The Non-Consensus Entrepreneur: Organizational Responses to Vital Events

The Non-Consensus Entrepreneur: Organizational Responses to Vital Events

By
Elizabeth Pontikes, William P. Barnett
Administrative Science Quarterly. March
1, 2017, Vol. 62, Issue 1, Pages 140-178

Salient successes and failures, such as spectacular venture capital investments or agonizing bankruptcies, affect collective beliefs about the viability of particular markets. We argue that collective sense-making in the wake of such vital events results in consensus behavior among entrepreneurs. Market search is a critical part of the entrepreneurial process, where entrepreneurs frequently enter new markets to find a high-growth area. Keying on vital events, entrepreneurial firms flood into markets that have experienced salient successes, but they stay clear of those with recent failures. Like entrepreneurs, venture capitalists also exhibit herding behavior, following other VCs into hot markets. We theorize that vital events effectively change the selection threshold for market entries, which changes the average viability of new entrants. Consensus entrants are predicted to be less viable, while non-consensus entrants are predicted to prosper. We find empirical support for the theory among software startups. The non-consensus entrepreneurs that buck the trend are most likely to stay in the market, receive funding, and ultimately go public.