THE THEORETICAL SIDE

OF TEACHING
ENTREPRENEURSHIP
JAMES O. FIET
Jonkoping International Business School, Jonkoping, Sweden

There is an on-going debate in the entrepreneurship academy about whether

EXECUTIVE we can actually teach students to be entrepreneurs. Its resolution is inextrica-
SUMMARY bly connected with our theoretical assumptions because they affect how and
what we teach. This article is the first in a set of two contained in this issue
that argues that we should develop more refined, cumulative theory and teach
it to students in a way that emphasizes learning by doing, which should accel-
erate student mastery. This first article treats the theoretical side of teaching entrepreneurship, whereas
the second addresses the pedagogical side of entrepreneurship theory.
Those who advocate that entrepreneurship can be understood and taught to students assume that
researchers will eventually develop a more general theory of entrepreneurship. Theory is an essential
part of what we teach because we do not know any other way to help students anticipate the future, which
is a key to entrepreneurial success, unless we counsel them to rely on luck or intuition. The limitation
of luck and intuition is that we do not know how to teach either of them. If students could accurately
anticipate the future, they could allocate their resources in the most productive manner, which would
ensure their survival, satisfaction and prosperity. Despite the current limitations of our theorizing, theory
still offers the most promise as course content for students.
This article sides with Kuhn (1970) who argued that theory is the most practical thing that we can
teach to students. Its purpose is to comment on the progress to date in developing entrepreneurship theory.
It begins by analyzing the contents of 18 syllabi provided by participants at a retreat for entrepreneurship
scholars. It notes a wide divergence in topics, and possible causes for this divergence, which seem to be
characteristic of a developing academic discipline. It appeals for more theory in our courses and suggests
questions to which entrepreneurship scholars can provide distinctive answers when compared with those
offered by scholars from other disciplines.
One way to add more theoretical content to entrepreneurship courses is to teach students what they
ought to do, which is coded language for theory. In addition, instructors should not merely describe what
entrepreneurs do, particularly in light of the observation that most of them fail and accordingly have
been described as ill-fated fools. Finally, assuming that scholars can offer a more general theory of entre-
preneurship, they would be able to emphasize more deductive approaches as opposed to inductive ones.

Address correspondence to Dr. J. O. Fiet, Jonkoping International Business School, P.O. Box 1026,
SE-551 11, Jonkoping, Sweden; Phone: ⫹46 36 15 62 58; Fax: ⫹46 36 16 10 69; E-mail: james.fiet@jibs.hj.se
I acknowledge the helpful comments of Robert Baron, Lowell Busenitz, Donna Kelly, Patti Green,
Moren Levesque, Murray Low, Gideon Markmam, Steven Michael, Atul Nerkar, Phil Phan, Mark Rice, Dean
Shepard, Page West, Andrew Zacharakis. In particular, I acknowledge the encouragement and advice of
Michael Hitt and S. Venkatraman. Errors or omissions are my responsibility alone.

Journal of Business Venturing 16, 1–24

 2000 Elsevier Science Inc. All rights reserved. 0883-9026/01/$–see front matter
655 Avenue of the Americas, New York, NY 10010 PII S0883-9026(99)00041-5
2 J.O. FIET

These appeals for more theoretical content depend on several assumptions, which include: (1) the
improbability that students can encounter circumstances that would be similar to anecdotal lessons
learned in entrepreneurship school; (2) the existence of a process that can be explained theoretically; (3)
studying ideal types can be discouraging to aspiring entrepreneurs if they do not fit a special profile; (4)
the high failure rate among entrepreneurs makes suggesting to students that they ought to pattern their
activities after them seem illogical; (5) studying average profiles, anecdotal recommendations, rules of
thumb or war stories can only lead to average returns, given semi-strong information efficiency; and (6)
leveraging the motivational benefits of studying successful entrepreneurs may have detrimental, unin-
tended consequences, among others.
This article notes possible causes of non-cumulative theory building and suggests several opportuni-
ties to build cumulative theory. Although it acknowledges that the field of entrepreneurship currently
lacks cumulative theory, it offers a contingency approach for teaching entrepreneurship, which is actually
very similar to the scientific method used by scholars to develop hypotheses about the future.  2000
Elsevier Science Inc.

INTRODUCTION
Recent efforts to develop entrepreneurship theory have tended to accumulate separate
rather than cumulative theories. Researchers have developed separate theories instead
of building upon those that relate to each other and discarding those that are invalid
or irrelevant (Camerer 1985; Fiet, Busenitz, Moesel, and Barney 1997). Sometimes, it
appears that entrepreneurship research commences from the very beginning each time
a project is begun, as if it were the first time that a phenomenon were studied, even though
it has been studied many times before. In addition, entrepreneurship researchers may
have focused excessively on describing entrepreneurial phenomenon rather than on de-
veloping theory to enable aspiring entrepreneurs to make predictions. This phenomeno-
logical emphasis seems to predominate in textbooks and research, perhaps to the exclu-
sion of developing theory (c.f., Phan 1998). The result of emphasizing entrepreneurial
conduct in research is that much of it lacks a theoretical basis. Furthermore, the majority
of published research focuses on issues that are not interesting to aspiring entrepre-
neurs, which has impeded further the development of a body of entrepreneurship
theory.
These concerns and others were recently the subject a 3-day retreat of entrepre-
neurship scholars, which was hosted by Rennselear Polytechnic Institute. Last year, S.
Venkatraman provided the theme for the gathering, which dealt with the distinctive
domain of entrepreneurship research (c.f. Venkatraman 1997). This year, the retreat
focused more on the learning aspects of entrepreneurship. I presented a workshop on
the topic of what we teach and how we should teach it. The present article and the one
that follows it originate from the arguments that I presented at the last two Renssel-
ear retreats.
This article mirrors the structure of my workshop. First, I review the results of a
survey of the entrepreneurship courses taught by the participants. This review identifies
three possible causes for concern. Second, I share the results of a theory building exer-
cise. Third, I appeal to entrepreneurship scholars to emphasize theoretical content in
their courses. Fourth, I offer some suggestions concerning how scholars can develop
and teach cumulative, relevant theory that addresses the distinctive domain of entrepre-
neurship, which also has implications for how to conduct entrepreneurship research.
 TEACHING ENTREPRENEURSHIP THEORY 3

SURVEY RESULTS
Retreat participants shared 18 of their syllabi, which were analyzed topically. The analy-
sis found that the 18 syllabi encompass 116 different topics. More striking was the finding
that they only overlapped on about one third of the topics. Although there were no
clean categories, the 18 syllabi include enough different topics to create six and a half
different courses. This finding does not indicate anything about the quality of individual
courses. It does suggest, however, that members of the group teach very dissimilar
courses, which could be a warning for the field because of its implications for pedagogy
and curriculum development.1
These differences in course content were surprising considering that each respon-
dent specializes in teaching entrepreneurship. As a group, either we did not agree on
a paradigm for teaching entrepreneurship or perhaps we are searching for one. The
content of our courses varies so much that it was difficult to detect if they even have
a common purpose. The next section describes the leading topical coverage areas.

