Knowledge that Transforms

Abstract Research Summary Entrepreneurs use strategic framing to gain support for their novel ventures, products, and services. A key challenge entrepreneurs face is that audiences often contest frames that introduce novel ideas, especially when these ideas disrupt audiences' mental and business models. Such contestation can hinder novel ideas from being accepted, a risk that is amplified when entrepreneurs face contestation from multiple audiences. We lack understanding, however, of how contestation from multiple audiences shapes the strategic framing of novel ideas. We study this question at Tony's Chocolonely, a social enterprise that faced such contestation when introducing “slave‐free” chocolate. By showing how the social enterprise reacted to contestation from multiple audiences in different ways, we uncover novel mechanisms of frame change and stability. Managerial Summary Entrepreneurs use strategic framing to gain support for their novel ideas, products, and services. In so doing, they must navigate resistance from different audiences, especially when entrepreneurs introduce novel ideas that disrupt the status quo. Audience resistance can hinder novel ideas from gaining momentum. We do not know, however, how entrepreneurs can navigate resistance from multiple audiences. Our study examines how Tony's Chocolonely, a social enterprise fighting child labor in the chocolate industry, navigated resistance against its “slave‐free” chocolate from diverse audiences. Our study reveals novel insights into how audience resistance shapes entrepreneurs' strategic framing of novel ideas.

Abstract Research Summary We evaluate the role of cultural tightness–looseness as an explanation for cross‐cultural variation in new firm formation rates. Modeling cultural tightness–looseness as an antecedent for individual entrepreneurial dispositions and informal institutions, we examine its impact on the number of new limited‐liability companies registered per 1000 people and the rate of new entrepreneurs in the working‐age population. Our findings show that cultural tightness–looseness explains 56% of the variation in new firm formation rates in a sample of 156 nations, and 71% of the variation in the rate of new entrepreneurs in the 50 US states, with greater cultural looseness corresponding to higher rates of entrepreneurship, on average. This effect is robust to various model specifications, measures, and controls for other cultural dimensions. Managerial Summary Our study examines how cultural tightness–looseness impacts new firm formation rates across nations and US states. We find that cultural looseness, characterized by flexible social norms, significantly influences entrepreneurial activity. Specifically, it explains 56% of the variation in new firm formation rates across 156 nations and 71% of the variation in new entrepreneur rates in the 50 US states. Nations and states with looser cultures tend to have higher rates of entrepreneurship. These findings are robust across different model specifications, measures, and control variables. Managers and policymakers should consider the strength and enforcement of social norms as factors in fostering new firm formation.

Abstract Research Summary We integrate the emerging literature on the strategic role of firm owners in firms' value creation with Penrosean growth theory to investigate how and under what conditions two experience‐based competences among owners—matching competence and governance competence—influence firm growth. Employing a longitudinal sample of 2509 owner‐managed German firms, we find a positive relationship between owners' experience‐based competences and firm growth. Further, we find that in family firms, the positive relationship between owners' experience‐based governance competence and firm growth is weaker and that both experience‐based competences matter more in younger firms compared with older firms. Our findings make important contributions to research on strategic ownership and Penrosean growth theory. Managerial Summary In our study, we show that two competences of owner–managers are important for the growth of their firms: their matching competence, which is the ability to theorize about valuable resource configurations and cognitively envision a path to implement them, and their governance competence, which is the ability to create effective governance arrangements to align incentives within a firm. Our results suggest that it is challenging for owner–managers from family firms to leverage their governance competence to achieve growth, which could potentially be resolved by instituting governance mechanisms that prevent nepotism. We also show that owner–managers' competences are particularly important in the early years of their firms when no standardized processes are in place.

