Entrepreneurial Cognition Read online

  Dean A. Shepherd and Holger Patzelt

  Entrepreneurial Cognition

  Exploring the Mindset of Entrepreneurs

  Dean A. ShepherdUniversity of Notre Dame, South Bend, IN, USA

  Holger PatzeltTechnical University Munich, München, Bayern, Germany

  ISBN 978-3-319-71781-4e-ISBN 978-3-319-71782-1

  https://doi.org/10.1007/978-3-319-71782-1

  Library of Congress Control Number: 2017961832

  © The Editor(s) (if applicable) and The Author(s) 2018

  This book is an open access publication.

  Open Access This book is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

  The images or other third party material in this book are included in the book's Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the book's Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.

  The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use.

  The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

  Printed on acid-free paper

  This Palgrave Macmillan imprint is published by Springer Nature

  The registered company is Springer International Publishing AG

  The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

  Dean would like to dedicate this book to his daughter Meg and the rest of Diamond Dynamics Blue (for reasons stated in the preface).

  Holger would like to dedicate this book to his wife Sylvia and daughter Helen.

  Preface

  “What do you know about softball?” asks my daughter as she hopes to convince me (Dean) to resign as assistant (and first base) coach of her softball team . I must admit I had asked myself the same question over the last two years, but I told her that perhaps I know a bit about how to think, which I believed had helped the girls and the team . In past seasons, the girls had worn their hearts on their sleeves such that one error (e.g., striking out looking) created such a negative emotional reaction (and a stream of tears) that it created a subsequent more intense negative emotion that the rest of the team caught, putting performance in a downward spiral.

  I worked with the girls on how some errors are part of the game, explaining that they are a source of learning , and I gave them some tools for regulating their emotions . As with all coaches of junior sports, we (the other coaches and I) struggled at times to capture and maintain the girls’ attention . We worked on mechanisms that helped them switch their attention to critical events (with some but not complete success). We worked on helping each girl find/develop her identity for the specific role she plays on the field and for the identity of the team (which sometimes created identity conflict as we asked some girls to play non-preferred positions for the good of the team ). It was interesting to see how the team developed their knowledge of the game—from not knowing where to throw the ball once fielded to consciously thinking before the play where they would throw the ball if it were to come to them (given which bases were occupied by the other team ) and, eventually, more automatically making the “right” play.

  Sometimes the girls played like superstars, whereas other times they played horribly, and while the other coaches and I tried to stimulate the former and eliminate the latter, we never completely understood the “special sauce” of the team’s motivation . However, we did find that they played better when they were more relaxed and energetic than “professional” and bored, which was stimulated by music during warm-up and a team dance just before the game started. (I would have joined in the team dance, but my daughter was already embarrassed by my being so close to the action and telling unfunny jokes all the time.)

  I followed my daughter’s advice and stopped coaching this season. Having coached the girls for two years, I think I was able to import some of my knowledge into helping develop their cognition (individually and collectively as a team ). From them, I learned the different ways in which people think and the complexity of a team’s shared cognition , and I learned that helping people regulate their emotions is not an easy task.

  Fortunately, this book is not about the thinking, feelings, and actions of a girl’s softball team but about the cognitions of individuals engaged in the entrepreneurial context—a topic that we (Dean and Holger) have been studying for over two decades.

  Dean A. Shepherd

  Holger Patzelt

  Acknowledgments

  Dean and Holger would like to thank Ali Ferguson for the help in copyediting the manuscript, Alexis Bezos and Ali Webster for their help in formatting the book, and Marcus Ballenger and Jazmine Robles from Palgrave Macmillan for their editorial support.

  We would also like to thank the co-authors on the studies that directly contributed to the content of this book (roughly in order that they occur in the book): Trent Williams, Robert Baron, Anne Domurath, Dawn DeTienne, Julio DeCastro, David Deeds, Steve Bradley, Jeff McMullen, Stephanie Fernhaber, Tricia McDougall, Johan Wiklund, Evan Douglas, Mark Shanley, Dev Jennings, Willie Ocasio, Denis Grégoire, Pam Barr, Melissa Cardon, Maw Der Foo, Marcus Wolfe, Orla Byrne, Mike Haynie, Sara Thorgren, Joakim Wincent, Dan Holland, Deniz Ucbasaran, Andy Lockett, John Lyon, Rene Bakker, Young rok Choi, Denis Warnecke, Jeff Covin, Don Kuratko, Judith Behrens, Holger Ernst, Moren Levesque, Jeff Hornsby, Jennifer Bott, Nicki Breugst, Ethel Brundin, Anja Klaukien, and Rob Mitchell.

