My research focuses on the influence of the external environment on entrepreneurship as a phenomenon. Specifically, I have sought to be at the cutting edge in investigating the types of environments that encourage the founding of high growth, technology-based firms. Although I build on previous literature that explains why entrepreneurs are successful on the basis of individual characteristics, network ties, and strategy, my major contribution is to demonstrate that institutions matter. I have broken new theoretical ground in showing that effective institutional change influences who starts firms, not just how many firms are started.
I have been a pioneer in overcoming the challenges of inferring causality, by finding changes that altered the landscape for entrepreneurship, along with collecting novel data in international settings. Studying the implications of institutional change for entrepreneurship requires that institutions vary while other aspects of the environment remain constant. Thus, I have repeatedly studied entrepreneurship in a single country (China, Chile, Japan, and the U.S.) before and after a major institutional change that has intentionally or unintentionally altered the landscape for people who seek to found new firms.
My research is divided into three streams: (1) how formal institutions (policies, legal structures and regulations) influence entrepreneurship, (2) how informal institutions (accepted practices and norms) shape entrepreneurial opportunities, (3) how the environments of particular industries influence the success of entrepreneurial teams.
STREAM 1: Formal Institutions and Entrepreneurship
My research extends institutional theory to examine how institutional changes influence who becomes an entrepreneur and how successful they are. I focus on three types of institutional change: (a) changes to industrial policy that affect barriers to growth (how easy it is for firms to grow), and (b) changes that influence the socialization of individuals, and (c) changes to barriers to failure. My focus is on the entrepreneurial activities of high human capital individuals (i.e., those with greater skills, experience, and education) since they tend to create high-growth, technology-based firms. I use policy changes as quasi-natural experiments along with collecting novel survey data in several national economies in order to more cleanly identify the causal effects of institutional changes. In addition, I conducted qualitative interviews and fieldwork to aid interpretation of the findings.
1. While prior research focuses on how many entrepreneurial firms are created, I focus on who founds firms. My paper, Institutional Barriers to Growth: Human Capital, Entrepreneurship and Institutional Change, (Organization Science, sole authored) was the first, to the best of my knowledge, in the field to distinguish institutional changes that make it easier to start a firm versus those that remove obstacles (or barriers) to growth. The findings suggest that both types of institutional change generate more entrepreneurship. Yet, only the latter type of change stimulates the founding of better performing, technology-based firms because removing barriers to growth influences the kinds of individuals who are more likely to successfully start firms. I was the first to capitalize on an amendment to the Chinese constitution that lowered barriers to growth by reversing regulations that favored firms with foreign investors, thereby making it easier for domestic entrepreneurs to gather resources and access new markets. An important implication is that lowering institutional barriers to growth can alter the type of entrepreneurship, resulting in more high growth entrepreneurship by high human capital individuals. This paper has won awards, including the Kauffman Dissertation Fellowship Award (2008), and the Academy of Management BPS Division Best Dissertation Award (2010). Across several papers, I built on the concept of barriers to growth by examining institutional changes that shifted the effectiveness of growth strategies. For this work and my other papers on China, I won a National Natural Science Foundation of China (NSFC) Research Award for International Young Scientists in 2012.
2. Our article in Organization Science, Does Institutional Change in Universities Influence High-Tech Entrepreneurship?: Evidence from China’s Project 985 (Eesley, Li and Yang, 2016) was the first study to show that educational institutions can change the beliefs and behaviors of entrepreneurs. Project 985 provided funding for a set of universities to build new research centers in China. Graduates of these universities subsequently founded more high-tech ventures. However, due to the institutional inconsistency of the reform (lack of IP protection, ineffective anti-trust and contract enforcement, etc.) these technology-based founders were not as financially successful as other entrepreneurs. This surprising finding may be due to the fact that Project 985 was inconsistent with several aspects of China’s regulatory environment: It lacked laws that protected intellectual property and safeguarded contracts.
A major implication is that regulatory changes may alter behavior, but they must be consistent with the broader institutional environment in order to improve firm performance.