Abstract Research Summary For more than a century, Frank Knight's Risk , Uncertainty , and Profit has significantly influenced entrepreneurship theory development by exploring the nature of uncertainty and the epistemic limits of entrepreneurial action. Knight's work highlights how economic actors cannot fully predict the consequences of their actions. Despite its broad influence, debates persist regarding the nature of Knightian uncertainty. This study addresses these debates through a comprehensive analysis of RUP and Knight's other published and unpublished writings to offer new insights into the nature and meaning of Knightian uncertainty, revealing Knight's holistic theory that integrates “real indeterminism,” “partial knowledge,” and “subjective beliefs.” This analysis provides much needed construct clarity to advance contemporary theories of entrepreneurial action and the role of uncertainty in business venturing processes. Managerial Summary This article revisits Frank Knight's foundational work, Risk , Uncertainty , and Profit , a cornerstone in entrepreneurship research for over a century. We highlight Knight's holistic approach to uncertainty, which integrates the concepts of real indeterminism (the inherent unpredictability of future events), partial knowledge (the incomplete understanding of the present and future), and subjective beliefs (individual perceptions and interpretations). The study offers new perspectives on how Knightian uncertainty influences entrepreneurial decision‐making and action, highlighting how this unique type of uncertainty plays a critical role in the business venturing process. These insights provide valuable contributions to contemporary theories of entrepreneurship, emphasizing the complexity and multifaceted nature of navigating uncertainty in business.

Abstract Research Summary We investigate how strategic leaders of an incumbent firm frame exploration of digital opportunities at the interfaces of organizational hierarchy. Digital technologies create an unbounded array of opportunities that may pose challenges to the strategic coherence of corporate entrepreneurship activity. Our analysis reveals that top management teams (TMTs) adopt a paradoxical framing of exploration, thereby creating a liminal space with unstable boundaries between exploration activities aligned with core resources (i.e., convergent) and those perceived as divergent. We show that middle managers (MMs) skillfully navigate this space by combining framing with substantive and symbolic actions to blur the boundaries of exploration. Drawing on our findings, we theorize the role of framing at the interfaces between the TMT and MMs in setting boundaries for exploration. Managerial Summary The process of digital transformation can be overwhelming for established companies as managers encounter a myriad of new opportunities. Our study of a large telecommunications company found that both senior and MMs play important roles in guiding the development of new digital businesses. Senior managers encourage creative thinking and promote exploring multiple innovation opportunities. However, they also set boundaries to prevent innovation activities from becoming too risky by venturing into very distant domains. This contradictive requirement creates a “gray zone” for MMs to imaginatively use their skills to navigate restrictions without compromising exploration of new opportunities. This approach involves both top‐down and bottom‐up communication between senior and MMs that helps avoid short‐sightedness and overspending when it comes to innovating with digital technologies.

Abstract Research Summary This study explores how digital transformation can promote organizational resilience when incumbent firms face crises. We examine the intersection of digital transformation and resilience‐seeking processes through two longitudinal case studies of incumbent firms designated as “essential businesses” during the COVID‐19 pandemic. We analyze 72 crisis adaptations the firms implemented during the crisis to understand how previously underutilized digital capabilities upgraded each firm's ability to adapt to mitigate stakeholder risks and engage in resilience‐seeking rather than advantage‐ or opportunity‐seeking. We identify five digital capabilities—virtual access, virtual collaboration, data‐driven decision‐making, algorithmic reprogrammability, and assisted decision‐making—that arose from technologies acquired to enable digital transformation before the crisis. We discuss the concept of resilience opportunities and contribute to the literatures on digital transformation and organizational resilience. Managerial Summary While studying the digital transformation of incumbent firms, we found that digital capabilities helped firms adapt during the COVID‐19 pandemic in ways that crisis management plans did not anticipate. As a result, these adaptations accelerated digital transformation initiatives that years of strategic planning had failed to achieve. We explain why the quantum leap in digital transformation helped these firms not only adapt during crisis, but digital adaptation also enabled them to bounce back more resilient and competitive than before the crisis. We show how the pursuit of organizational resilience can be a vital justification for investments in digital transformation. Strategic leaders play a critical role in not only adopting new technologies, but also in helping firms become more adaptive by combining new and legacy technologies.

Abstract Research summary How a new venture improves performance when facing both principal and agency problems is an important yet understudied question. This study examines the effectiveness of CEO duality in mitigating the principal problem and enhancing entrepreneurial success. By granting more power to CEOs, CEO duality can alleviate the principal problem; however, CEO duality may simultaneously exacerbate CEOs' agency problems. Using manually collected panel data on 1403 newly established U.S. commercial banks, we find a positive relationship between CEO duality and new venture performance. The CEO duality–new venture performance relationship strengthens when CEOs are also founders of their firms and weakens when the share of corporate ownership reflects heavy investment by incumbent firms. Our findings highlight that venture governance needs to address principal and agency problems simultaneously. Managerial summary Large corporations typically face agency problems due to the separation of ownership and control such that managers do not act in the best interests of owners. New ventures tend to experience fewer agency problems because owners/principals are also likely to be managers/agents. New ventures often face severe principal problems due to directors' potential conflict of interests such as investments in rival companies. Our study suggests that new ventures can mitigate principal problems by appointing a CEO as the chair of the board of directors. Our longitudinal analysis of new U.S. commercial banks finds that this dual CEO‐chair structure leads to better performance. This relationship strengthens in the case of founder‐CEOs and weakens among new banks co‐founded by other large bank holding companies.