Leading Topical Coverage Areas

Based on the analysis of the syllabi from retreat participants, there were six leading
topical coverage areas. These areas are listed below in the order of their emphasis in
the 18 syllabi:
Strategy/competitive analysis
Managing growth
Discovery/idea generation
Risk and rationality
Financing (mainly business angels)
Creativity
With the exception of discovery/idea generation, each of these topics comes from the
established literature of other disciplines. Strategy/competitive analysis clearly comes
from the strategy/industrial organization literature. Managing growth is not distinctive
to entrepreneurship, although it is emphasized often in courses in small business man-
agement. The topic of managing growth is also a common subject in organization theory,
as well as many other areas in the management literature. Risk and rationality come
from finance and economics. Financing (mainly business angels) is a stepchild of the
finance literature. Moreover, creativity comes from the psychology literature.
Despite these common topical themes, together they only represent a small propor-
tion of the topics covered by the syllabi. The fact that most of these themes have their
roots in other disciplines indicates that the syllabi do not emphasize a distinctive domain.
Entrepreneurship scholars should incorporate truth into their discipline wherever they
can find it. Eclecticism is especially appropriate for a new discipline. Nevertheless, after

1
The differences in course content could only be partially explained by individual differences in
course design.
4 J.O. FIET

more than 25 years of studying entrepreneurs, it is time to begin to make our own contri-
butions to what we know about what entrepreneurs should do to succeed.
There are clearly many influences on the diversity in content of these courses. Three
possible influences that should concern entrepreneurship scholars are academic autobi-
ography, lack of theoretical rigor and entrepreneurship textbooks. Each of these is ad-
dressed in the following sections. Afterward, I defend an appeal for more theoretical
content in entrepreneurship courses. This defense will include an examination of the
assumptions underlying what we should teach.

Academic Autobiography
One possible cause of course differences is academic autobiography. This term describes
a compulsion to view the world from the perspective of one’s own training. It also suggests
an unwillingness or inability to view the world through other lenses.
The convenience sample of syllabi does not prove conclusively that academic auto-
biography guided course design. However, it was interesting that many of the teaching
choices were highly correlated with the training and research streams of individual re-
spondents. To the extent that academic autobiography dictates what we teach, we could
subject our students to a narrow view of the entrepreneurship world. One way to ensure
that our views are not biased by academic autobiography is to learn and teach paradigms
that are outside of our personal training. This is not an argument for including all possi-
ble paradigms in our courses. However, we should strive to be highly informed before
concluding that an approach used since graduate school is the best or only way to teach
a particular concept.

Lack of Theoretical Rigor

The diversity in our courses was not solely a reflection of different ways of teaching
a topic, which should be expected. Nor was it the natural result of pursuing academic
freedom. Instead, it may be an indication that the entrepreneurship discipline lacks suf-
ficient theoretical rigor to arrive at a consensus on fundamental questions. If lack of
theoretical rigor is a problem, critics may be accurate that the entrepreneurship field
is not ready to be taken seriously as an academic discipline.
The level of theoretical rigor in entrepreneurship courses is strongly influenced by
the level of theoretical rigor in entrepreneurship research. If researchers do not conduct
theoretically rigorous research, the content of entrepreneurship courses will suffer. Thus,
it is appropriate to consider the link between entrepreneurship research and teaching.
Whenever researchers perform similar, related or follow-up tests on variables,
whether or not they are from the same sample, they have the opportunity to add to
the theoretical understanding of their findings. Moreover, if research can be used to
inform received theory, rather than new theory, the probability is higher that it will have
a strong influence on the thinking of those who will study a phenomenon.
Less informative than introducing new theory, though, is not imputing a theoretical
interpretation to research findings. This is not an argument against the generation of
new theory. It is merely an observation that it takes a field longer to assimilate new
theory and to use it to make progress than it does to build on existing theory. However,
it is an argument to reconsider the usefulness of atheoretical research and teaching.
Most journal reviewers appropriately require an answer to the “so what” question
 TEACHING ENTREPRENEURSHIP THEORY 5

in our research, which is “why should others care about our findings?” As teachers, we
should also ask ourselves if we are answering the “so what” question in our classes. If we
will interpret findings within the context of an existing theory, if possible, there should be
less difficulty answering the “so what” question. If we teach students to apply entrepre-
neurship theory to their special circumstances, they will be able to answer the “so what”
question for themselves.

Textbooks
Among textbooks, there were no clear favorites. Eighty-three percent of the respon-
dents used reading packets, which suggest some dissatisfaction with current texts. How-
ever, there was no agreement on what should be included in a course readings packet.
It is possible that a general lack of theoretical rigor in many texts is a major cause
of the indicated ambivalence over textbook preference. Why should entrepreneurship
texts not be as theoretically rigorous as an economics or finance text? If they were, it
would indicate that the field was reaching a consensus on answers to important ques-
tions. A lack of theoretical consensus may result in the entrepreneurship field having
a reputation for low rigor, superficial courses.

Theory-Building Exercise
The participants at the Rensselear Retreat were divided into five different groups and
each group was assigned the same four questions to answer. The questions were selected
on the basis of how they could be classified on three different dimensions. It was neces-
sary that a potential question be evaluated positively on each of these dimensions before
it was included. These dimensions were (1) whether or not a question fell within the
distinctive domain of entrepreneurship, (2) whether or not it was interesting to scholars,
and finally, (3) whether or not it was interesting to students? If a question fell outside
of the distinctive domain of entrepreneurship, its answer probably would not satisfy
external critics. If a question were not interesting to scholars, its answer would probably
fail to contribute to advancing entrepreneurship theory. If a question were not interest-
ing to students, its answer would probably fail the “so what” requirement, which is really
a question of relevancy. Based on these criteria, the following four questions were se-
lected and assigned:
1. How should entrepreneurs discover economically lucrative opportunities that oth-
ers miss?
2. How should entrepreneurs identify the most attractive industries?
3. How should entrepreneurs marshal the resources to launch an entirely new business?
4. How should entrepreneurs create competitive advantage?
The assignment was to identify and be prepared to explain at least three theories that
help to answer these four questions. Each group was also assigned the task to suggest two
additional questions and three theories to explain each of their questions. The results of
this theory building exercise are contained in Table 1.
A couple of observations stand out from the results in Panel A of Table 1, which
summarizes the group’s suggested theories for addressing the assigned questions. First,
just as there was no consensus concerning what to include in course content, there was no
consensus on the much narrower issues posed by this exercise. Second, it is not enough to
6 J.O. FIET

TABLE 1 Rensselear Retreat Theory-Building Exercise

PANEL A: Assigned Questions and Theoretical Responses*
1. How do entrepreneurs discover economically lucrative opportunities that others miss?
Alertness Search and discovery
Divergent thinking Options theory
Garbage can model General equilibrium theory (straw man)
Information Persistence (hardly a theory, more of a philosophy)
Communication theory Luck
Arbitrage Path dependence
Cognition Network theory
Biases and heuristics Corridor principle

