new ventures journal paper

IMAGINING AND RATIONALIZINGOPPORTUNITIES: INDUCTIVE REASONING AND

THE CREATION AND JUSTIFICATION OFNEW VENTURES

JOEP P. CORNELISSENJEAN S. CLARKE

University of Leeds

We argue that creating novel ventures consists of inductive analogical or metaphor-ical reasoning, which generates a platform for the creation and commercialization ofnovel ventures and facilitates the comprehension and justification of a venture. Weargue that such inductive reasoning is shaped by two determinants (the applicabilityof prior entrepreneurial experience and the motivation to resolve uncertainty andacquire legitimacy) that interrelate to predict and explain patterns of analogical andmetaphorical reasoning by which novice and experienced entrepreneurs constructmeaning for themselves as well as others in the early stages of creating a venture.

The creation of new ventures is a process bywhich entrepreneurs come to imagine the oppor-tunity for novel ventures, refine their ideas, and,after an initial investment, justify their venturesto relevant others to gain much-needed supportand legitimacy (e.g., Alvarez & Barney, 2007; Mc-Mullen & Shepherd, 2006). Yet how do entrepre-neurs come to create and justify new ventures insuch a way that they acquire institutional legit-imacy and the necessary resources for venturegrowth? Despite an increase in conceptualizingand specifying the process of entrepreneurship(e.g., Zott & Huy, 2007), research has not fullyaddressed this question, with most accounts the-oretically or empirically equating the process withantecedent cognitive scripts or characteristics ofentrepreneurs (e.g., Baron & Ensley, 2006; Busen-itz & Barney, 1997; Shane, 2000) or with perfor-mance outcomes and the achievement of legiti-macy in an industry (Aldrich & Fiol, 1994; Starr &MacMillan, 1990). However, equating entrepre-neurship with such antecedents or outcomesoveremphasizes either the individual and his orher present cognitive state or the configurationof the social context and institutional outcomes,at the expense of a more integrative under-

standing that embeds individual entrepreneurswithin their social contexts (e.g., Garud &Karnøe, 2003; McMullen & Shepherd, 2006).

We argue that a sensemaking approach (e.g.,Taylor & Van Every, 2000; Weick, 1995), whichemphasizes a direct relationship among the lan-guage, cognition, and enactment of entrepre-neurs, may help develop a combined cognitiveand symbolic conception of the process bywhich the idea for a novel venture is imagined,refined, and justified to others. Adopting thisapproach, we elaborate theory on how individ-ual entrepreneurs use certain forms of speech—specifically, analogy and metaphor—to inducean opportunity for a novel venture. They usethese devices too while speaking to relevantothers, such as employees and (prospective) in-vestors, in order to acquire needed capital andsupport to make those ventures succeed (Al-varez & Barney, 2007; Hill & Levenhagen, 1995).

Specifically, we aim to make a number of con-tributions. First, we conceptualize processes ofinductive analogical and metaphorical reason-ing supporting the creation and justification ofnovel ventures. Despite the recognized impor-tance of induction in entrepreneurship (e.g.,Baron & Ward, 2004), little theory or research inentrepreneurship exists on when, how, and whyentrepreneurs use inductive reasoning (Ward,2004) to move beyond their current understand-ing and produce novel ventures (Baron & Ward,2004). Second, we develop a process theory of

We thank our colleagues for helpful comments on anearlier draft. We are especially grateful to associate editorAdelaide King and three anonymous reviewers for theirvaluable comments and encouragement. The usual dis-claimer applies. Both authors contributed equally to thisarticle.

� Academy of Management Review2010, Vol. 35, No. 4, 539–557.

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new venture creation that specifies two determi-nants: (1) the availability and applicability ofprior entrepreneurial experience and (2) the mo-tivation to resolve uncertainty and to gain legit-imacy for novel ventures. These determinantsinterrelate to predict and explain patterns ofinductive reasoning by entrepreneurs in theearly stages of creating a venture (i.e., thestages of initial exploration, planning, andlaunch). Third, we combine and reconceptualizethe predictions of theory on entrepreneurial cog-nition (e.g., Mitchell, Busenitz, Lant, & McDou-gall, 2002) and institutional legitimacy (e.g.,Lounsbury & Glynn, 2001) in our process theory.We go on to offer a pragmatic and conceptualapproach to the difficult task of bridging therelated but largely separate cognitive literatureand institutional literature on entrepreneurship.Fourth, the process theory we propose providesa methodological contribution: it can be readilyconnected to the sophisticated techniques de-veloped in linguistics and discourse analysis(e.g., Putnam & Fairhurst, 2001) for analyzingshifts and changes in how entrepreneurs induc-tively reason about novel ventures. These tech-niques make it possible to complement thestudy of entrepreneurial cognition or institu-tional effects with empirical studies of how en-trepreneurs—through moment-by-moment com-munication and interaction with others—cometo envision, refine, and justify ideas for a novelventure.

