34 ENTREPRENEURSHIP
HYdo entrepreneurs need a theory of entrepreneurship? Because a theory
enables its user to be efficient. For the entrepreneur, efficiency means econo-
mizing on time and effort. The profile of the Baker brothers demonstrates
how entrepreneurs, with intuition and a trial-and-error process, approach new venture
creation. The Bakers see opportunities and then, because they are action oriented, they
throw themselves into creating a business. If it works, fine, but if not, no problem. They
just move on to the next opportunity. While this process is fun for the Bakers, it is not
particularly efficient. The Bakers are not using a theory to guide their entrepreneurial
efforts. They are simply full of energy.
The advantages of having a theory of entrepreneurship are that it saves time and
effort. With a theory, we will recognize what kinds of information are helpful. The the-
ory will enable us to translate this raw information into usable data, and to process the
data into categories and variables. A good theory tells the user how things and events
are related and the probable direction of causality. Finally, a theory tells the user the tim-
ing and sequencing of events. Some events occur before others, and these are leading
indicators; others occur after, and these are lagging variables. When events happen at the
same time, they are concurrent.
An entrepreneur with a good theory of how entrepreneurship works is a practical and
efficient person. These traits are crucial because entrepreneurship can be expensive; real-
time failures cost money and the irreplaceable time of many people, as well as their
hopes and reputations. There are thousands of opportunities for entrepreneurship, but
we cannot try them all. Which will we pursue? By using a good theory, we can think
about all of the problems and issues of new venture creation without having to start
business after business to see what works and what does not.
A caution is in order. A theory is not a law. A theory does not pretend to explain pre-
cisely what will happen with absolute certainty in all cases. It deals with hypotheses and
propositions—educated guesses about the chances that certain relationships exist and the
strength and nature of these relationships. If there were a “law of entrepreneurship,”
once people knew it, they could apply it and everyone would experience unlimited suc-
cess. Such a scenario does not make sense in any market-based economy where compe-
tition is prevalent. Besides, if everyone could succeed, how would we measure profit?
We should be pleased that we have a theory and not a law of entrepreneurship.
Some say that there have been a great many successful entrepreneurs, most of whom
did not have a theory. How did they do it? One serious possibility is luck. There are at
least two kinds of luck—the “dumb luck” of chance, such as that of people who win the
lottery. Other than buying the ticket, winning is completely independent of any action
on their part. Their win defies great odds, much greater than the odds against business
success.
Then there is business luck. Peter Drucker famously defined luck as “when prepared-
ness meets opportunity.” Business luck explains in large part how entrepreneurs create
their own good fortune. They develop their own skills and capabilities to take advan-
tage of opportunity, and they have a systematic method for encountering and analyzing
opportunity. Lucky things happen to entrepreneurs who start fundamentally innovative
and compelling businesses. Lottery luck is therefore different than business luck.
At times, a lucky person will not be able to tell which kind of luck he or she is hav-
ing. Consider this: If we hold a worldwide competition in coin tossing to find the bestW