  Contents

  1 Introduction

  2 Prior Knowledge and Entrepreneurial Cognition

  3 Motivation and Entrepreneurial Cognition

  4 Attention and Entrepreneurial Cognition

  5 Entrepreneurial Identity

  6 Emotion and Entrepreneurial Cognition

  7 Conclusion

  Index

  List of Figures

  Fig. 5.1 Optimal distinctiveness for an entrepreneuring individual’s identity

  Fig. 5.2 Micro-identities and the ‘super-ordinate’ identity

  Fig. 5.3 Compartmentalization of micro-identities

  Fig. 5.4 Integration of micro-identities

  Fig. 5.5 Managing entrepreneurs’ multiple micro-identities to maximize PWB

  Fig. 5.6 Optimal distinctiveness and psychological well-being

  Fig. 5.7 Managing multiple identities

  © The Author(s) 2018

  Dean A. Shepherd and Holger PatzeltEntrepreneurial Cognitionhttps://doi.org/10.1007/978-3-319-71782-1_1

  1. Introduction

  Dean A. Shepherd1 and Holger Patzelt2

  (1)University of Notre Dame, South Bend, IN, USA

  (2)Technical University Munich, München, Bayern, Germany

  How do people think? By understanding how peop
le think, we can do a better job of explaining their actions . Both of us (the authors) were drawn to this topic in the extreme context of entrepreneurship. This context is extreme because the actions associated with entrepreneurship can have a substantial impact on the individual taking the actions , the economy, communities , the environment, and society as a whole. For example, to explain why one individual creates a venture to benefit the community (Shepherd and Williams 2014) whereas another individual creates a venture that harms the natural environment for personal gain (Shepherd et al. 2013), we need to understand people’s cognitions—what happens in their minds. Not only are the outcomes of entrepreneurial actions extreme (in their impact), but the associated decision making is also extreme—extreme in uncertainty , complexity, time pressure, emotionality, and identity investment. We felt that investigating cognition under such extreme conditions afforded us the opportunity to work—and push forward—the knowledge frontier. That is, we were able to take the existing body of knowledge (from relevant literatures on cognitive science, decision making, and other aspects of psychology) and adapt it, twist it, and blend it to make a new form that would explain entrepreneurial cognition. For example, how do people make decisions in highly uncertain environments—that is, when one does not know the odds of different alternative outcomes occurring (i.e., risk), nor does one even know the possible alternative outcomes because, at this stage, they are not yet knowable? Such decisions typically need to be made quickly (e.g., before the window of opportunity closes) and require substantial investment of cognitive and emotional resources, and the impact of these decisions is highly consequential (e.g., a misstep could lead to failure).

  The topic of entrepreneurial cognition has fascinated us and motivated our research over the last two decades. Although this research has resulted in publications in the top entrepreneurship, strategy, management, and psychology journals, we thought now would be a good time to pause, reflect on our work, and bring these individual pieces of the puzzle together to provide a cohesive big picture of entrepreneurial cognition. This book is the culmination of our motivation to provide this big picture.

  Entrepreneurial Context and Cognition

  The environments organizations operate within are complex and dynamic and often involve swift, significant, and discontinuous change (Hitt 2000). As such, managers must act strategically in response to these changes to maintain their firm’s competitive advantage (Ireland and Hitt 1999; Pérez-Nordtvedt et al. 2008). Individuals and organizations can take advantage of opportunities arising in such dynamic environments and realize substantial gains (Eisenhardt 1989; Eisenhardt and Martin 2000; Sirmon et al. 2007). On the other hand, however, uncertainty surrounding these environmental changes’ source, magnitude, and consequences can make identifying and acting upon opportunities a challenging endeavor. Why are some individuals and managers able to identify and successfully act upon opportunities in uncertain environments while others are unable to do so?

  The current book proposes that an important answer to the above question emerges from the individuals’ entrepreneurial mindset. Entrepreneurship scholars explore “how opportunities to bring into existence ‘future’ goods and services are discovered, created, an exploited, by whom, and with what consequences” (Venkataraman 1997: 120). Specifically, over that last two decades, scholars have conducted various studies with the aim to better understand the components, antecedents, and outcomes of an entrepreneurial mindset; these studies have explored how characteristics of individuals, teams, organizations, and environments facilitate or obstruct entrepreneurial thinking and action. This book culminates the results of our research on this topic. In various studies, we have applied a cognitive lens to understand individuals’ knowledge, motivation, attention, identity, and emotions in the entrepreneurial process.

