Governing The Search For Value: A Preliminary Theory of Entrepreneuring
41 Pages Posted: 17 Mar 2016 Last revised: 21 Apr 2020
Date Written: March 14, 2016
Although both entrepreneurship and strategy scholars agree that search strategies are crucial for the creation and capture of new value, little research considers which strategies to use and under what conditions, when to change course, or how to allocate decision rights associated with these choices. This paper develops a theory of entrepreneurial search grounded in a governance perspective, showing how systematic cognitive biases give rise to search hazards that can lead to ineffective or inefficient—i.e., maladaptive—search. We identify and compare three alternative archetypal governance structures that can help to mitigate search hazards. Drawing from the literature on governance and financial contracting, we analyze how contracts between entrepreneurs and financiers vary in their costs and capabilities with respect to cash flow and liquidation rights, “entrepreneuring” rights, and control rights. Our theory predicts when different types of financing contracts, and hence governance modes, will be used between entrepreneurs and financiers.
Keywords: Entrepreneurship, Experimentation, Search, Governance, Problem-Solving Perspective
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