3. The Japanese context allowed me to explore whether barriers to failure may inhibit high human capital individuals from entrepreneurship or alter how they manage. Failure IS an Option: Institutional Barriers to Failure, Bankruptcy and New Firm Performance, (Organization Science, with R. Eberhart and K. Eisenhardt) examines a 2003 bankruptcy reform in Japan that significantly limited the financial liability of entrepreneurs who went bankrupt. After the reform, more elite individuals founded firms and their firms experienced significantly faster growth than prior to reform. This study was the first to conceptualize institutional barriers to failure as a performance-enhancing mechanism fostering elite-led ventures. This paper was chosen for the Kauffman Foundation International Research and Policy Roundtable Best Conference paper award, 2012 and the Academy of Management Best Paper Proceedings in 2012 (only the top 10% of presented papers).
4. How entrepreneurs leverage institutional intermediaries in emerging economies to acquire public resources (Strategic Management Journal with D. Armanios, J. Li and K. Eisenhardt) finds that science parks supported both fundraising and growth, but only for ventures that lacked government ties. In other words, they made it possible for less well-connected people to found firms. By comparing science park and non-science park firms in Beijing and across China, we distinguish which entrepreneurs benefit from certification v. capability-building in these intermediaries through the introduction of two new constructs: skill adequacy and context relevance. These results stand in sharp contrast to prior research which shows that science parks are ineffective in developed economies. We show that in emerging economies, institutions like science parks are particularly effective because they provide multiple paths that expand the set of people who become successful entrepreneurs.
5. Further delving into the notion of institutional infrastructure that aids the implementation of institutional change, we examined barriers to entry versus provision of knowledge via public research organizations. Lowering Entry Barriers (but also Providing Resources): How Institutional Infrastructure Spurs Founding (R&R at Administrative Science Quarterly with D. Armanios) asks the question whether lowering entry barriers or public knowledge spurs high-tech entrepreneurship in emerging economies? We seek to answer this question through studying two reforms in China: the 1994 Company Law and the 1998 restructuring of the Chinese Academy of Sciences (CAS) through the Knowledge Innovation Program (KIP). Through a nationwide dataset of certified high-tech firms in China, our study finds lowering barriers (1994 Company Law) may not be sufficient to promote high-tech founding. We find that rather than favorable regulations, potential high-tech entrepreneurs are more constrained by technical knowledge that is often provided by public research organizations.
6. Understanding Entrepreneurial Process and Performance: A Cross-National Comparison of Alumni Entrepreneurship Between MIT and Tsinghua University (Asian Journal of Innovation and Policy, with Delin Yang, E.B. Roberts, and T. Li), further uses institutional change to study entrepreneurship. We do a comparative analysis of institutional and university factors influencing technology-based entrepreneurship. This paper is the first to find that sources of venture ideas, composition of founding teams as well as initial capital levels systematically vary in developing vs. developed institutional environments. We also provide benchmarks that other institutions can use to gauge their alumni entrepreneurs and the types of ventures they create.
Overall, my research in this stream advances theory by introducing novel mechanisms (e.g. barriers to growth and failure, institutional inconsistency), introducing new concepts (e.g. skill adequacy and context relevance) and theorizing that institutional changes that lower barriers to growth and to failure alter who becomes an entrepreneur, the type of firms, and performance.
STREAM 2: University and Industry Environment
In addition to the broader institutional environment, ventures must develop strategies and founding teams suited to a specific industry. My second stream of work examines how industry environments influence which entrepreneurs perform better. Previous research has focused on how complex, unpredictable environments create a need for heterogeneous skills and less structured organizations. Thus, I also explore the types of university and industry environments that best prepare alumni for entrepreneurship.
1. In an important article titled The Contingent Effects of Top Management Teams on Venture Performance: Aligning Founding Team Composition with Innovation Strategy and Commercialization Environment (Strategic Management Journal, with D. Hsu and E.B. Roberts, 2014) we call into question previously well-accepted findings that a functionally diverse founding team is superior. In the first study to jointly examine industry environment, strategy and teams, we show that it may be a mistake to advocate functional diversity in cooperative industry environments where incumbents partner with entrepreneurs. In these settings, a technically focused, all engineer team is superior, challenging our previous notions of the optimal founding team by showing the need to account for the industry environment. An earlier presentation of that paper led to the IEEE International Recent Advances in Technology and Innovation Management Best Conference Paper Award (2011).