In the paper we focus on the development ofindependent new ventures that are not shel-tered by sponsoring organizations (e.g., spin-offs). By definition, such ventures are associatedwith high levels of uncertainty; this forces theentrepreneur to make the enterprise comprehen-sible and meaningful to key stakeholders.Throughout the article we refer to new venturesas commercial enterprises that are imaginedand rationalized by an entrepreneur in relationto specific emerging or established markets andindustries.

We present our arguments as follows. We pro-vide an overview of past cognitive and institu-tional research on entrepreneurship and pro-pose and develop an alternative perspective,grounded in sensemaking, that we believe inte-grates and extends our understanding of thecreation and legitimization of new ventures. Wethen develop a specific model of new venturecreation, integrating predictions from entrepre-

neurial cognition and institutional theory. Fi-nally, we discuss the implications of this modelfor the study of entrepreneurship and new ven-ture creation and end with specific recommen-dations for empirical research.

NEW VENTURE CREATION

The study of new venture creation primarilyhas been addressed in two related yet largelyseparate bodies of literature. The first, generallyreferred to as the cognitive perspective, has fo-cused on the cognitive characteristics of individ-ual entrepreneurs and the possession of priorknowledge as the primary basis for identifyingand designing new ventures (e.g., Baron, 2000;Busenitz & Barney, 1997; Gregoire, Corbett, &McMullen, in press; Shane, 2000). When entre-preneurs make sense of market opportunitiesand the possibility for a new venture, scholarssee this as largely an individual cognitive pro-cess. Scholars subsequently subdivide their at-tention among different features of this process,such as an entrepreneur’s perceptual noticingand bracketing of breaks in his or her experi-ence and the richness and specificity of the en-trepreneur’s cognitive prototypes, scripts, ormental models (i.e., cognitive frameworks ac-quired through experience; Baron & Ensley, 2006;Korunka, Frank, Luegar, & Mugler, 2003;Krueger, Reilly, & Carsrud, 2000). For example,when entrepreneurs gain repeated experienceswithin certain markets or in the development ofventures, they build richer and more specificmental models or scripts of their environment(e.g., Baron & Ensley, 2006; Gregoire et al., inpress; Mitchell, Smith, Seawright, & Morse,2000). They can then draw on or cognitively ex-tend such mental models or scripts to new situ-ations and, in the process, identify the opportu-nity for a new venture.

A main limitation of this cognitive perspectiveis that it at times treats the individual entrepre-neur in isolation from his or her social environ-ment, and it is unable to capture or explain howentrepreneurs are creative and how, through in-ductive reasoning, they may imagine or createnovel opportunities that surpass their past (cog-nitively accumulated) experiences (Baron &Ward, 2004). The main reason for this is thatcognitive scripts or mental models provide bythemselves no rules or guidelines for the inter-pretation of and inductive reasoning about

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novel circumstances (Edwards, 1997; Weick,1995). Within the cognitive perspective, an entre-preneur’s speech is also seen as “revealing”cognitive interpretations (Donnellon, 1986;Gioia, 1986); when entrepreneurs label and ar-ticulate their experiences while communicatingto others, they externalize or express “some neu-tral, definitive and ready-made sense of eventsproduced through a process such as noticingwhat the world is like and then putting it intowords” (Edwards, 1997: 144). Accordingly, thecognitive perspective focuses on individualmodes of thought without speech and outside asocial context, casting aside the formative effectof language, particularly online speech, onthought processes and the construction of mean-ing (e.g., Fauconnier, 1997; Langacker, 1991).

A second body of literature, under the broadheading of institutional theory, has located en-trepreneurship within a social context and hasfocused on cultural and symbolic realms ofmeaning construction around new ventures(e.g., Lounsbury & Glynn, 2001; Martens, Jen-nings, & Jennings, 2007; Zott & Huy, 2007). Giventhat most new ventures lack proven trackrecords, obvious asset value, and profitability,entrepreneurs are forced to draw on a commondiscourse to construct accounts that help ex-plain, rationalize, and promote a new ventureand increase its perceived legitimacy in theeyes of resource providers (Aldrich & Fiol, 1994;Lounsbury & Glynn, 2001). The discourse (e.g.,frames, codes, and myths) that individual entre-preneurs use in this process is viewed as anoutgrowth of social categories and social pro-cesses of disseminating and sharing informa-tion (Putnam & Fairhurst, 2001; Weber, 2005). Zil-ber (2006) and Weber, Heinze, and DeSoucey(2008), for example, show how entrepreneurs insocial movements and high-tech ventures en-listed cultural codes and myths to create “cul-tural resonance” between their specific framingof a venture and the broader value orientationsof stakeholders. The institutional tradition high-lights a sociolinguistic focus (Putnam &Fairhurst, 2001) on how the specific speech ofentrepreneurs evokes salient cultural codes orframes that encode the criteria for institutionallegitimacy by appealing to collective shared un-derstandings and norms for how novel venturesare sensible, acceptable, and legitimate (Al-drich & Fiol, 1994; Rao, 1994; Zott & Huy, 2007).

