Prior knowledge and the discovery of entrepreneurial opportunities

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Citation: Scott Shane (2000) Prior knowledge and the discovery of entrepreneurial opportunities. Organization Science (RSS)
Internet Archive Scholar (fulltext): Prior knowledge and the discovery of entrepreneurial opportunities
Tagged: Business (RSS) Entrepreneurship (RSS)

Summary (Abstract)

Shane's paper is framed heavily in terms of economic understandings of entrepreurship. Shane argues heavily in favor of an Austrian approach to understanding entrepreneurship (Kirzner 1997). Neo-classical theories assume perfect information and explain that certain people engage in entrepreneurship due to differences in individuals. Similar to this, a literature on psychology has explained entrepreneurship based on traits of individuals entrepreneurs. Shane argues that the Austrian approach, which assumes that information is imperfectly distributed and that entrepreneurs have access to different information and aim to exploit their local information through entrepreneurship, is better supported and brings empirical multiple case-study data to support this argument.

Shane offers three propositions:

  • Individuals are not equally likely to recognize a given entrepreneurial opportunity
  • People can and will discover entrepreneurial opportunities without actively searching for them
  • People's prior knowledge will affect which markets to enter, how to use a technology to serve a market, and their discovery of products and services to exploit a given technology.

Shane's empirical evidence is case-study based and looks at 8 different attempts to create firms and commercialize 3D printing technology developed at MIT. Shane's interviews each of the founding teams, investors, the TLO, and archival information to build a very strong case for the propositions he offered.

Shane shows that the different attempts were radically different -- drug production, rapid prototyping, prosthetic bone production, etc. Additionally, each attempts was created by individuals with strong local knowledge relevant to the field in which they saw the 3D printing technology as being useful.

Theoretical and Practical Relevance

Shane's evidence is overwhelmingly convincing and has been widely refered to in the literature on entrepreneurship. Indeed, his argument and data are so clear that the idea that the more traditional understanding might be true seems almsot indefensible before his evidence is offered. It has gone on to be hugely influential in the literature on the origins of entreprenurial activity. It has both launched the Austrial perspective into the mainstream of the literature and gathered more than a thousand citations itself.