Cash-Out or Flame-Out! Opportunity Cost and Entrepreneurial Strategy: Theory, and Evidence from the Information Security Industry

Arora, A and Nandkumar, A (2011) Cash-Out or Flame-Out! Opportunity Cost and Entrepreneurial Strategy: Theory, and Evidence from the Information Security Industry. Working Paper. Indian School of Business. (Unpublished)

[img]
Preview

| Preview

Abstract

We analyze how entrepreneurial opportunity cost conditions performance. Departing from the common practice of using survival as a measure of entrepreneurial performance, we model both failure and cash-out (liquidity event) as conditioned by the same underlying process. High-opportunity-cost entrepreneurs prefer a shorter time to success, even if this also implies failing more quickly, whereas entrepreneurs with fewer outside alternatives will choose less aggressive strategies, and, consequently, linger on longer. We formalize this intuition with a simple model. Using a novel dataset of information security startups, we find that entrepreneurs with high opportunity costs are not only more likely to cash out more quickly but are also more likely to fail faster. Not only is survival a poor indicator of performance, but its use as one obscures the relationship between entrepreneurial characteristics, entrepreneurial strategies, and outcomes.

ISB Creators:
ISB CreatorsORCiD
Nandkumar, AUNSPECIFIED
Item Type: Monograph (Working Paper)
Subjects: Business and Management
Entrepreneurship
Business Strategy
Depositing User: LRC ISB
Date Deposited: 01 Nov 2014 11:16
Last Modified: 01 Nov 2014 11:16
URI: http://eprints.exchange.isb.edu/id/eprint/114
Publisher URL: http://www.isb.edu
Related URLs:

Actions (login required)

View Item View Item
Statistics for DESI ePrint 114 Statistics for this ePrint Item