2. Why are some industries simply more attractive than others are?
Dynamism Recency bias
5 forces model (2 votes) Punctuated equilibrium
Commitment theory (economic, psychological, Stakeholder theory
social)
Industry structure (S-C-P) [Industry struc- Information asymmetry
ture⇒firm conduct⇒firm performance] (2 votes)
Product life cycle (wrong level of analysis) Public choice
Resource & suppliers sophistication IO economics
Industry life cycle Fun-ness: Preference theory
Resource-based

3. How should entrepreneurs marshal the resources to launch an entirely new business?
Networking Alliance building
4 F’s: friends, family, finance companies, and Agency theory
fools
Resource-based theory Network theory and social capital
Capital markets Require fewer resources
Social capital/networking Knowledge
Institutional theory Liability of newness
Social skills Network theory
Social exchange theory Self-efficacy-enactment (Weickian)

4. How do entrepreneurs create a competitive advantage?

Product leadership Barriers to entry
Industry standard Resource-based theory (2 votes)
HRM theories Five forces model
Network externalities/standards Learning
Knowledge (new) New combinations
Hustle is strategy Tacit knowledge (specialized resources)
Resource-based IO economics
Continuous innovation

(continued)

specify the research questions, if our purpose is to make progress toward building a
general theory of entrepreneurship. Scholars must focus purposefully on building cumu-
lative, relevant theory. Otherwise, progress is much less certain.
Panel B of Table 1 contains the questions that the retreat participants viewed as
being important. Notice that there was no consensus view. If we assume that the answers
to the suggested questions were included in an entrepreneurship course, they would
probably not be very interesting for students. If we assume that the answers to the sug-
gested questions were not included in an entrepreneurship course, have we not lost a
 TEACHING ENTREPRENEURSHIP THEORY 7

TABLE 1 Continued
PANEL B: Group-Volunteered Questions and Responses
• Why do some people engage and persevere in entrepreneurship pursuits
Heuristics, biases Cognitive psychology
Financial theories
• How do we get out of an entrepreneurial venture and when do we get out?
Financial theories Escalation of commitment
Succession
• What functions are inside the entrepreneurial firm?
Agency theory Social network theory
Personality, traits and attidues
How do entrepreneurs recover from failure?
Transaction cost economics Learning
Change theory
• How to turn current failures into future success?
Learn Adapt
Decisiveness
• What is the process of entrepreneurial emergence?
Behavioral theory Person-fit
Four Ps of Marketing
• Why do some choose to become entrepreneurs whereas others do not?
Birth order Career theory
Need for achievement Locus of control
Self-action

* The only purpose of the columns in Table 1 is to facilitate the presentation of the responses. They do not represent
separate categories or have any other meaning.

major audience for the dissemination of research results? The lack of consensus regard-
ing course content may result from often failing to develop cumulative, relevant theory
within the distinctive domain of entrepreneurship. The next section is a concerned ap-
peal to reconsider what we teach.2

AN APPEAL FOR THEORETICAL CONTENT

The theoretical concerns posed by the respondent information can be resolved if entre-
preneurship teachers will take the following steps to evaluate what they teach. First,
they should ensure that they teach students what they ought to do, which is coded language
for theory. In addition, they should not merely emphasize descriptions of what entrepre-
neurs do. Finally, their teaching should emphasize more deductive approaches as opposed
to inductive ones. These suggestions presuppose that scholars should be focusing on de-
veloping cumulative, relevant theory.
Many who favor descriptive approaches use them for inductive purposes, suppos-
ing that there is an optimal mindset that can be instilled in students. Some of these same
instructors believe that entrepreneurship cannot be taught, but it can be learned by stu-
dents by studying the successes of others. In addition, these descriptive approaches seem
to be favored by those who perceive a need to deliver entertaining content. However,
teaching theory that will help students to understand the consequences of their decisions

2
The issue of how to teach entrepreneurship will be considered primarily in the next article.
8 J.O. FIET

will be highly important to them in the future. We should teach students how to apply
theory deductively to their special circumstances.
Why would students want to know about what entrepreneurs do, if ordinarily they
fail to survive five years? If students study how entrepreneurs fail, they may be alerted
to pitfalls that they should avoid, which may improve their chances for success. How-
ever, even the “avoiding pitfalls” argument is a theory that we should test. If such a
test were to find support, we could then teach the theory of avoiding pitfalls.

Assumptions Underlying the Teaching of Theory

This article will now review some assumptions that should hold if teaching theory to
students is better than merely exposing them to what entrepreneurs do. It is important
that these be made explicit to understand the rationale underlying the appeal, as well
as its implications.
Studying only the conduct of successful entrepreneurs depends on the assumption
that students will encounter a similar set of circumstances in the future for which they will
be better prepared. This approach focuses excessively on the particulars of their action to
be generalized for the benefit of students. This is because the variance in what they do
is a function of the many contingencies and resources bases that constrain them. Thus,
studying a single entrepreneur cannot explain the differences in contingencies and re-
sources that they must manage. There is no general recipe for successful entrepre-
neuring. However, entrepreneurs, with help from scholars, should be able to develop
contingency frameworks in which they examine facts and make predictions based on
insights gained from divergent theoretical perspectives.
In addition, the appeal depends on the assumption that there is an ideal process
that can be explained theoretically. It must be simple enough to be taught to students.
The appeal does not suggest that we must have the theory now. Nor does it suggest
there must be agreement on what the theory should be. Nor must the theory be proven
valid at this point. In fact, there is value in teaching students imperfect theory, if we
caution them about possible shortcomings. Students can use imperfect theory to exam-
ine necessary assumptions, practice thinking critically, and in fact, improve theory them-
selves. Finally, no apology is necessary for having imperfect theory if the field is moving
forward to improve it. However, we cannot substitute anecdotal accounts, coverage of
functional responsibilities and skill development for theory.
Studying ideal entrepreneurial behavior can be demoralizing to aspiring student-
entrepreneurs. For example, one of the presenters at the retreat joked that “90% of
entrepreneurs are the first born sons of emigrant parents.” The chances are minimal
that very many students would actually match such a profile. The risk is that we could
convince unknowing students that the odds are against them if they do not match a
certain ideal profile.
There is a high failure rate among nascent entrepreneurs, so teaching students to pat-
tern their efforts after this population seems illogical. Although estimates vary, we assume
that about 20% of nascent entrepreneurs fail each year for the first five years of their
ventures. Thus, after 5 years, about 33% of those who begin a new venture are still in
business. Although this is better than the 80% failure rate commonly used for many
years, it is difficult to conclude that a typical nascent entrepreneur has learned enough
to generalize his or her experiences to other situations. It is also difficult to conclude
 TEACHING ENTREPRENEURSHIP THEORY 9