2. Entrepreneurs from Technology-Based Universities: Evidence from MIT (Research Policy with D. Hsu and E. Roberts) bridges my first and third streams of research by asking who becomes an entrepreneur and how the mix of entrepreneurs has shifted over time. Unlike most research which uses individuals’ characteristics to predict who becomes an entrepreneur, we examine how changes in institutions and industries attract different populations to entrepreneurship. While entrepreneurship among graduates of MIT has increased over time, the rate among subpopulations of students has changed in response to changes in university and business environments. Prior work on university-spawned ventures emphasizes faculty spin-offs. In contrast, our study shows that the university itself plays an important role by emphasizing certain industries and academic disciplines rather than others and by changing how students are socialized. We find that over the years, ventures spawned by MIT have shifted from manufacturing towards services and biotechnology. Beyond the importance of the business environment, this study was the first to suggest a novel mechanism linking academic knowledge to the private sector via the social influence, reputational benefits and training provided by research universities to students and alumni.
3. In a pioneering study, in Strategic Entrepreneurship Journal titled Are You Experienced or Are You Talented?: When Does Innate Talent versus Experience Explain Entrepreneurial Performance (Eesley and Roberts, 2012), we disentangle talent from experience and show that when an industry is disrupted or when a new industry emerges, talent (e.g. divergent thinking, frame-breaking behaviors, abstract reasoning) offers a greater advantage than experience. Conversely, talented but inexperienced entrepreneurs do worse in stable industries where experienced founders are able to re-use prior practices. The paper appeared in the Academy of Management Best Paper Proceedings in 2010 (only the top 10% of presented papers).
Overall, my work in this stream changes the way we think about team composition as well as what characteristics lead to superior venture performance by linking their impacts to industry and university environments. Unlike most research which uses individuals’ characteristics, my work here examines how changes in university institutions and industries attract different populations to entrepreneurship and alter the benefits of talent, experience, and team composition. My groundbreaking work with alumni data (MIT, Tsinghua, Stanford, UVA) collectively argues that the universities that are great in entrepreneurship have heavily promoted entrepreneurial attitudes that encourage their bright, technically-educated students to go out and build firms, using some of the technical and managerial insights we teach them in classes and projects. As a result, nearly two orders of magnitude more startups are created by students and alumni each year than are licensed annually by the university technology licensing offices. These studies together make a case for the importance of educating students in an atmosphere of faculty entrepreneurship and innovation. Instead of a focus on the direct impact of university technology transfer I highlight the university educational functions in generating entrepreneurship.
STREAM 3: Informal Institutions and Firms
The first two streams examine how the institutional, academic, and industry environments shapes entrepreneurs. In addition to formal institutions, individuals and firms are also influenced by informal mechanisms such as social movements. At times individuals and social movements influence established firms and their environments, creating new opportunities for entrepreneurship and innovation. In this stream, I explored how social movement organizations can change informal institutions which, in turn, influence a firm’s strategy, its tendency to innovate, and its effect on the environment. The research makes use of a novel, hand-collected archival database that includes 3,227 firms and 307 environmental stakeholder groups in 602 separate actions from 1971–2003.
1. Our highly cited article, Firm Responses to Secondary Stakeholder Action, in Strategic Management Journal, (Eesley and Lenox, 2006), was the first to show that the power, legitimacy and urgency of a movement’s demands influence the odds that firms take action to improve environmental performance. Strategy Research Initiative listed the article as a seminal piece within the field of strategy. This paper appeared in the Academy of Management Best Paper Proceedings (only the top 10% of presented papers) in 2005.
2. After showing that social movement organizations can influence firms to change, I became interested in how a movement’s leaders choose which firms to target. Private Environmental Activism and the Selection and Response of Firm Targets (Journal of Economics & Management Strategy, with M. Lenox) builds and tests a theoretical model of how social movement organizations target firms, when firms will comply, and how aggressive activists will be. We find evidence that firms are less likely to acquiesce to activists’ demands, the greater their cash reserves and the worse their environmental performance. Larger, more profitable, and advertising intensive firms are more likely to be targeted by activists whereas firms with large cash reserves are less likely to be targeted.
3. In our article, Through the Mud or in the Boardroom: Activist Types and their Strategies in Targeting Firms for Social Change in Strategic Management Journal, (Eesley, Decelles and Lenox, 2015) we are the first to examine how different activist groups pick tactics and target firms for social change. We add the insight that the behavior of environmental groups is shaped by the intended mechanism of different tactics (media attention vs. investor risk perceptions), which vary depending on the group’s ideological stance in favor of reformation or radical change.
