Entrepreneurial Heuristics: A Comparison between High PI (Pioneering/Innovative) and Low PI Ventures

Abstract

Entrepreneurship researchers in recent years have been experiencing growing disillusionment about the traditional lines of research in the field with its focus on the conducive environment, background and early experiences of the entrepreneur, and the traits and motives of the entrepreneur. It has been rightly pointed out that such research has had very little success either in predicting entrepreneurial behaviour or in producing useful inputs for entrepreneurship training and development. The present paper reports on a study of a new variable, namely entrepreneurial heuristics, which has tremendous potential for predicting entrepreneurial behaviour and providing training and counseling inputs for entrepreneurs.“Entrepreneurial heuristics” were defined as the thumb-rules guiding the management decisions involved in the start-up and management of a new venture. The objective of the study was to identify such decision-rules and compare them for the more innovative and less innovative ventures. Data on innovativeness and use of heuristics were collected from 138 published undisguised cases on entrepreneurs, using the “case-survey method” that involved the content analysis of these cases and quantification of the above variables. Case data thus collected were verified against the field data collected from a comparable group of 26 ventures, which raised the size of the final sample to 164.The sample was then divided into three groups based on the distribution of innovativeness scores; the top third was called the high PI group and the bottom third the low PI group. Heuristics that were significantly different for the two groups were called the PI heuristics, and the others were called the general entrepreneurial heuristics. The two groups of heuristics were separately factor-analyzed to find the PI orientations and the general entrepreneurial orientations respectively.A regression analysis showed that entrepreneurial orientations especially the PI ones could explain as much as 50% of the variance in innovativeness and provided some support for the hypothesis that the causal relationship between PI orientation and innovativeness is likely to be stronger in that direction (heuristics causing innovativenss) than in the opposite direction. Finally, a discriminant analysis has shown that PI orientations could fairly well discriminate between the high PI and the low PI groups with a probability of misclassification of 0.12.An analysis of the PI heuristics juxtaposed with the case facts from which they were originally derived has shown that the high PI ventures could be described using a hypothesised model characterized by the following five orientations: • intrinsic orientation as opposed to extrinsic orientation • organic growth orientation as opposed to transplantation orientation • entity orientation as opposed to property orientation • people orientation as opposed to self-orientation • vision orientation as opposed to opportunity orientationUnderstanding the heuristics of innovative ventures (more importantly those of successful ventures, which have not been investigated here) would be of use to entrepreneurs as well as academics, especially because it is much easier for a person to change policies than to change traits/motives and/or worry about background and the environmental conditions. Moreover, in entrepreneurial heuristics we have a researchable variable that is much more closely related to entrepreneurial action than are traits and motives. An added advantage is that there is no need for a paradigm shift because the study of heuristics is well within the strategic choice paradigm, as opposed to the population ecology paradigm.