that we can learn much from studying those who survive because of mediating factors
such as luck and bias.
This analysis suggests caution in using entrepreneurs as guest speakers if our pur-
pose is to teach students what they should do to be successful. Guest speakers can work
exceedingly well if we use them to illustrate theory, which means that we should thor-
oughly brief them in advance so that they understand the specific purpose of their partic-
ipation. Students who are not prepared in advance with theory may be influenced unduly
by personal success stories. Students could unknowingly pattern their careers after an
entrepreneur who is about to fail or whose circumstances are quite different from what
the students will encounter. Thus, the entrepreneur’s formula may (will) not work for
the students.
Students must learn theory in order to understand the future consequences of their
entrepreneurial decisions. Thus, it seems improbable that adjuncts can effectively teach
the course. Teaching theory is rarely a strength of adjuncts. However, adjunct or clinical
faculty (as they are sometimes called) have proven to be very effective in team teaching
with tenure-track faculty who have theoretical training. The tenure-track faculty mem-
ber teaches theory. Afterwards, it is illustrated by the mature adjunct from his or her
entrepreneurial experiences. Third, the tenure-track faculty member summarizes what
the students should have learned about theory. Finally, the tenure-track faculty should
help the students to interpret the adjunct’s experiences using the theory introduced in
the session.
Studying average entrepreneurial profiles, anecdotal recommendations, rules of
thumb or “war stories” can only lead to average returns, given semi-strong informational
efficiency, which assumes that economic actors respond to historical and public informa-
tion (Fama 1980). Although information efficiency varies across markets (Fiet 1996),
and the actual level in a particular market is an empirical question, there is support
for this level of efficiency in public equity markets. Entrepreneurial profiles, anecdotal
recommendations, rules of thumb and “war stories” consist of general information that
is readily available to others because it can be transferred at a very low cost. In the short-
run, first movers who formulate their strategy using general information will divide any
profits that they could make with others who have similar ambitions and information.
This occurs because others enter the market. Entry continues until all entrants are earn-
ing average returns. Under this scenario, no aspiring entrepreneur would take a risk
to earn the same as anyone else.
It follows that to earn above average profits, economic opportunities that are un-
known to others must be discovered. Thus, entrepreneurial success is typically an indi-
vidual accomplishment. If it could be fully described, it would be imitated, which would
result in average returns. Books that attempt to describe how to get rich quickly by
following a particular formula will in the long-run only lead to average profits. These
conclusions are based on the theory of market efficiency and rational expectations
(Copeland and Weston 1988).
Inductive or cross-sectional research cannot detect opportunities for wealth creation.
Each of these is limited in its effectiveness if we assume that wealth creation is the result
of unique, costly to imitate discoveries. This is one reason students often find it boring
and irrelevant when we teach the results of such research. Even case study research may
not be valuable because discoveries are often dependent upon arbitraging intertemporal
differences that may be ephemeral and path dependent. The pedagogical value of re-
10 J.O. FIET

TABLE 2 Assumptions of the Appeal for Theoretical Content

1. Studying only the conduct of successful entrepreneurs depends upon the assumption that students in
the future will encounter a similar set of circumstances for which they will be better prepared.
2. Studying ideal entrepreneurial behavior can actually be demoralizing to aspiring student-entrepreneurs.
3. There is a high failure rate among nascent entrepreneurs, so teaching students to pattern their efforts
after this population seems logical.
4. Studying average entrepreneurial profiles, anecdotal recommendations, rules of thumb or listening to
“war stories” can lead to average returns, given semi-strong informational efficiency.
5. Most of our research cannot detect opportunities for wealth creation.
6. There is no apparent reason to study irrational behavior if our purpose is to teach students how to succeed.
7. Leveraging the motivational benefits of studying successful entrepreneurs may have detrimental, unin-
tended consequences.

search about how entrepreneurs succeed is that it may provide illustrations for teach-
ing theory.
There is no apparent reason to study irrational behavior if our purpose is to teach
students how to succeed. Even if entrepreneurs do not act rationally when they launch
a business, we will not suggest to students that the way to be successful is to act irration-
ally. Such observations as, “the only reason that they succeeded is because they did not
know what they were getting into when they started, otherwise they never would have
done it,” concede the argument that we do not have much to ameliorate the problem.
Leveraging the motivational benefits of studying successful entrepreneurs may have
detrimental, unintended consequences. Clearly, there are motivational benefits to study-
ing successful entrepreneurs. The danger in leveraging them is that they may beguile
students with uninformed zeal. Uninformed zeal could lead to the destruction of entre-
preneurial wealth over time. Students rarely lack the motivation to be entrepreneurs.
What they need is direction, a code word for theory.
Table 2 summarizes the assumptions of the appeal communicated herein, which
is based on the need to teach theory if we expect to deliver the content demanded by
increasing numbers of new students. The next section discusses the value of using theory
as a guide for students.

USING THEORY TO GUIDE STUDENTS

We weaken our teaching effectiveness when we try to teach the answers to questions that
have not been addressed in the literature of a theoretical stream of research. Atheoreti-
cal teaching has limited usefulness as a guide for instructing aspiring entrepreneurs
about their prospects for future success. According to Alfred North Whitehead (1917):
The importance, even in practice of the theoretical side of . . . [entrepreneurship]
arises from the fact that action must be immediate, and takes place under circum-
stances that are excessively complicated. If we wait for the necessities of action before
we commence to arrange our ideas, in peace, we shall have lost our trade, and in
war, we shall have lost the battle. Success in practice depends upon theorists who
led by other motives of exploration, have been there before, and by some good
chance have hit upon the relevant ideas. By a theorist, I do not mean a man who
is up in the clouds, but a man whose motive for thought is to formulate the rules ac-
cording to which events occur. A successful theorist should be excessively interested
 TEACHING ENTREPRENEURSHIP THEORY 11

in immediate events, otherwise he is not at all likely to formulate correctly anything

about them (p. 15).
The objective of entrepreneurship theory is to help entrepreneurs to understand the
consequences of their decisions. Why else should students study entrepreneurship? If
we do not move toward the development of a general theory of entrepreneurship, in the
end, our courses will have little more than motivational value.3 According to Professor
Whitehead (1917):
My contention is that this world is a world of ideas, and that its internal relations are
relations between abstract concepts and that elucidation of the precise connection
between this world and the feelings of actual experience is the fundamental question
of scientific philosophy (p. 16).
Like Professor Whitehead, my contention is that our classrooms should be a world of
ideas in which we elucidate the relations between abstract concepts and how they can
help our students to succeed. Standing in the way of this goal is the development of
relevant, cumulative theory within the distinctive domain of entrepreneurship.
After considering possible causes of separate, noncumulative research findings, this
article identifies opportunities for the aggregation of related findings into a more general
theory. Next, it outlines an approach for building theory so that it can be more easily
taught in our courses. This article will argue that there can be both appropriate4 and
inappropriate theoretical syntheses5 from the incautious application of such a process,
which can lead to conflicting and fallacious conclusions, as well as additional confusion
about course content. Finally, it argues that it is important for us as researchers not
only to conduct theory-based research, but also to emphasize its importance in both
our teaching and research.

