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The empirical reality of entrepreneurship: How power law distributed outcomes call for new theory and method

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  • Christopher Crawford, G.
  • McKelvey, Bill
  • Lichtenstein, Benyamin B.

Abstract

Entrepreneurship researchers typically assume that normal (i.e., Gaussian) distributions characterize the outcomes of interest. Our research challenges this assumption by examining a sample of 6,530 firms to uncover the shape of the distribution for two key variables in entrepreneurial firms: number of employees and revenues. Results show highly skewed power law distributions. Future researchers need to recognize the relevance of power laws and extreme outcomes and then search for the underlying generative causes.

Suggested Citation

  • Christopher Crawford, G. & McKelvey, Bill & Lichtenstein, Benyamin B., 2014. "The empirical reality of entrepreneurship: How power law distributed outcomes call for new theory and method," Journal of Business Venturing Insights, Elsevier, vol. 1, pages 3-7.
    • Handle: RePEc:eee:jobuve:v:1-2:y:2014:i::p:3-7
    DOI: 10.1016/j.jbvi.2014.09.001
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    References listed on IDEAS

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    1. Paul Davidson Reynolds, 2007. "Entrepreneurship in The United States," International Studies in Entrepreneurship, Springer, number 978-0-387-45671-3, November.
    2. Taleb, Nassim Nicholas, 2007. "Black Swans and the Domains of Statistics," The American Statistician, American Statistical Association, vol. 61, pages 198-200, August.
    3. repec:mpr:mprres:6397 is not listed on IDEAS
    4. Herbert A. Simon, 1955. "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 69(1), pages 99-118.
    5. Lichtenstein, Benyamin B. & Dooley, Kevin J. & Lumpkin, G.T., 2006. "Measuring emergence in the dynamics of new venture creation," Journal of Business Venturing, Elsevier, vol. 21(2), pages 153-175, March.
    6. Bill McKelvey & Benyamin B. Lichtenstein & Pierpaolo Andriani, 2012. "When organisations and ecosystems interact: toward a law of requisite fractality in firms," International Journal of Complexity in Leadership and Management, Inderscience Enterprises Ltd, vol. 2(1/2), pages 104-136.
    7. Lichtenstein, Benyamin B. & Carter, Nancy M. & Dooley, Kevin J. & Gartner, William B., 2007. "Complexity dynamics of nascent entrepreneurship," Journal of Business Venturing, Elsevier, vol. 22(2), pages 236-261, March.
    8. McKelvey, Bill, 2004. "Toward a complexity science of entrepreneurship," Journal of Business Venturing, Elsevier, vol. 19(3), pages 313-341, May.
    9. Jeffery S. McMullen & Dimo Dimov, 2013. "Time and the Entrepreneurial Journey: The Problems and Promise of Studying Entrepreneurship as a Process," Journal of Management Studies, Wiley Blackwell, vol. 50(8), pages 1481-1512, December.
    10. Pierpaolo Andriani & Bill McKelvey, 2009. "Perspective ---From Gaussian to Paretian Thinking: Causes and Implications of Power Laws in Organizations," Organization Science, INFORMS, vol. 20(6), pages 1053-1071, December.
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    Cited by:

