an entrepreneurial profit” (Shane, 16). No profit, no opportunity really existed.
Shane resolves this by making a distinction between entrepreneurial opportunities and business ideas. The latter are subjective. Juxtaposing the two rescues the notion of failed entrepreneurship.
This strikes me as unacceptably ad hoc, to say the least. I think Shane does not really understand what “subjectivism” is all about and, as a result, his treatment is rather superficial. Nevertheless, he may be incidentally right in suggesting that aspects of the debate are unnecessary. I refer to the ontological status of “opportunity.” Subjectivism in economics and related fields is an epistemological issue, not an ontological one. Accordingly, I would say as follows: Opportunities originate as perceptions — perceptions of what can be done to earn a profit. (Klein says “imagined” which I think is essentially the same as perceived.) Perceptions are both real and subjective. These perceptions may turn out to be right or wrong. The “discovery” of an opportunity is, strictly speaking, the formation of a perception, a plan involving real (objective) resources. So, action in pursuit of a perceived (discovered, created) opportunity is entrepreneurial action and may be successful or unsuccessful.
Alvarez and Barney — Academy of Management Annals, 2010 — blurring epistemology and ontology, want to make a distinction between exogenously and endogenously generated opportunities. I am not sure this is a viable or profitable distinction. To repeat, all opportunities are about perceptions that can be right or wrong.
TBC: Part 2.