POSSIBLE CAUSES FOR NON-CUMULATIVE THEORY

A possible cause for non-cumulative theory may be the performance of tests of statistical
significance on the influence of theoretically uninteresting variables. In contrast, vari-
ables are especially interesting when they provide concomitant support for competing
theoretical perspectives. Research that pits perspectives against each other is useful for
evaluating the underlying assumptions of each perspective, which eventually may lead
to more valid and reliable theory. In addition, pitting theories against each other may be
useful for identifying the domains within which each of them provides predictive power.
Another possible cause of the accumulation of unrelated results is that they are
generated by the persistent appearance of descriptive research, which often makes no
effort to contribute to our understanding of the variance in dependent variables. This
persistence is understandable because it is much easier to describe observations than
3
However, like trade schools, we could claim that we are training students in skill development such
as, incorporating a new business, patenting a product, or running an ad in the newspaper. If we opt for that
argument to support what we teach, our students will not be able to utilize what we teach them to earn above
normal returns because it is easily codifiable and transferred to others. Thus, students with trade school-like
knowledge can only earn average returns by using it, unless they are lucky.
4
Agency theory and procedural justice will be set forth as highly complementary in their approaches
and candidates for theoretical synthesis.
5
Agency theory and transaction cost economics will be discussed as similar but less appropriate as candi-
dates for a theoretical synthesis.
12 J.O. FIET

TABLE 3 Theories that Address Similar Questions about Entrepreneurship

Theories Addressing Representative
Research Question Research Question Researchers
How should entrepreneurs discover economi- Informational Economics Hayek; Arrow; Fiet
cally lucrative opportunities that others Decision Making Theory Busenitz & Barney
miss?
How should entrepreneurs identify the most Industrial Organization Porter
attractive industries? Economics
Austrian Economics Jacobson
Game Theory Nielson
How should entrepreneurs marshal the re- Agency theory Fama & Jensen
sources to launch an entirely new business? Procedural Justice Greenberg
Social Embeddedness Granovetter
Transaction Cost Economics Williamson
How should entrepreneurs create a competi- Resource-Based Theory Barney
tive advantage? Hypercompetition D’Aveni

it is to predict outcomes using theory. One way to justify the prevalence of descriptive
research is to label it as “exploratory.”
The underlying justification for exploratory research is that not enough is known
to formulate testable hypotheses. If we substitute the word “hunch” for “hypothesis,”
there are very few instances when we do not have a hunch about the results of even
the most preliminary research. Often our hunches are based on our understanding of
theories that have generated satisfactory research outcomes for us in the past. If no
known theory can assist us to develop insight about a hunch, we are free to propose
a new one. Proposing a new theory when we cannot interpret a research question with
an existing one is better than conducting atheoretical research. All that we do when
we propound a new theory is tell a story. Theory building is no more than story telling
(Daft 1987).

OPPORTUNITIES FOR THE AGGREGATION OF

RELATED THEORIES
All theories in the social sciences, including those that examine entrepreneurs, are in
some ways inaccurate, contradictory, or incomplete. Consequently, it is not surprising
that many of these separate theories do not easily cumulate, especially because most of
them do not have their origin in entrepreneurship research. Nevertheless, they provide
penetrating insights on many aspects of entrepreneurial conduct and wealth creation.
The purpose of this section is to identify groups of theories that address the ques-
tions posed in the Rensselear theory building exercise.6,7 Ideally, it would have been
possible to demonstrate how most of the Rensselear submissions could be incorporated
into a general theory of entrepreneurship that could be easily taught to students. How-
ever, such a task may be impossible and beyond the scope of this article. Table 3 summa-

6
Space limitations prevent providing an extensive analysis and comparison of each of the theories re-
viewed in this section. Those wishing more information about particular theories than is provided in this
section or in Table 1 should consult the references in this section.
7
Some minor changes were made in the actual questions to make them editorially consistent in
this article.
 TEACHING ENTREPRENEURSHIP THEORY 13

rizes possible groupings of theory. The discussion that follows illustrates how divergent
perspectives provide insights into different aspects of each question.

Question One: How should entrepreneurs discover economically lucrative

opportunities that others miss?
Serial entrepreneurs seem to have a special knack for repeatedly discovering hidden
value. Are they simply luckier than the rest of us? If their discoveries depend upon luck,
it follows that the rest of us should resist the urge to be entrepreneurial, unless of course,
we feel especially lucky. Two perspectives provide insights into this conundrum.

Informational Economics
It is the study of how entrepreneurial discoveries should be made, not necessarily how
they are made. It assumes that not all information is equal in value when it comes to
making entrepreneurial discoveries. Information that is related to the time, place, or
special circumstances of a potential deal is more valuable in making an entrepreneurial
discovery than general information (Fiet 1996, in press; Gifford 1992, in press; Hayek
1945). It suggests that information, like any other commodity, can be purchased at a
price, however, ex ante, its acquisition is partially a gamble on its unknown value. Never-
theless, entrepreneurial discovery is viewed as a rational investment process that can
be understood and mastered.

Decision-Making Theory
Busenitz and Barney (1997) argue that entrepreneurs often substitute biases and heuris-
tics for well-reasoned analysis and investments in specific, risk-reducing information
about a deal. They do this to economize on decision-making effort in the face of the
many choices that they encounter when launching a new business (c.f., Kahneman and
Tversky 1984; Tversky and Kahneman 1981).
We would know much more about how to discover lucrative opportunities if the
insights from informational economics and decision-making theory were integrated. For
example, when is it optimal to invest systematically in the acquisition of risk-reducing
information and when is it acceptable to circumvent this rational process by using short
cuts, such as biases and heuristics?

Question Two: How should entrepreneurs identify the most

attractive industries?
The pharmaceutical, medical devices and semiconductor industries have been histori-
cally much more profitable than inter-city buses, steel, and corn farming. If we knew
the causes for these differences in industry attractiveness, we could coach entrepreneurs
to avoid competing in certain industries or alternatively, to attempt to restructure them
through cooperative strategies, regulation, and government lobbying. This section ex-
amines three approaches for understanding industry attractiveness.
14 J.O. FIET

Industrial Organization Economics

Michael Porter (1980) summarized 40 years of research on the structure of industries.
He argued that the critical competitive factors were buyers, suppliers, substitutes, poten-
tial entrants, and rivals. The important dimension connecting these factors is interde-
pendence, which prevents one competitor from earning above normal returns without
it lowering the profits of other firms in the industry. The greater the competitive interde-
pendence among firms, the less attractive are the prospects of the average entrepreneur
to earn above normal profits (Copeland and Weston 1988). The way to prosper in Por-
ter’s five forces world is “[colluding] behind strategically erected entry barriers . . .” (Ja-
cobson 1992, p. 783; c.f., Rumelt 1988). The problem for entrepreneurs is that without
erecting barriers to entry, there is no incentive to incur the risk of possible losses associ-
ated with discovery and innovation.

