Cash-out or flameout! Opportunity cost and entrepreneurial strategy: theory, and evidence from the information security industry

Nandkumar, A (2012) Cash-out or flameout! Opportunity cost and entrepreneurial strategy: theory, and evidence from the information security industry. Strategic Direction, 28 (4). pp. 12-18.

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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 data set of information security start-ups, 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.

Affiliation: Indian School of Business
ISB Creators:
ISB CreatorsORCiD
Nandkumar, AUNSPECIFIED
Item Type: Article
Uncontrolled Keywords: Entrepreneurship, Opportunity costs, Performance
Subjects: Entrepreneurship
Business Strategy
Depositing User: Ilayaraja M
Date Deposited: 02 Jul 2019 18:53
Last Modified: 02 Jul 2019 18:53
URI: http://eprints.exchange.isb.edu/id/eprint/1224
Publisher URL: https://doi.org/10.1108/sd.2012.05628daa.009
Publisher OA policy: http://sherpa.ac.uk/romeo/issn/0258-0543/
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