The Non-consensus Entrepreneur，Organizational Responses to Vital Events.pdf

Administrative Science Quarterly 2017, Vol. 62(1)140–178 The Non-consensus The Author(s) 2016 Reprints and permissions: Entrepreneur: / journalsPermissions.nav Organizational DOI: 10.1177/0001839216661150 /home/asq Responses to Vital Events Elizabeth G. Pontikes1 and William P. Barnett2 Abstract Salient successes and failures, such as spectacular venture capital investments or agonizing bankruptcies, affect collective beliefs about the viability of particu- lar markets. Using data on software start-ups from 1990 to 2002, we show that collective sense-making in the wake of such vital events can result in consen- sus behavior among entrepreneurs. Market search is a critical part of the entre- preneurial process, as entrepreneurs frequently enter new markets to find high-growth areas. When spectacular financings result in a collective overstate- ment of the attractiveness of a market, a consensus emerges that the market is resource-rich, and the path is cleared for many entries, including those that do not have a clear fit. When notorious failures render a market unpopular, only the most viable entrants will overcome exaggerated skepticism and enter, tak- ing the non-consensus route. Venture capitalists likewise exhibit herding beha- vior, following other VCs into hot markets. We theorize that vital events effectively change the selection threshold for market entries, which changes the average viability of new entrants. We find that consensus entrants are less viable, while no