    1. Joseph Farhat & Sharon Matusik & Alicia Robb & David T. Robinson, 2018. "New directions in entrepreneurship research with the Kauffman Firm Survey," Small Business Economics, Springer, vol. 50(3), pages 521-532, March.
    2. Demir, Robert & Wennberg, Karl & McKelvie, Alexander, 2016. "The Strategic Management of High-Growth Firms: A Review and Theoretical Conceptualization," Ratio Working Papers 273, The Ratio Institute.
    3. Wiltbank, Robert & Dew, Nicholas & Read, Stuart, 2015. "Investment and returns in successful entrepreneurial sell-outs," Journal of Business Venturing Insights, Elsevier, vol. 3(C), pages 16-23.
    4. Christopher J. Boudreaux & Anand Jha & Monica Escaleras, 2023. "Natural disasters, entrepreneurship activity, and the moderating role of country governance," Small Business Economics, Springer, vol. 60(4), pages 1483-1508, April.
    5. Booyavi, Zahra & Crawford, G. Christopher, 2023. "Different, but same: A power law perspective on how rock star female entrepreneurs reconceptualize “gender equality”," Journal of Business Venturing Insights, Elsevier, vol. 19(C).
    6. Crawford, G. Christopher & Joo, Harry & Aguinis, Herman, 2024. "Under the weight of heavy tails: A power law perspective on the emergence of outliers in entrepreneurship," Journal of Business Venturing Insights, Elsevier, vol. 21(C).
    7. Gala, Kaushik & Schwab, Andreas & Mueller, Brandon A., 2024. "Star entrepreneurs on digital platforms: Heavy-tailed performance distributions and their generative mechanisms," Journal of Business Venturing, Elsevier, vol. 39(1).
    8. Clark, Daniel R. & Crawford, G. Christopher & Pidduck, Robert J., 2023. "Exceptionality in entrepreneurship: Systematically investigating outlier outcomes," Journal of Business Venturing Insights, Elsevier, vol. 20(C).
    9. Boudreaux, Christopher & Jha, Anand & Escaleras, Monica, 2022. "Natural Disasters and Entrepreneurship Activity: the Moderating Role of Country Governance," MPRA Paper 115134, University Library of Munich, Germany.
    10. Engel, Yuval & Kaandorp, Mariëtte & Elfring, Tom, 2017. "Toward a dynamic process model of entrepreneurial networking under uncertainty," Journal of Business Venturing, Elsevier, vol. 32(1), pages 35-51.
    11. Crawford, G. Christopher & Aguinis, Herman & Lichtenstein, Benyamin & Davidsson, Per & McKelvey, Bill, 2015. "Power law distributions in entrepreneurship: Implications for theory and research," Journal of Business Venturing, Elsevier, vol. 30(5), pages 696-713.
    12. Mincheol Choi & Chang-Yang Lee, 2020. "Power-law distributions of corporate innovative output: evidence from U.S. patent data," Scientometrics, Springer;Akadémiai Kiadó, vol. 122(1), pages 519-554, January.
    13. Christopher Boudreaux & Anand Jha & Monica Escaleras, 2021. "Weathering the Storm: How Foreign Aid and Institutions Affect Entrepreneurship Following Natural Disasters," Papers 2104.12008, arXiv.org.
    14. Gala, Kaushik & Valladares, Carlos D. & Mueller, Brandon A., 2023. "Students' assumptions of Entrepreneurs’ performance: The paradox of excess entry and missed opportunity," Journal of Business Venturing Insights, Elsevier, vol. 20(C).
    15. Shim, Jaehu, 2016. "Toward a more nuanced understanding of long-tail distributions and their generative process in entrepreneurship," Journal of Business Venturing Insights, Elsevier, vol. 6(C), pages 21-27.
    16. Breig, Roman & Coblenz, Maximilian & Pelz, Michael, 2018. "Enhancing simulation-based theory development in entrepreneurship through statistical validation," Journal of Business Venturing Insights, Elsevier, vol. 9(C), pages 53-59.
    17. James Caton, 2017. "Entrepreneurship, search costs, and ecological rationality in an agent-based economy," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 30(1), pages 107-130, March.
    18. Khurana, Indu & Tamvada, Jagannadha Pawan & Audretsch, David B., 2023. "The weaker sex? A tale of means and tails," Journal of Business Venturing Insights, Elsevier, vol. 20(C).
    19. Crawford, G. Christopher & Linder, Christian & Lechner, Christian & Villani, Elisa, 2024. "Outlier entrepreneurs: Nonlinear paths and novel ventures," Journal of Business Venturing Insights, Elsevier, vol. 21(C).

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