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Niccolo  Machiavelli   (born 1479) in Italy is an infamous strategist who wrote extensive letters teaching cunning strategies to "princes" that ruled over fiefdoms throughout feudal Europe at the time. 16th century Europe was very divided compared to today, especially in and around Italy, which was composed of a large number of small autonomous and semi-autonomous territories. Although Machiavelli is often considered as a figure in the history of political science, fiefdoms were ruled by what Baumol  describes as entrepreneurs. Thus, Machiavelli's letters can be thought of as elaborating entrepreneurial strategies to get ahead in feudal times. Many regard Machiavelli's strategies as unethical, yet his famous book "The Prince" continues to be cited and read within the business school community and by business and military practitioners. That work, along with Sun Tzu's Art of War , are considered classic works on strategy, but they also have much to say ab...

Should entrepreneurs strive to be first? This is an important question that is relevant to myriads of decisions that entrepreneurs make involving commitments of resources and attention. For instance, given the option to implement two ideas, one with early entry potential and the other with late entry potential, which should an entrepreneur run with? According to Kerin et al. (1992), "studies purport to demonstrate the presence of a systematic direct relationship between order of entry for products, brands, or businesses and market share." First mover advantage theory posits that new entrants that are earliest to a new market niche get several advantages, such a brand awareness and a reputation for innovativeness. Followers can built great brands too, though at a greater cost. Another first movers advantage is the ability to tie up factor markets by engaging in long term contracts with key suppliers, which makes it harder for followers to acquire the necessary complement...

The stakeholder theory of entrepreneurship is being developed by this blog's author , but has roots in a debate that had occurred between professors Ron Mitchell and S. Venkataraman in 2002. They were discussing how entrepreneurship and ethics overlap. In particular, entrepreneurship and strategy tend to be about how to crated wealth, whereas stakeholder theory is more about how that wealth should be distributed. The premise is that entrepreneurial opportunities emerge from the failure of incumbent firm managers to balance stakeholder interests. I take the argument farther. Opportunities created by imbalanced stakeholder management, that is, the gaps between actual stakeholder interest balancing and ideal balancing can be thought of as the fodder for stakeholder arbitrage opportunities. Wherever stakeholder imbalances occur, entrepreneurial opportunities are born as entrepreneurs discover how, by serving a different mix of these under-served stakeholders, a new firm can thrive by ...

Contingency theory proposes that an organization’s performance is determined by the fit between its resources, structure and strategies on one hand, and the external environmental conditions on the other hand (e.g., political, economic, social, technological). A core concept in contingency theory is fit. Fitness is viewed as a match between the organization's characteristics and the characteristics of the environments around them. At the heart of the theory is the assumption of equifinality, that is, that there are many different ways to achieve performance and that the right way depends upon the conditions in the environment of the firm in question (Lawrence and Lorsch, 1967). This also implies that a one-size-fits-all approach to strategy is doomed to fail. For example, when a firm’s technological environment is characterized by rapid change or turbulence, then a firm may perform better with a more organic structure (flatter hierarchy, less formal control, etc…), whereas when a ...

Disruptive innovation theory of was developed by Harvard Business School professor Clayton Christensen in his famous book entitled The Innovator’s Dilemma (2003). Christensen’s core argument is that new entrants succeed when they pursue disruptive innovation whereas incumbents tend to pursue sustaining innovations. Disruptive innovations are technologies, products and business models that are lower performing than incumbent offerings along traditional dimensions of performance, but compensate with increased simplify, convenience, customizability, or affordability. For example, the Nintendo Wii disrupted the Xbox and Sony Playstation by offering lower quality graphics in exchange for the simplicity in the intuitive movements offered by gyroscopic technology added to the controllers. This allowed younger children, game novices, and older gamers to be able to learn to play with a minimal learning curve. Sustaining innovations, on the other hand, improve technologies, products, and busine...

Steven Klepper (2007) was an American economist at Carnegie Mellon University. He introduced the used the concept of strategic disagreements to explain a particular type of entrepreneurship commonly referred to as spinout (or employee spinoff) entrepreneurship. Klepper credited spinouts with the creation of clusters like Silicon Valley and Detroit. A spinout occurs when an employee of a firm leaves to start a new business. Most spinout entrepreneurs create ventures that compete indirectly with their employers by pursuing new strategies or going after new markets with differentiated products. However, the seeds of spinout ventures often originate in parent firms. For instance, many entrepreneurs report that they are exploiting ideas that were generated inside of the organizations of their previous employers (Bhide, 1994). Strategic disagreements refer to disagreements between employees and managers regarding the prospects of new ideas or new projects. For instance, an employee may beli...

The underlying assumptions of the upper echelons theory are that top managers' decision-making processes determine competitive strategies , and that strategies affect firm performance (Hambrick and Mason, 1984). Further, decision-making processes are expected to be affected by the characteristics of individuals and composition of teams. Competitive strategies may include the choice of business strategy, such as low cost, differentiation, and focus strategies. They may also affect corporate strategy such as vertical and horizontal integration , as well as diversification. Business and corporate strategies are well-known to affect the financial performance of firms and new ventures. The upper echelons theory posits that the characteristics of individuals and teams influence their decision-making. Overall, the upper echelons theory counter-balances population ecology and institutional perspectives that tend to view individuals as unimportant. Characteristics that have been exam...

Stewardship theory was put forward by Lex Donaldson and James Davis in the late 1980s as an alternative to agency theory , which they viewed as having negative assumptions about managers. Agency theory views agents (managers and entrepreneurs) as self-interested and opportunistic and views the relationship between principals (investors) and agents as necessarily conflicting. Agency theory is the logic behind providing managers and other employees stock-based compensation to align the interests of the employees with those of the shareholders by making the employees into shareholders. In contrast to agency theory, stewardship theory posits that managers and entrepreneurs are motivated to act in the interests of their organizations and principals. The core idea is that the rewards from pro-social behavior have greater utility than individualistic or self-serving behaviors. The steward receives greater personal satisfaction when the organization is successful and therefore acts accordi...

Jay Barney developed the resource based view of the firm, which is a strategic management theory designed to explain why some firm perform better than others even when they occupy a very similar business environment. Barney's resource-based view seeks to explain why some firms perform better than others by looking to the firms’ resources. This contrasts with earlier perspectives, such as  Porter's five forces , which focus on the external environment as sources of threats and opportunities. The core idea behind the resource-based view is that  competitive advantage  comes from a firm’s effective use of tangible and intangible resources or assets. Tangible assets include plant, equipment and even human resources, whereas intangible assets include things like  trade secrets  and  corporate reputation . Resources that are valuable, rare, and difficult to imitate or substitute are considered to be sources of sustained competitive advantage (Barney, 1991). When...