Moren Lévesque

Employment or self-employment: A dynamic utility-maximizing model

This article presents a dynamic utility maximizing model of career choice between self employment and employment that takes into consideration the differences among people in terms of their initial utility toward job attributes and the likely changes to those utility weights as they mature. These differences between people effect the choice of career that maximizes their utility and leads to five optimal career paths. This dynamic utility maximizing model helps increase our understanding of why some people become self employed but importantly why and when some self employed switch to employment.

Entrepreneurs' Decisions on Timing of Entry: Learning from Participation and from the Experiences of Others

Depending on the type of industry, an entrepreneurs decision of when to enter an industry may be a crucial one. The longer entrepreneurs wait, the more they learn from others. However, by waiting, they reduce their ability to learn directly and the possibility of locking in competitive advantages. We suggest that the optimal time of entry depends on the hostility of the learning environment since the latter has an impact on dimensions of performance, such as profit potential and mortality risk. The environment for entrepreneurial learning is less hostile when the information to be learned is abundant and when learning from others is relatively more effective at increasing performance than learning from participation. Our results suggest that delaying entry is desirable when the environment is less hostile. Entrepreneurs, however, cannot wait forever. We show that, under some general conditions, an optimal time of entry can be determined, and discuss the specific situations in which, instead, multiple equilibria may arise.

Entrepreneurs' choice of entry strategy in emerging and developed markets

Abstract The model presented here acknowledges the complexity of the entry strategy decision and offers guidance on when to enter the market and how to enter the market, taking into consideration the current environment. From speculations over the differences between emerging and developed economies, the model offers a systematic way to determine the optimal entry strategy in terms of entry timing and level of mimicry. An implication of the model is that the cost/benefit ratio from using a high mimicry entry strategy is lower for companies entering emerging economies than it is for companies entering developed economies.

Trustworthiness: : a critical ingredient for entrepreneurs seeking investors

We investigate how an entrepreneurs behaviors during an initial interaction with a business angel can build, damage, or violate trust, and how the investors level of trust (prompted by the entrepreneurs behavior) can affect his/her decision to make an investment offer. Our empirical analysis shows that entrepreneurs who receive offers from business angels exhibit a larger number of trust–building behaviors during the initial interaction and a smaller number of unintentional trust–damaging behaviors than those who do not receive an offer, and display few deliberate trust–violating behaviors. We further observe that the investors deployment of a control mechanism is a prerequisite for receiving an investment offer for all entrepreneurs who damage or violate trust.

A search strategy for assessing a business opportunity

The optimal stopping model presented here explores opportunity assessment with reference to a tradeoff between, on the one hand, reducing decision accuracy and, on the other hand, both increasing search costs and a higher probability that the opportunity is grasped by a competitor. From this model we propose a heuristic that specifies three threshold lines to define four decision areas. Decision area 1 prescribes the business opportunity be accepted, decision areas 2 and 4 prescribe that search continue, and decision area 3 prescribes that the business opportunity be rejected. We use a simulation to investigate the robustness of the heuristic beyond the models boundary conditions.

Timing and quality decisions for entrepreneurial product development

Abstract An entrepreneur is developing a new product, and each period must decide whether to enter the market or to continue development. We formulate a model of this decision for ventures facing diminishing returns to product quality, and for which funding availability, product development success, and market competition growth are uncertain. We characterize the profit-maximizing time to stop product development and enter the market, and then show how this stopping time is affected by changes in the business environment. By further focussing our modeling assumptions, we are able to translate our time-based criteria into product quality terms; we propose that management set a target quality level that the product must meet in order for the venture to maximize profit. We also demonstrate that management should decrease this target (and hence the quality of the final product) over time, and adjust it to respond to changes in the business context.

Marketing, R&D, and Startup Valuation

The problem focus is on startup decisions associated with staged venture financing, where both R&D and marketing are significant percentages of overall expenses. When should a startup owner acquire working capital, and how should she/he distribute that capital between R&D (to improve product quality) and marketing (to increase sales) to ultimately grow valuation? Also, should the startup owner cap the total R&D and marketing budgets to increase profitability during staged venture financing? We develop a model to study resource acquisition and allocation decisions across successive stages of startup growth. The model incorporates a funding process whereby the startup valuation is positively impacted by improved product quality and market growth. This model provides insights on optimal acquisition and allocation practices and characterizes the impact of changes in productivity, along with the evolution rate of R&D and marketing payoffs, on the underlying decisions. Our results also illustrate conditions for optimal capping of R&D and marketing expenses as a percentage of revenues.

Mathematics, theory, and entrepreneurship

Abstract Physics, engineering, and economics make extensive use of mathematics. However, mathematics is rarely utilized in organizational studies. This is unfortunate because mathematics is an effective tool for describing phenomena, building new theories, or refining existing theories. This article proposes the use of mathematics to the broader management communities of scholars as a means of invigorating theory development. A description of the strengths of a mathematical approach to theory development offers a compelling argument for its use in organizational studies. We demonstrate how a mathematical model conforms to the broader philosophy of science requirements, and review optimization models as potent research methods. Applications of these methodologies to the context of entrepreneurship illustrate how one can build new theories and refine existing ones.

Effects of funding and its return on product quality in new ventures

Most entrepreneurs must rely on external financing when their new venture is based on the development of a new product. External financing, however, is usually uncertain in magnitude and timing, thus creating tradeoff between the advantage of waiting-to generate more money-and improve the product versus releasing the product before competition increases. This tradeoff is investigated through a dynamic programming framework for which a simple, easy-to-implement optimal stopping rule is identified for a special class of revenue functions. The model is utilized to characterize how the amount of funding and its variability are expected to affect the quality of the product at time to market. The model also studies how the release-time strategy is affected by the expectation and the variability of the effect that each unit of funding has on the quality of the product under development. The author shows that an increment in funding does not always lead to a product of higher quality. He also shows that an improvement in the effect of investment on quality does not necessarily lead to an enhanced product.

The Role of Operations Management Across the Entrepreneurial Value Chain

This special issue contains articles that exemplify the role of operations management across the entrepreneurial value chain. This value chain encompasses all stages of the entrepreneurial phenomenon, including technology commercialization, where discovery, commitment, organization, and growth must take place. We report on a literature search that identifies research questions categorized with respect to topics crucial to operations management scholars and classify these questions under each stage of this value chain. The search guides the development of an evolutionary path for the use of resources, routines, and reputation (3Rs), often lacking in this process, and enables us to propose modeling and topical gaps in the literature. We offer a framework to set up exemplars for operational tradeoffs uniquely associated with the entrepreneurial value chain. We also articulate how five contributed articles in this issue tackle some of these tradeoffs, prior to introducing four perspective pieces. We hope this discussion motivates follow-on work and triggers a significant increase in the flow of articles that make it to both entrepreneurship and operations management top-tier academic and practitioner publications.