Abstract
How can cognitive biases affect the birth and evolution of entrepreneurial ventures? In Entrepreneurial Decision Making (EDM), this lively research question remains largely unaddressed when the world of Unicorns, as a per se entrepreneurial species, is considered. Thus, through this conceptual article, we aim to contribute toward knowledge creation in this context. We start by proposing a conceptual framework of Unicorns’ EDM based on a behavioral approach. Through three propositions, this novel framework advances how the birth, transition, and consolidation of a Unicorn may be explained by the sequentially intertwined occurrence of biases, from which establishment and legitimization eventually emerge. We complement the framework with examples from the social media industry and then discuss its main implications for theory and practice.
Highlights
How can cognitive biases affect the birth and evolution of entre‐ preneurial ventures? Research in entrepreneurship has been increasingly focused on analyzing Entrepreneurial Decision Making (EDM), commonly conceived by entrepreneurs as a decision-making process regarding opportunity recognition, opportunity assessment, and opportunity exploitation
In our three-stage framework (Fig. 1), the establishment and subse‐ quent legitimization of a Unicorn are conceived as the potential, combined product of make-happy, sketchy-attribute, and psycho-physic biases (Zhang & Cueto, 2017), with the first typology constituting a possible antecedent of the others
At the birth stage in our framework, investors can be emotionally pushed towards the recall of the vivid memories of successful Unicorns
Summary
How can cognitive biases (hereafter biases) affect the birth and evolution of entre‐ preneurial ventures? Research in entrepreneurship has been increasingly focused on analyzing Entrepreneurial Decision Making (EDM), commonly conceived by entrepreneurs as a decision-making process regarding opportunity recognition (i.e., through which individuals discover and recognize potential business opportunities), opportunity assessment (i.e., the evaluation of venture ideas according to certain parameters), and opportunity exploitation (i.e., activities conducted in order to gain economic returns from an entrepreneurial opportunity). Investors select the potential Unicorn by looking at various fea‐ tures, such as daily active users’ growth, or network effects, which are different from those considered by these early-stage investors when evaluating standard businesses, i.e., revenue growth, value-added of product/service, the management team’s track record, and profitability (Block et al, 2019) Because these pieces of information can work as anchors for investors, the promising start-ups can be chosen for initial investment. Within the transition stage depicted, when attempting to strengthen the investors’ initial choice in stage I, founders of new, potentially selected Unicorns can affectively look for confirming evidence and similarities between themselves and the history of other successful Unicorns (e.g., the attempt to be acquired by big industry players) Through juxtaposition, this can lead to the establishment of the promising start-up as a Unicorn, con‐ firming the apparent suitability of the investment choice (explained in stage I). That’s pretty remarkable” (Fortune, 2017)
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