Does Expertise Matter in an Ever-Changing and Uncertain Environment? a Study of the Entrepreneurial Process of Serial and Novice Entrepreneurs

ABSTRACT This study contributes to the literature on serial and novice entrepreneurs by focusing on the process of entrepreneurship and the role of different knowledge structures in this process. We use theories from cognitive psychology that relate to experts and novices, and their use of prior knowledge in the creation of knowledge structures. Using a sample of 121 novice and serial entrepreneurs, we find that knowledge structures, as a function of prior experience in running a business venture, do not play a role in differentiating these entrepreneurs regarding the process of entrepreneurship. The implications and limitations of the study are discussed. Keywords: experience, serial entrepreneur, novice entrepreneur, cognitive psychology INTRODUCTION Research suggests that prior knowledge plays an important role in differentiating between the performance of novice and serial entrepreneurs (Westhead & Birley, 1993; Westhead & Wright, 1998; Westhead, Ucbasaran, & Wright, 2005). We divide this prior knowledge into two parts-startup specific knowledge and industry specific knowledge. We define startup specific knowledge as knowledge gained by an individual when the individual founded two business ventures that they owned and operated before starting their current (third) business venture. This knowledge is tacit in nature and extremely difficult to codify or transfer to others. Further, we define industry specific knowledge as information concerning a certain industry that is available at a given point in time, and that could be acquired by individuals who are willing to invest resources into gaining that information. This may include such informat ion as an understanding of the size and structure of the market and the key success factors in the market. The role of knowledge and decision making in uncertain environments has been discussed by scholars like Arrow (1964), and Dixit and Pindyck (1994). Decision-making in such environments may be based upon limited information. Environmental uncertainty, complexity, and ambiguity may further exacerbate the challenges associated with making decisions from limited information. Entrepreneurs may be prone to mistakes associated with these circumstances when engaged in decision-making. If prior information is of limited use and if complexity and ambiguity hamper decision-making skills (that directly impact performance), does an entrepreneur's start-up specific knowledge actually matter? If so, what impact does the type of knowledge-industry specific and startup specific-have on the performance of entrepreneurs? This research paper examines whether serial entrepreneurs have startup specific knowledge that gives them an edge over entrepreneurs who do not have this startup specific knowledge as far as guiding behaviors related to starting a new business venture are concerned. Since prior research studies on serial, novice, and portfolio entrepreneurs have looked at the differences in traits, attitudes, and performance between novice, portfolio, and serial entrepreneurs (Westhead & Birley, 1993; Westhead & Wright, 1998; Westhead, Ucbasaran, & Wright, 2005), and in accordance with Aldrich (1999), Davidsson (2004), and Gartner (1985), this research focuses on the process of entrepreneurship by studying behaviors or actions related to the startup process. In their review of the focus of entrepreneurship research, Ucbasaran, Westhead, and Wright (2001) found that research on the entrepreneurial process has primarily looked at three areas: opportunity identification and information search, acquisition of resources, and strategies to grow the business. In keeping with this trend, we focus on (a) the resources, both tangible and intangible, needed for financing the new business venture and for creating a network and ties to be used in starting the new business venture (based on the premise that, during the new venture creation process, individuals are seeking not only resources such as equipment, space, employees, and money, but also advice and information) (Birley, 1985); and (b) the method of opportunity search and discovery used by the entrepreneur (Herron & Sapienza, 1992) and the firm's performance. …