Austrian Economics
It assumes that entrepreneurs possess heterogeneous resources from which they can
earn Ricardian rents (Rumelt 1987). In addition, they can earn quasi-rents through capi-
talizing on innovation and then utilizing isolating mechanisms to forestall competitive
imitation (Rumelt 1987). Entrepreneurs also have a high level of uncertainty because
of incomplete or inaccurate information. Finally, entrepreneurs may not know how to
duplicate each other’s strategies without suffering from a cost disadvantage. The as-
sumptions of Austrian economics are actually the opposite of the equilibrium assump-
tions of such neoclassical economists as Walras (in 1874) and Marshall (in 1890). Indus-
trial organizational economics is actually derived later from the least stringent
assumptions of Neoclassical Economics (c.f., Kirchhoff 1997).

Game Theory
This theory identifies different games that are played by competitors (Grimm and Smith
1997). These games are zero-sum, positive-sum/growth, negative-sum/decline, and
change to positive-sum/growth, among others (Nielsen 1988). The rules of a game spec-
ify the ways in which competitors are allowed to compete in a given industry. Competi-
tors have little power to change the rules of a game in which they compete. Positive-
sum/growth games enable competitors to increase their sales while merely maintaining
market share, whereas for a negative-sum/decline game, competitors must increase their
market share to hold on to their existing sales. The most promising way for rivals to
improve the outcomes from their game is to cooperate with each other to stimulate
primary demand. Unless competitors cooperate to change the rules of their game, they
may be consigned to a competitive equilibrium in which none of them will really prosper.
Deciding which of these industry descriptions (theories) is the most appropriate
indicator of industry attractiveness is an empirical question. It seems apparent that Aus-
trian economics describes most industries. However, the other two are also plausible,
as are others that are not reviewed here. Ideally, each of these could be integrated in
one theory that could provide contingent insights.
 TEACHING ENTREPRENEURSHIP THEORY 15

Question Three: How should entrepreneurs marshal the resources to launch

an entirely new business?
Aspiring entrepreneurs and public policy makers have lamented the capital gap that
purportedly exists, which may prevent those with deserving ideas from being funded.
Several theories contribute to understanding how this capital gap can be overcome.

Agency Theory
It assumes that resource suppliers and entrepreneurs may have divergent self-interests
(c.f., Eisenhardt 1989; Fama and Jensen 1983; Jensen 1994; Jensen and Meckling 1976).
If entrepreneurs are to succeed in acquiring needed resources, they must provide re-
source suppliers with incentives to compensate for their different interests. Agency the-
ory contributes greatly to our understanding of incentive alignment problems, such as
those associated with venture funding. It suggests that entrepreneurs can substitute
monitoring for bonding, if they lack necessary capital, and vice versa, if they do not
wish to be monitored (Barney, Fiet, Busenitz, and Moesel 1996).

Procedural Justice Theory

It suggests that preserving an effective ongoing relationship between the entrepreneur
and venture capitalists requires that the parties be able to maintain the perception that
their exchange partner is acting fairly in compensating them for contributed work (Fiet,
Busenitz, Moesel, and Barney 1997; Greenberg 1987, 1990; Korsgaard, Schweiger, and
Sapienza 1995; Sapienza and Korsgaard 1994).
Whereas agency theory emphasizes possibly different interests, procedural justice
suggests how these differences may be overcome.

Transaction Cost Economics

It also contributes to our understanding of the availability of financing for new busi-
nesses. Although agency theory relies upon the assumption of market efficiency, trans-
action cost economics presupposes that firms actually come into existence when markets
fail to be informationally or allocationally efficient. Williamson (1975, 1985) notes that
many factors may contribute to market inefficiency, particularly those mentioned in
Table 2 under human and environmental assumptions. Transaction cost economics
shares with agency theory the observation that one way to overcome any opportunistic
tendencies of providers and users of capital is to monitor the capital user.

Social Embeddedness Theory

Entrepreneurs acquire needed resources through exchange relationships. Over time,
these relationships may socialize the exchangers so that they become trustworthy (Fiet
1995; Granovetter 1985), which lowers acquisition costs. In contrast, infrequent ex-
changers have higher acquisition costs due to possible malfeasance. The network of ex-
change relationships serves as an implicit monitoring device to forestall opportunism.
Granovetter (1985) would argue that opportunism is unlikely when exchange relations
16 J.O. FIET

become socially embedded because repeated reciprocal exchanges supplant opportun-

ism with trust. To the extent that entrepreneurs can increase the frequency of exchanges,
trust increases and decreases acquisition costs.
Clearly, improving our understanding of market efficiency, incentive alignment and
trust, as suggested by these approaches, would greatly add to our understanding how
to advise aspiring entrepreneurs to launch their ventures.

Question Four: How should entrepreneurs create a competitive advantage?

Michael Porter (1985) heightened our awareness of the desirability of a competitive
advantage in his second book. He suggested that firms that possessed a competitive ad-
vantage would be positioned to earn higher profits. The following theories address this
issue of competitive advantage.

Resource-Based Theory
This approach attends to a firm’s heterogeneous collection of resources, which are
housed internally (Penrose 1959; Wernerfelt 1984; Barney 1986; 1997). These resource
bundles (or capabilities) enable a firm to generate quasi-rents, which are an attribute
of the resources. Barney (1997) suggests that there are four major criteria that these
resources must satisfy to serve as potential sources of sustainable competitive advan-
tage. These criteria are (1) valuable, (2) rare, (3) imperfectly imitable, which includes
both non-duplicatability and non-substitutability, and (4) the degree to which a firm
is organized to exploit a resource. The implication of this approach is that entrepreneurs
can chose strategies, which are consistent with their resources, to gain a sustainable com-
petitive advantage for their firms.

Hypercompetition
This reframing of Austrian Economics by D’Aveni (1994) argues that all competitive
advantages are temporary because of increased and increasing competitive rivalry.
Therefore, rather than attempting to protect their competitive advantage, entrepre-
neurs should continually strive to obsolete them before they are used by a competitor
as a platform for creating the next innovation. Alternatively, a competitor could attempt
to destroy a competitor’s advantage, which would also serve to protect the distance be-
tween competitive products or services. The correct approach, according to D’Aveni,
depends upon the perceived stage of competitive rivalry.
Resource-based theory and the theory of hypercompetition use differing assump-
tions about the viability of a strategy intended to generate a sustainable competitive
advantage. In fact, they do not even agree that the generation of such an advantage
is possible or even advantageous. Should a firm continually innovate to obsolete its own
advantages and those of its competitors or should it invest in protecting what it already
possesses? These are the questions posed by these two theories of sustainability.
All of the theories summarized in Table 1 provide plausible premises that instruc-
tors can use to teach entrepreneurship theory.8 Entrepreneurship students can utilize

8
There is some disagreement about whether each of these “theories” is in fact a theory. Because they
originate from different disciplines, it is quite difficult to arrive at a consensus about what constitutes a theory.
 TEACHING ENTREPRENEURSHIP THEORY 17

them also in certain circumstances if they are careful to follow the recommendations
in the next section. Problems develop when students assume that these theories can be
applied generally without taking into account various contingencies. Moreover, these
are only some of the theoretical platforms that we can use.

