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Prior Knowledge and the Discovery of Entrepreneurial Opportunities

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  • Scott Shane

    (R.H. Smith School of Business, University of Maryland, College Park, Maryland 20742)

Abstract

Before technological change leads to new processes, products, markets, or ways of organizing, entrepreneurs must discover opportunities in which to exploit the new technology. To date, research has not explained adequately why entrepreneurs discover these opportunities, which creates several conceptual problems in the entrepreneurship literature. Drawing on Austrian economics, I argue that opportunity discovery is a function of the distribution of information in society (Hayek 1945). Through in-depth case studies of eight sets of entrepreneurs who exploit a single MIT invention, I show that entrepreneurs discover opportunities related to the information that they already possess. I use these findings to draw several implications that differ from those prevailing in the entrepreneurship literature, including: (1) entrepreneurs do not always select between alternative market opportunities for new technologies; (2) the source of entrepreneurship lies in differences in information about opportunities; (3) the results of prior studies of entrepreneurial exploitation may suffer from bias; and (4) individual differences influence the opportunities that people discover, how their entrepreneurial efforts are organized, and how the government can influence this process.

Suggested Citation

  • Scott Shane, 2000. "Prior Knowledge and the Discovery of Entrepreneurial Opportunities," Organization Science, INFORMS, vol. 11(4), pages 448-469, August.
    • Handle: RePEc:inm:ororsc:v:11:y:2000:i:4:p:448-469
    DOI: 10.1287/orsc.11.4.448.14602
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    References listed on IDEAS

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