Summary. My research changes the way we think about how the environment – formal institutions, informal institutions, and industry contexts – influences entrepreneurship. Most entrepreneurship research focuses on individuals. I am unique in situating entrepreneurs and their ventures within environments and by showing that interactions between environments and entrepreneurs matter. Thus, my work bridges theories of entrepreneurship and institutional theory whose views are often in conflict. For example, students of entrepreneurship frequently attribute change to heroic individuals, while institutional theorists portray individuals as being swept up by the tides of institutional change. My work offers a middle ground where entrepreneurship arises through the interplay of institutions and individuals. I am among the first to conduct studies that show that policies that foster high-growth entrepreneurship are different than those that spawn small businesses.
This point has important implications. If policy leaders wish to foster technology-based start-ups with the potential for high growth, then it pays to consider how formal and informal institutions operate. My research shows that institutional changes can significantly influence the types of firms that are created, who create them, and how they perform. At the same time, it sounds a caution about too hastily transferring our knowledge of the institutions of developed economies and a Western-centric view of entrepreneurship to other regions of the globe. For example, attention to the institutional context is particularly important when choosing the composition of a founding team or a venture’s strategy.
My research challenges widely accepted ideas about entrepreneurship by highlighting taken-for-granted notions that are incomplete or misleading. For example, we commonly assume that more entrepreneurship is better. My work shows that lowering entry barriers leads more people to start firms, but that removing obstacles to growth encourages the smaller set of entrepreneurs whose firms are more likely to succeed. Similarly, although previous research assumes all entrepreneurs benefit from industry disruptions, my work suggests that capturing the benefits of a disruption requires building a team with the right composition. My studies also call into question the assumption that institutions that make it easier to start firms are unambiguously beneficial and that experienced, diverse founding teams are always superior. My theoretical contributions include introducing to institutional theory such concepts as institutional barriers to growth, context relevance, and skill adequacy.
By conducting my studies in multiple countries, I have sought to broaden our conception of entrepreneurship and its relationship to public policy beyond the developed North American and European economies. I have also contributed methodologically by (A) showing how to measure talent, (B) using alumni surveys to reduce success bias, (C) collecting data internationally, (D) using randomized field experiments and Massive Open Online Courses (MOOCs), and (E) analyzing multi-industry databases with state-of-the-art statistics (instrumental variables, differences-in-differences) to isolate the influence of institutional environments.
In future work, I plan to do more studies incorporating software development for data collection and digital platforms for randomized experiments (underway with NovoEd.com, Alibaba, and Qingfan.com) focusing on issues related to strategic change and entrepreneurship training. My paper Social Influence in Entrepreneurial Career Choice: Evidence from Randomized Field Experiments on Entrepreneurial Mentorship. (Research Policy, with Y. Wang) is the first to use a pre/post-test, randomized controlled field trial in entrepreneurship research. We find that randomization to entrepreneur-mentors results in a significantly greater likelihood of becoming an entrepreneur. Evidence suggests this effect is due to a networking mechanism (rather than skill building or norms). In a follow-up paper using data from NovoEd.com, Entrepreneurial Adaptation and Social Networks: Evidence from a Randomized Experiment on a MOOC Platform (with Lynn Wu), we find that teams randomized to an adaptive (vs. planning) startup process have significantly higher performance, particularly when paired with a mentor with non-overlapping network ties to their own. With a doctoral student, we have gathered data on sellers on the Alibaba.com platform and examine the impact on entrepreneurs of changes in their search algorithm. Other research studies already underway examine the impact of changes in university curriculum and programs. For instance, in Institutionalized Choice and Training for Entrepreneurship?: Evidence from China (under review, with D. Yang, X. Tian, and E.B. Roberts), we examine the impact of a curriculum change allowing students in China to take a broader variety of courses and find a significant increase in entrepreneurial activity among those students. In The Impact of University Entrepreneurship Initiatives on Entrepreneurship and Innovation (with Yong Suk Lee), we use differences-in-differences to show that two different entrepreneurship programs had significantly different outcomes on the entrepreneurial activities of Stanford alumni. In a paper in this stream, Work Experience Spanning Organization Types and Entrepreneurship (with D. Yang and X. Yang), we use the Stanford alumni database along with web scraping methods in python to examine the link between work experience across different types of organizations and entrepreneurial activity. Continuing my stream on institutional environments, in Business Idea Sources and the Institutional Environment: The Contingent Role of Institutional Dynamics (R&R at Strategic Entrepreneurship Journal, with D. Yang and X. Hu), use a unique dataset within the setting of institutional change in China. In highly dynamic, transitional environments, entrepreneurs who obtain their business ideas from policy-driven sources create better-performing firms. In less dynamic, more stable environments, entrepreneurs create better-performing firms through market-driven business idea sources. Finally, on-going work with the Startup Chile program, Remodeling the Iron Cage: Micro-level Effects of Institutional Collisions. Evidence from Startup Chile (with Michael Leatherbee) uses a regression discontinuity design to show the social learning of entrepreneurial behaviors in the premier government program funding entrepreneurs in Chile.