A CONTINGENCY APPROACH FOR TEACHING

ENTREPRENEURSHIP THEORY
Until we have a general theory of entrepreneurship, as mentioned earlier, all current
theories of how entrepreneurs succeed are in some ways inaccurate, contradictory, or
incomplete. This contention should be noteworthy to both instructors and aspiring en-
trepreneurs. However, as indicated by the preceding review of attempts to address ques-
tions about entrepreneurs, we have made impressive progress in our too frequently,
separate, but parallel research efforts.9 Several of the theories in the preceding review
address the same research questions, although they do so using different assumptions
or contingencies.
The purpose of this section is to suggest a contingency approach for examining the
differing assumptions of theories that address similar entrepreneurial questions. This
approach, consisting of three questions, should assist entrepreneurs to understand bet-
ter the consequences of their decisions. These are the three questions: (1) Upon what
assumption(s) does this conclusion depend? (2) What evidence is there for this assump-
tion? (3) What alternative assumption(s) could explain this conclusion? Each of these
is reviewed below:

1. Upon what assumption(s) does this conclusion depend?

This question recognizes that in order for theories to be distinct, they must rely upon
different assumptions. If they did not rely upon different assumptions, they would not
be internally consistent because they reach different conclusions. Table 4 summarizes
five different categories of theoretical assumptions. These assumptions are (1) primary
domain, (2) key idea, (3) unit of analysis, (4) level of analysis, and (5) human and/or
environmental constraints. Table 4 also provides illustrations of each of these assump-
tions for six theories that have been recently applied in entrepreneurship research.10
The illustrations in Table 4 indicate that some approaches turn upon their degree
of presumed market efficiency, notably transaction cost economics and agency theory,
whereas power theory assumes that those who possess power can decide for others.
Transaction cost economics also assumes that humans may act opportunistically,
whereas the social embeddedness view predicts that embedded social relations will pre-
vent it from occurring. A long-term view of the negative consequences in the relation-

Some may feel more comfortable referring to them as “perspectives.” For the purposes of this article, synthesis
is more important than definitional precision.
9
All that is needed to substantiate this contention is to compare how entrepreneurship was taught
twenty years ago with how it is taught today. Twenty years ago, entrepreneurship education consisted of drills
in the fundamentals of running a business, anecdotes, successful entrepreneur guest speakers, and war stories.
Today, we have several publication outlets for theory-based research and forums where we can debate what
and how we teach.
10
The selection of these illustrations is not intended to elevate particular theories above others that
were omitted, or to suggest that those that were omitted offer less insight. They are provided for illustrative
purposes only.

TABLE 4 Assumptions of Selected Theories Utilized in Entrepreneurship Research
Theory Primary Domain
Agency Relationships in which prin-
cipal and agency may
have partially differing
goals and risk prefer-
ences
Procedural The reward process in
Justice exchange relationships
Transaction Cost Markets, hierarchies, and
vertical integration
Power The sources of power
Resource-based Firms
Social Embeddedness Exchange relationships
18
Human and/or
Key Idea Unit of Analysis Level of Analysis Environmental Constraints
J.O. FIET
Principal-agent rela- Contract between Usually individual but Self-interest
tions should reflect principal and agent relationships can chris- Bounded rationality
efficient organiza- cross the entire economy Risk aversion
tion of information
and risk-bearing
costs
Rewards will be meted Wide variety of exchange re- Usually individual, but like Humans want to be treated
out on the basis of lationships agency theory, rerla- fairly
the perceived fair- tionships can chris-cross Self-interest
ness of the exchange the entire economy Bounded rationality
Promotes efficient Transactions, both inside and Functional, business or cor- Bounded rationality
transactions as a ba- outside the firm porate Opportunism
sis of organizing Information
impactedness
Asset Specificity
Uncertainty/complexity
Small numbers
Focuses on the effi- Sources of power Can occur at personal, func- Self interest
ciencies that can be tional, business and corpo- Opportunism
achieved based on rate.
power that can be ex-
ercised.
Firms are composed of The resource or capability Resources are at the func- Some of each person’s
heterogeneous re- tional level and capabili- knowledge about his/her
sources, which in ties are at the business resources remains private,
proper combination, level which could serve as a ba-
if exploited, could be sis for a sustainable com-
a source of sustain- petitive advantage
able competitive ad-
vantage
Repeated exchanges so- Repetition in exchange rela- Usually individual, but like Humans can be trusted
cializing the ex- tionships agency theory and proce- Well-founded trust is eco-
changers into being dural justice, relationships nomical
trustworthy can chris-cross the entire
economy
 TEACHING ENTREPRENEURSHIP THEORY 19

ship among exchangers can also prevent opportunism, as is explained by the procedural
justice perspective.
It is important not to attempt to integrate theories by combining ones with different
underlying assumptions unless these assumptions are modified to make them compati-
ble. For example, trying to combine agency theory with transaction cost economics is
not appropriate without modifying some of the basic assumptions of each. Because one
approach assumes market efficiency and the other market failure, although their human
and environmental constraints appear very similar, these subtle efficiency differences
generate markedly different predictions. According to transaction cost economics, firms
are launched when markets fail. In contrast, agency theory suggests that firms are
launched in part to resolve the problem of shirking during team production (Alchian
and Demsetz 1972). Because some markets are inefficient and fail,11 agency theorists
have occupied most of the last 20 years identifying conditions that explain observed
market inefficiency.
It may be appropriate to integrate separate theories when their assumptions are
complementary. For example, Fiet et al. (1997) found that agency theory and procedural
justice theory could be used jointly to understand venture capitalist-initiated dismissals
of members of a new venture team because their separate insights were complementary.
They found that clearly signaling the consequences of an undesirable behavior could
reduce the incidence of dismissals, according to agency theory. Procedural justice entails
more than signaling the negative consequences of an undesirable behavior. To act in
a way that is perceived as procedurally just, exchangers must be concerned about the
capacity of survivors to be productive. Procedural justice does not foreclose negative
incentives, as long as they are perceived as being meted out fairly.
Table 5 compares the decision-making criteria used by entrepreneurs, given the
assumptions of the six different theories in Table 4. If an entrepreneur is interested in
evaluating the sustainability of a competitive advantage that could be generated by de-
veloping a strategy based on proprietary resources or capabilities, he or she should con-
sider the resource-based theory of the firm. If an entrepreneur is interested in under-
standing those factors that will affect the birth and survivability of his or her firm,
transaction cost economics should be consulted. If an entrepreneur is interested in
knowing whether he or she should be concerned about possible opportunistic behavior,
he or she should consider the assumptions of both transaction cost economics and the
social embeddedness view. The question of which of these approaches should be used
to determine the probability of opportunistic behavior depends upon the next question.

