Directive Deficiencies: How Resource Constraints Direct Opportunity Identification in SMEs

Abstract

Previous studies show that resource constraints have mixed effects on innovation and opportunity identification by entrepreneurs. Sometimes, resource constraints lead to identifying more opportunities, whereas in other cases, entrepreneurs see fewer opportunities. This study explores a new approach to reconcile this inconsistency. Using a sample of 219 small‐ and medium‐sized enterprises (SMEs), we explore relationships between supply and demand constraints, on the one hand, and identifying supply and demand opportunities, on the other hand. The results show that supply constraints have a positive effect on identifying supply opportunities but a negative effect on identifying demand opportunities. Similarly, demand constraints have a positive effect on identifying demand opportunities but a negative effect on identifying supply opportunities. Thus, this study shows that resource constraints direct the entrepreneur's attention toward opportunities inside the constrained domain rather than outside the constrained domain. An important consequence for theory is that a complete explanation of the mixed effects of resource constraints should consider different types of resource constraints and different sources of opportunities simultaneously. For practicing entrepreneurs, being aware of this mechanism can prevent missing out on promising opportunities outside the constrained domains.