Uncertainty, risk preference, and new-venture strategies

Susan F. Storrud-Barnes, Richard Reed, Leonard M. Jessup

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

Purpose – Conventional wisdom holds that the difference between entrepreneurs and managers is large, while uncertainty and risk are virtually interchangeable. Uncertainty and risk are treated as separate constructs and then real-options thinking and prospect theory are drawn upon to determine how they affect the actions of entrepreneurs and managers. The purpose of this paper is to determine specifically, how the above constructs interact to affect the strategies entrepreneurs and managers are likely to adopt when undertaking new ventures. Design/methodology/approach – The research uses deductive theorizing to build a theoretical model. Findings – Contrary to conventional wisdom, it is concluded that the difference between entrepreneurs and managers is less than believed, while the effect of the difference between uncertainty and risk is larger. It is determined that entrepreneurs and managers use similar strategies when faced with similar conditions of uncertainty and when they have similar risk preferences. When environmental uncertainty is low, risk-seeking entrepreneurs and managers will prefer licensing, whereas the risk averse will prefer wholly owned new ventures. When environmental uncertainty is neither high nor low, both risk-averse and risk-seeking entrepreneurs and managers will prefer alliances. When environmental uncertainty is high, risk-averse entrepreneurs and managers will prefer licensing, whereas risk seekers will prefer wholly owned. Originality/value – By separating uncertainty and risk, this research is able to show how their interactions become the drivers of strategic decisions by entrepreneurs and managers. This is new to the literature, and the work thus reveals an opportunity for further sophistication of strategy theory and an opportunity to reduce the barriers between theory on entrepreneurship and management theory.

Original languageEnglish (US)
Pages (from-to)273-284
Number of pages12
JournalJournal of Strategy and Management
Volume3
Issue number3
DOIs
StatePublished - Aug 10 2010

Keywords

  • Corporate ventures
  • Entrepreneurs
  • Management strategy
  • Product innovation
  • Risk management
  • Uncertainty management

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management

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