A Framework for Entrepreneurship 25
decisions based on their current situations. The ability to understand many facets of
quality improves the entrepreneur’s decision making. It enables an entrepreneur to meet
the challenges posed by complex problems. It highlights the importance of the individ-
ual in new venture creation.
Figure 1.1 illustrates the dimensions of entrepreneurship and new venture creation.
PARADOXES OF ENTREPRENEURSHIP
The resource-based theory of entrepreneurship also helps explain two of the paradoxes
of entrepreneurship in ways that other theories cannot.
Intelligence Paradox
The first paradox is often stated as, “If you are so smart, why aren’t you rich?” Certainly
professors and researchers can testify that there are a great many more smart people than
rich people. A good theory of entrepreneurship needs to explain why intelligence does
not always lead to success in business. Common logic seems to dictate that the better we
understand a phenomenon such as new venture creation, the more likely we are to be suc-
cessful in its practice. Textbook presentations of entrepreneurship that provide facts with-
out examining cause and effect may make the student smarter (in some narrow sense),
but these approaches are unlikely to make anyone (except the authors) richer.
The resource-based approach acknowledges that keen analysis (strategy formulation)
and fact accumulation are necessary but insufficient tasks for entrepreneurs. Also, the
resource-based theory holds that some aspects of entrepreneurship cannot be analyzed;
they are hard to copy because no one, including the founders, quite understands how or
why they work. This inability to be duplicated or explained is actually a business advan-
tage because competitors cannot copy the entrepreneur’s strategy if they can’t under-
stand it. In simple language, what is known (or knowable) to all is an advantage to none.
We can get smarter without getting richer if the knowledge we possess lacks any of the
four characteristics (valuable, rare, hard to copy, or no substitutes).^55
Entry Barrier Paradox
The second paradox is summed up by the old line, “You wouldn’t want to belong to any
club that would have you as a member.”^56 The parallel application of this adage to new
venture creation is that “you wouldn’t want to enter any industry that would have you”
(low-entry barriers) because if you could get in, then anyone could. Therefore, the
opportunity will appear unattractive. This is the traditional economic analysis that exam-
ines the height of the entry barriers and weighs the cost of entry against the profit poten-
tial (margins) of firms in the industry, and the probability of retaliation by incumbents.^57
One implication of this analysis is that, for the vast majority of economic organizations,
existing firms have the edge. Yet, experience indicates that certain individuals create busi-
nesses in industries with seemingly insurmountable barriers, and these individuals
achieve superior and sometimes spectacular results. Analysis of industry structure fails to
explain this phenomenon because it cannot explain why everyone cannot follow suit.
The resource-based theory can explain the likes of Sam Walton, founder of Wal-Mart
(see Street Story 1.3), Ted Turner of Turner Broadcasting, and Dave Thomas of Wendy’s