2. What evidence is there for this assumption?

This question asks us to consider the validity of a theory’s assumptions. It is impossible
to evaluate the comparative validity of two internally consistent theories without consid-
ering the supportive evidence for the assumptions of each one.
Fiet (1995b) pitted transaction cost economics against the social embeddedness
view to predict the degree to which business angels and venture capital firm investors
rely upon information from informants, information that could be changed to favor the

11
The informal market for venture capital is an example of one that fails because its business angel
investors constantly complain about not having enough deals to review. Interestingly, angels are part of this
problem because they have a desire for privacy and wish to preserve their anonymity (Fiet 1995a).
20 J.O. FIET

TABLE 5 Important Decision Criteria of Select Theories Utilized in Entrepreneurship

Research
Theory Key Decision Criteria
Agency Agents have separate and possibly divergent interests from those of the principles.
Monitoring may be utilized to detect agent behavior that is harmful to principals.
It may be further reduced through incentive alignment, being careful to not
shift excessive risk for loss of compensation for work performed to the agent.
Risk of loss is more efficiently borne by principals who can diversify their risk
of loss.
Procedural Justice Because a fair distribution of rewards can not always be determined, it may be
possible to substitute the installment of a fair reward system and then to ensure
that the procedures themselves are scrupulously followed. In this way, the
procedures become a proxy for fair distribution.
Transaction Cost Firms exist when the cost of doing business, including transaction costs, is less
within the hierarchical structure of the firm than it would be in the market.
The process of shifting transaction within the boundaries of a firm is referred
to as vertical integration.
Power Dependency, financial resources, centrality, nonsubstitutability, and the ability to
cope with uncertainty are potential sources of power.
Resource-based If a resource (or capability) is valuable, rare, imperfectly imitable (including, non-
duplicable, and non-substitutable) and if a firm is organized to exploit it, it may
generate a sustainable competitive advantage and above normal returns.
Social Embeddedness An exchange relationship becomes embedded in a larger network of exchange
relationships after repeated, and preferably frequent exchanges. The result is
that participants become socialized to a network’s norms of reciprocity and
fairplay. Once socialization takes place, the embedded relationship serves as a
governance mechanism to ensure against opportunistic, end-game power plays.

informant. He found that when exchanges of information among informants were fre-
quent, as in the case among venture capital firm investors, trust was high. In fact, trust
among venture capital firm investors was higher than among business angels, who com-
plained about inadequate requests for funding, as well as less frequent contacts with
informants, which could have developed greater trust. Fiet’s (1995b) results suggest that
each theory is valid, depending on the number and frequency of exchanges that occur
among the informants.
A more recent study by Fiet et al. (1997) compared the validity of predictions made
about the dismissal of new venture team members (NVT) by venture capitalists. It com-
pared predictions made by agency theory, procedural justice and power theory. They
report the following results:
Poor performance is associated with NVT dismissals, as predicted by agency theory.
However, the actual occurrence of dismissals seems to be moderated by the power
of the board of directors (i.e., the smaller the size of the board and the greater the
number of VC-controlled seats) and the necessity to act in a procedurally just manner
so NVT survivors will not feel threatened (p. 363).
This study found that each of these theories provided an incomplete explanation of NVT
dismissal. However, when their interpretive insights were integrated, it found them to
be complementary and synergistic.
These studies by Fiet and his colleagues suggest that each of the competing theories
tested by them is at least partially valid.12 However, their individual validity was contin-
12
Busenitz, Fiet, and Moesel (1998) studied the effects of strategic intervention by venture capital firms
on the performance of their investee firms. In their longitudinal study, they contrasted the predictions of
 TEACHING ENTREPRENEURSHIP THEORY 21

gent upon the circumstances of the encounter. Given the partial and contingent nature
of only these conclusions, it is important to be willing to accept other explanations for
phenomenon. If we are willing to be open to other explanations, we will probably be
surprised and delighted by unexpected outcomes. Until we arrive at a general theory
of entrepreneurship, entrepreneurs may obtain valuable insights from considering the
predictions of multiple theories, which will be useful for ensuring that they are asking
pertinent questions about the future effects of their decisions.

3. What alternative assumption(s) could explain this conclusion?

Considering possible alternative assumptions underlying our conclusions is important
for several reasons. First, it is important to consider that our judgments about the conse-
quences of our decisions can often be influenced by the views of others, as in the case
of groupthink (Janis 1982). It is safe to argue that when everyone agrees with the correct-
ness of a particular argument, there is some aspect of the argument that is being over-
looked. These are complex matters and reasonable researchers ought to disagree until
they understand a phenomenon very well.
Second, a psychological process that sometimes obscures our judgment is escalation
of commitment (Staw 1981). Students of this process have observed that personal com-
mitment to the correctness of former judgments may increase with the passage of time
and investment. Reaching an early consensus may indicate that it is appropriate to re-
consider implicit assumptions.
Third, Fiet et al. (1997) describe an impatient discussion about the relative value of
organizational economics and traditional management theory between Lex Donaldson
(1990a, 1990b) and Jay Barney (1990) in which the latter cited Clay Alderfer:
Professor Alderfer argued that many of the conflicts between academic disciplines
[read, entrepreneurship theory] could be analyzed using models of “intergroup con-
flict” (Barney 1990, pp. 389 & 390). According to Barney (1990), these debates often
devolve into turf battles with the combatants erecting intellectual barriers to entry
presumably by influencing gatekeepers who guard the most influential publication
outlets. These turf wars, Barney (1990) argued, inhibit intellectual inquiry and stifle
debate, which ultimately eviscerates the most potentially interesting and productive
inquiry (p. 363).

Two requirements for building a general theory are that its assumptions be both inter-
nally consistent and valid. It would be quite rare that a theory could survive the peer
review process and yet still have internal inconsistencies in its assumptions. Thus, if we
wish to understand theoretically generated predictions, our primary concern should be
to check for contradictory evidence that could invalidate a theory. For researchers, con-
tradictory evidence means that we must ask ourselves the following question: “Can this
theory’s assumptions be modified to correct for contradictory evidence?” In addition,
entrepreneurs can modify a theory’s assumptions to correct for biased and inaccurate
predictions. The process is similar for both groups because in reality, all that entrepre-
neurs are trying to do is construct a theory about the consequences of their decisions.
Can we teach aspiring entrepreneurs to predict the future using research-generated

learning assistance theory, agency theory, and procedural justice theory. Learning assistance theory was not
supported, agency theory predictions were actually found to be negatively related to actual performance,
and procedural justice theory was supported. This study is important because it not only pits three theories
against each other, but it does so using 6 years of longitudinal data.
22 J.O. FIET

theory? Probably not yet, but we can at least teach them to be systematic as they go
through the same assumption-checking process as researchers. In addition, if they at-
tempt to do it without the assistance of theoreticians who have already done most of
the pioneering work, it will be a much more difficult and time-consuming.
Should researchers conduct atheoretical research? They can but they still need to
ensure that their work does not contradict received assumptions so that it contributes
to the eventual development of a general theory of entrepreneurship.
As scholars, we have the responsibility to teach aspiring entrepreneurs the value
of theory. We also have a larger institutional responsibility to the field to move it toward
a general theory of entrepreneurship. Meanwhile, we can teach aspiring entrepreneurs
to use what is known on a contingent basis. We do not have to promise more than our
theory-building efforts can presently deliver. We should be able to admit theoretical
limitations without becoming apologists that current entrepreneurship theory repre-
sents unfinished business. In this sense, we have a great deal in common with entrepre-
neurs. The business of our separate endeavors is to construct a more accurate, general
theory about the future.

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