Abstract Research Summary We contend that entrepreneurial judgment governance (EJG) is a profound yet poorly understood process in which firms sense, seize, and transform opportunities related to digital transformation. Grounded in a rich, multi‐case study of six large incumbent firms, we conceptualize and examine how firms change EJG through three phases: recognizing, distributing, and orchestrating. We find that EJG adaptation is at the heart of why some firms succeed in responding to the challenges associated with digital transformation while others fail. Implications and opportunities for future research are discussed. Managerial Summary Entrepreneurial judgment governance (EJG) is central to explaining why some firms succeed in digital transformation (DT) whereas others do not. EJG determines who has the right to exercise entrepreneurial judgment (EJ) about allocating and using resources to address new opportunities. As distinct types of uncertainties require distinct EJ features, established firms face the challenge of EJG adaptation to the unique DT uncertainties. Based on a multiple‐case study, we offer a three‐stage framework that facilitates and expedites EJG adaptation to DT. Furthermore, our study highlights that strategic leaders who fail to comprehend the need for changes in EJG, neglect to establish an EJG architecture aligned with DT goals or overlook implementing necessary adjustments internally and externally, may hinder positive DT outcomes.

Abstract Research Summary This study examines the role of government venture capital (GVC) on startup innovation in a transition economy context. Drawing on institutional theory, we advance a contextual view of GVC by proposing that GVC positively impacts the innovation of startups in transition economies by serving as a sociocognitive legitimating endorsement. Furthermore, our study offers a contingent framework by showing that GVC endorsement will be more meaningful for startups deficient in organizational sources of legitimacy, such as political ties and social prestige. Regression analyses using a longitudinal data of Chinese venture‐backed biopharma and medical device startups founded during 2002–2017 offer broad support for our theory about the sociocognitive legitimating role of GVC in transition economy contexts. Managerial Summary We explore the role of government venture capital (GVC) in promoting startup innovation within transition economies. In such contexts, where startups often face skepticism and legitimacy issues, our research reveals that GVC can play a crucial role by providing socio‐cognitive legitimacy. Our study suggests that this “state backing” enables transition economy startups to gain the trust of external knowledge resource holders, enhancing their innovation prospects. Our findings emphasize the significance of GVC as a means of active government intervention for fostering startup innovation, especially for startups deficient in other avenues of legitimacy. This insight is valuable for entrepreneurs and policymakers in transition economy contexts.

Abstract Research Summary Entrepreneurship researchers commonly use survey‐based research designs. However, surveying entrepreneurs poses unique challenges. A principal concern for survey‐based research is nonresponse bias, which occurs when survey respondents systematically differ from those who were sampled but did not participate in the study. To address this concern, we conducted a systematic review of the literature to determine what practices are currently being used to address nonresponse bias (142 articles, 180 surveying efforts) and conducted multiple studies to determine the extent to which nonresponse bias can affect statistical results. Based on these efforts, we present a series of techniques and a checklist that entrepreneurship scholars and reviewers and editors can consider to mitigate the risk of nonresponse bias prior to, and following, their data collection efforts. Managerial Summary In an average survey of entrepreneurs, approximately 40% of the people contacted will respond. This raises an important question: Can we make conclusions about the entrepreneurs who did not respond? Answering this question requires one to consider nonresponse bias (i.e., if respondents differ from nonrespondents). We conducted a systematic review of survey‐based studies in entrepreneurship and conducted three field studies. Our results show that nonresponse bias can manifest in different ways across studies, but it is rarely discussed in the literature. We also show that response rates are poor proxies of nonresponse bias. Based on these efforts, we present several techniques for scholars, reviewers, and editors to consider in the hopes of mitigating the risk of nonresponse bias in their studies.