Knowledge and the Maintenance of Entrepreneurial Capability

This paper intends to bridge the austrian theory of entrepreneurship and the recent developments of the theory of the firm, namely the Knowledge Based Approach. The KBA and the theory of entrepreneurship share a common focus on knowledge and coordination. It is argued herein that by examining the cognitive foundations of entrepreneurship it is possible to connect the KBA and the theory of entrepreneurship. Entrepreneurship is by essence a matter of opportunities. An entrepreneurial opportunity is the result of the connection of two radically different forms of knowledge: knowledge of feasibility and knowledge of relevance. These two categories of knowledge define the domain of alertness, that is, the set of opportunities that the entrepreneur is able to perceive. Knowledge is thus a key element of opportunity identification and development. In the modern firm, this knowledge is dispersed among several individuals. To achieve long term growth, firms must maintain their ability to find new profit opportunities, and must thus use efficiently the entrepreneurial knowledge they have at their disposal. In order to do so, they may use two different strategies: entrepreneurial synthesis and entrepreneurial combination. Each strategy leads to different distributions of knowledge within the firm.