  First, in a series of studies we have explored the role of prior knowledge at the start of the entrepreneurial process. We assume that heterogeneity in individuals’ knowledge provides an answer to one of the most important questions in entrepreneurship research: Why do some individuals recognize new business opportunities while others do not? More specifically, we ask: How do different types of knowledge trigger the recognition of different types (e.g., commercial, sustainable, health-related, international) of opportunities? How do different sources of knowledge (internal and external to the entrepreneur) influence opportunity recognition? Having identified important types and sources of knowledge, how do cognitive processes, in particular structural alignment, in conjunction with prior knowledge impact opportunity identification? In Chap. 2, we address these questions drawing on extant research from both cognitive science and entrepreneurship.

  Second, beyond knowledge, motivation is an important driver of entrepreneurs’ identification and subsequent exploitation of opportunities. While we acknowledge the motivational role of financial rewards for entrepreneurship and explore how financial rewards interact with prior knowledge, we note that many entrepreneurs are driven by non-financial motivation. What types of motivation other than financial can motivate (or demotivate) entrepreneurial action? What types of motivation trigger the exploitation of opportunities targeted toward sustaining nature or the communal environment and developing society as a whole? And how does one’s psychological and physical health impact entrepreneurial motivation? What is the role of one’s personal values in driving such motivation? And finally, what triggers the motivation to persist with entrepreneurial action in the face of obstacles (as opposed to engaging in it in the first place)? In Chap. 3 we address these questions from multiple theoretical angles to gain a comprehensive understanding of what motivates entrepreneurs to discover, exploit, and persist with new opportunities of various types.

  Third, management and entrepreneurship research has highlighted the important role of attention in the entrepreneurial process. Given that attention is a limited cognitive resource, allocation to those aspects of the environment that are related to new opportunities is central to entrepreneurial action. How can managers’ attention be guided in organizations to facilitate opportunity identification? How does the allocation of entrepreneurs’ attention impact opportunity evaluation? What drives managers’ attention to underperforming entrepreneurial projects? Finally, how does attention interfere with entrepreneurs’ metacognitive processes—processes which are known to be of central importance to develop entrepreneurial cognition? In Chap. 4, we try to answer these questions and illustrate how attentional processes guide entrepreneurial cognition.

  Fourth, one important topic in psychology research is to understand how individuals develop their self-identity—that is, how do they answer the question “Who am I?” This research has shown that a meaningful self-identity is central to individuals’ psychological functioning and well-being. How can entrepreneurs develop such a meaningful identity that balances distinctiveness and belonging and therefore maximizes well-being? Further, how can entrepreneurs manage different micro-identities across different situations (e.g., entrepreneur and family member)? How can individuals use an entrepreneurial career to recover from traumatic events that disrupt their current work identities? And finally, in the specific case of family businesses where business-related and family-related identities highly overlap, how can entrepreneurs cope with identity conflict? In Chap. 5, we tackle these questions drawing on optimal distinctiveness theory and other theoretical streams from the identity literature.

  Fifth, entrepreneurship has often been depicted as an “emotional rollercoaster” with multiple, and sometimes extreme, ups and downs, and psychologists have long established that these emotional experiences impact individuals’ cognitions. How do emotions, both positive and negative, impact entrepreneurs’ opportunity recognition? How do emotions, displayed by supervisors, impact employees’ entrepreneurial motivation? Further, given that the failure of entrepreneurial projects is known to often cause substantial negative emotions, how do these emotions impact team members’ learning and organizational co
mmitment? And how do these effects depend on the organizational environment and individual coping behaviors and self-compassion? In Chap. 6 we explore these questions to shed more light on the role of emotions for entrepreneurial cognition.

  Chapter 7 concludes the book by discussing implications for scholars and practitioners. We suggest a number of directions for future research that hopefully inspire future scholarship on individuals’ and managers’ abilities to identify and successfully act upon the opportunities provided by the dynamic, hypercompetitive, and uncertain business environments of today.

  Open Access This chapter is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://​creativecommons.​org/​licenses/​by/​4.​0/​), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

  The images or other third party material in this chapter are included in the chapter’s Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the chapter’s Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.

  References

  Eisenhardt, K. M. (1989). Making fast strategic decisions in high-velocity environments. Academy of Management Journal, 32(3), 543–576.Crossref