36 ENTREPRENEURSHIP
were associated with higher profits in stable environments, while knowledge-based
resources were correlated with higher levels of profitability in uncertain environments.^8
A capability is a socially complex routine that determines the efficiency of the phys-
ical transformation of inputs to outputs. Capabilities are ordinarily not traded in factor
markets. They are therefore built internally and can be hard to copy. Organizations in
general have three types of capabilities:- Basicfunctional capabilities, such as marketing, finance, operations, and research
and development. Firms differ in the content of their capabilities as well as the
strength of their management. - Dynamic improvement capabilitiesthat enable the organization to change and be
responsive and flexible— the learning and innovation capability. The concept exists
that firms can “learn to learn.” This concept is sometimes called double-loop learn-
ing. Firms with the capability of learning to learn have less need of specific capabil-
ities because they can adapt on the fly.^9 - Entrepreneurial capabilitiesare those that use the firm’s resources and develop
new ones strategically.^10
The ultimate goal—and the one that is very difficult to achieve—is sustainable compet-
itive advantage (SCA). SCA occurs when the firm is able to create and capture value,
and protect it against erosion from competition. There are limits to the degree to which
a capability can be a source of sustainable competitive advantage. Competitors attempt
to copy successful products, services, and value-creating strategies. Capabilities are
diminished when key people retire, or the chemistry or culture of work groups and
departments changes, or another firm develops a better capability.
The Basic Process under the RBV
No two entrepreneurs are alike, and no two new firms are identical. Our resource-based
theory of entrepreneurship makes sense for the study of new venture creation because it
focuses on the differences between and among entrepreneurs and includes the founding
of their companies. Entrepreneurs are individuals who are unique resources to the new
firm, resources that money cannot buy. These entrepreneurs can be different based on
their personalities and characteristics, their skills, knowledge, and experiences, their
sociodemographic backgrounds, their social and business networks, their motivations,
and their vision of the world and business. As such, to understand a theory of differ-
ences, we must begin with the entrepreneur.
The theory says that firms have different starting points for resources (called resource
heterogeneity) and other firms cannot get them (called resource immobility). Our theory
values creativity, uniqueness, entrepreneurial vision and intuition, and the initial condi-
tions (history) under which new ventures are created.
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What are the origins of new firms? Economic organizations that have their origins in
the entrepreneur’s resources, and the assets that the entrepreneurial team controls can
potentially acquire and, finally, combine and assemble. Firms usually begin their history
with relatively few strategically relevant resources and skills, and each company’s unique-
ness shows how these resources are expected to perform in the marketplace. Our theory
has a rather simple formula.^12