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

Arora, A and Nandkumar, A (2011) Cash-out or flameout! Opportunity cost and entrepreneurial strategy: Theory, and evidence from the information security industry. Management Science, 57 (10). pp. 1844-1860.

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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 cashout (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.

ISB Creators:
ISB CreatorsORCiD
Nandkumar, AUNSPECIFIED
Item Type: Article
Uncontrolled Keywords: Entrepreneurship; Opportunity costs; Performance
Subjects: Entrepreneurship
Depositing User: Users 7 not found.
Date Deposited: 30 Oct 2014 10:07
Last Modified: 30 Oct 2014 10:07
URI: http://eprints.exchange.isb.edu/id/eprint/76
Publisher URL: http://dx.doi.org/10.1287/mnsc.1110.1381
Publisher OA policy: http://www.sherpa.ac.uk/romeo/issn/0025-1909/
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