I strive to be at the forefront of overcoming challenges to identifying relationships between the environment and entrepreneurship as a phenomenon. I have been fortunate to see an impact of my scholarship thus far. This includes over 1,523 Google Scholar citations, indicating a strong impact on the conversation around entrepreneurship in different environments. Recently, I was honored to receive the Schulze Distinguished Professorship Award, the goal of the Richard M. Schulze Family Foundation being to, "award funding to the country’s most accomplished entrepreneurship scholars who are infusing into their teaching the results of the original and meaningful research they are conducting.”
Original Theoretical Ideas and Findings
- Institutional barriers to growth as well as barriers to failure, and their impact on higher quality entrepreneurs
- Institutional inconsistency as a concept influencing entrepreneurship
- Context relevance and skills adequacy as concepts influencing who benefits from science parks
- Institutional intermediaries (science parks) in facilitating access to public resources in emerging markets
- Entrepreneurial talent is more important than experience in novel environments and technologies
- Entrepreneurial experience is more important in familiar industry environments and familiar technologies
- All engineer/scientist founding teams can be superior to functionally diverse teams
- Founding Team composition must be aligned with venture strategy
- Adaptive venture strategies must be combined with diverse network ties to be successful
- Careers that span organization types (government, industry, academia) increase entrepreneurship via cognitive changes
- I have also shown that institutions do more than simply encourage more entrepreneurs, they also influence who founds new firms, the probability that new firms will grow, the optimal composition of founding teams, and the strategy that firms should employ.
Methods Contributions and Research Designs
- First large-scale survey of technically-trained alumni/entrepreneurs in China
- Significant international data collection and fieldwork
- First Regression Discontinuity Design studying entrepreneurial behavior transmission (Startup Chile)
- Separating talent and entrepreneurial experience
- First Differences-in-Differences Designs studying entrepreneurship in China and Japan
- First Randomized Field Experiment in a MOOC
- First Randomized Field Experiment in Social Influence and Entrepreneurship
- First Randomized Lab Experiment on career experience and entrepreneurship
- My approach to using alumni surveys has begun to spread. Scholars at Harvard, University of Pennsylvania, University of Virginia, University of Tokyo, and the Technion have adopted the survey methods I employed at MIT, Stanford and Tsinghua University in China.
Teaching, Community, and Service. At Stanford I have had the opportunity to innovate in the classroom. I teach Technology Entrepreneurship (E145) to undergraduate students via experiential startup projects, case studies, lectures, and mentorship. In this class I aim to distill insights from research and to expose students to entrepreneurial thinking and to frameworks that will be useful in implementing innovations regardless of their future career choices. Using an online platform, I have also offered my entrepreneurship class to over 200,000 students from 61 countries. I have used this online course to improve the experience of my Stanford students and conduct randomized experiments as part of my research agenda. I also teach a doctoral seminar (MS&E 372) on entrepreneurship and supervise senior projects (MS&E 108). I am on the Editorial Board for Strategic Management Journal, on the BPS Division Research Awards Committee (and formerly the Research Committees of TIM and ENT), and a co-organizer of the West Coast Research Symposium doctoral consortium. I have been a mentor in the Diversifying Academia, Recruiting Excellence (DARE) program to help doctoral students from diverse backgrounds stay in academia and with the First Generation and Low-Income Program (FLIP).