The opportunity recognition process and new venture start-up motivators: The real options approach

This study utilizes the Panel Study of Entrepreneurial Dynamics (PSED) to examine the decision making process of nascent entrepreneurs (NEs) in the United States. Drawing on the real options theory, I check whether the motivators that drive the start-up of the new business venture (NBV) differ between the proactive NEs (i.e., those individuals who proactively look for business opportunities with the goal of becoming an entrepreneur) and the reactive NEs (i.e., those individuals who reactively decide to become an entrepreneur only after a business opportunity presents itself). OpR is one of the central areas of entrepreneurial research. Stevenson and Jarrilo (1990) proposed a definition of entrepreneurship that emphasized opportunity: ”the essence of entrepreneurship is the willingness to pursue opportunity, regardless of the resources under control.” Venkataraman (1997) concluded that entrepreneurship requires both enterprising individuals and lucrative opportunities (i.e., entrepreneurship cannot exist without OpR). It has been argued that entrepreneurs are stimulated by different motivators depending on their gender, ethnicity, desire for independence and other factors and circumstances. However, I believe that many of the previously researched factors (e.g., gender and ethnicity) are, in fact, secondary to the fundamental distinction between entrepreneurs in regards of their OpR: reactive vs. proactive. Reactive NEs can be hypothesized to start their NBVs for different reasons than proactive NEs. According to McMullen and Shepherd (2002), little attention has been given to the research on motivation, and ”this neglect is disconcerting.” Whereas overall research on motivation is lacking, research on reactive vs. proactive OpR and motivations appears to be non-existent. Real options theory leads us to believe that NEs are making discrete choices under uncertainty in a way that maximizes their learning and contains downside risk while allowing them to capitalize on upside opportunities. Real option theory is particularly suitable for assessing uncertain projects in the rapidly changing competitive environment and has recently become a focus of managerial research (e.g., McGrath 1999; 2003).