When to Be a Nonconformist Entrepreneur? Organizational Responses to Vital Events
Elizabeth G. Pontikes
University of Chicago - Booth School of Business
William P. Barnett
Stanford Graduate School of Business
September 1, 2012
Chicago Booth Research Paper No. 12-59
Salient successes and failures among organizations, such as spectacular venture capital investments or agonizing bankruptcies, affect consensus beliefs about the viability of particular markets. We argue that such vital events lead to over-reactions in the organizational entry process, with new firms flooding the market after salient successes and a dearth of entries after salient failures. Particularly notable are the implications of nonconformity under these conditions. An entrepreneur who bucks the consensus and enters a market after salient failures must endure considerable scrutiny, and so is likely have a strong fit to that market. Such a nonconformist will be spared from a passing fad, whereas an entrepreneur that follows trends is more likely to enter markets that are not a good fit for the organization. So we propose that in the wake of salient vital events nonconformity is a preferable approach. We find support for this idea in an analysis of software firms: Organizations that enter a software “market space” after salient bankruptcies are especially likely to remain, while those that enter a space after high-profile venture capital funding events are especially likely to leave.
Number of Pages in PDF File: 33working papers series
Date posted: January 20, 2013
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