A main limitation of the institutional traditionis that it does not connect to the material contextin which entrepreneurs create or identify oppor-tunities for novel ventures. In addition, insofaras it treats social structures as relatively stableand it assumes fixed, socially shared linguisticrepertoires (Putnam & Fairhurst, 2001), institu-tional theory is also unable to explain how in-dividual entrepreneurs pragmatically and cre-atively make sense of the world around them onparticular occasions (Weick, Sutcliffe, & Obst-feld, 2005). Within the broader institutional liter-ature, this limitation is reflected in concernsabout studies of institutionalization that focusalmost exclusively on established conventions,codes, and symbols and how these are beingtranslated, enlisted, or evoked in local contexts(e.g., Phillips, Lawrence, & Hardy 2004). The un-derlying assumption is that, once internalized,the social competence of individuals in speak-ing a (socially shared) language will subse-quently act “as internalized cognitive con-straints on sensemaking” (Weber & Glynn, 2006:1640). In other words, speech is socially condi-tioned and constrained and is largely repro-duced in a rote, habitual manner without con-scious thought.

We argue that the respective foci and limita-tions of both traditions suggest they are comple-mentary: the cognitive tradition stresses the in-ternal, self-conscious, and cognitive process ofentrepreneurs’ developing an account of what isgoing on, while the institutional tradition em-phasizes the external, strategic process of evok-ing meaning in line with political interests. Itthus appears that much may be gained frommoving toward an approach that sees entrepre-neurial actions and new venture creation as notexclusively the outcome of either cognitive pro-cesses or of processes “in the sphere of symboliccodes” (Bartholomew & Mayer, 1992: 152).

SENSEMAKING ANDENTREPRENEURIAL ACTION

To establish such an approach, better linkingthe individual entrepreneur with the social con-text, we draw on the broad perspective of sense-making (Hill & Levenhagen, 1995; Weick, 1995).Within the context of entrepreneurship, Hill andLevenhagen (1995: 1057) argue that entrepre-neurs “operate at the edge of what they do notknow” and must seek to make equivocal events

2010 541Cornelissen and Clarke

nonequivocal by constructing a new vision ofthe business environment (Alvarez & Barney,2007). In the early stages of creating a new ven-ture, entrepreneurs also need to speak to othersabout this vision in order to gain feedback andtheir support (Lounsbury & Glynn, 2001). Hill andLevenhagen (1995) propose that such visionsand the opportunities that they imply may beperceptually or unconsciously “felt” but are con-figured into more elaborate presentations whenthey are verbally articulated.

We take as a starting point Hill and Levenha-gen’s (1995) view that the formative effects oflanguage on thought processes (e.g., Langacker,1991) need to be incorporated and theorized inthe context of entrepreneurial action and newventure creation. While the inner thoughts andimaginations of entrepreneurs matter, they arenot spoken or even necessarily speakable; to getto speech, something further takes place, andthis is what we term sensemaking. Functionally,sensemaking occurs at the point where new(verbal) ideas take form in the stream of theentrepreneur’s experience, with external speechreconfiguring ideas to fit the demands of spokenlanguage. Sensemaking, in other words, is anact of turning circumstances “into a situationthat is comprehended explicitly in words andthat serves as a springboard to action” (Taylor &Van Every, 2000: 40; see also Weick et al., 2005:409).

Sensemaking implies that the world does notpresent itself in a direct or “raw form,” but,rather, entrepreneurs actively construct it usingavailable linguistic frames, including prefabri-cated vocabularies (Weber, 2005) that becomeelaborated in a coherent way, thus shapingthinking while speaking. Although sensemak-ing has often been considered as retrospective(e.g., Weick et al., 2005), it may also be prospec-tive in the context of new ventures and “aimedat creating meaningful opportunities for the fu-ture” (Gioia & Mehra, 1996: 1229). Entrepreneurs,for example, are likely to rearrange or blendwords creatively in the form of analogies or met-aphors in their speech; this allows them to imag-ine future opportunities and to make those op-portunities understood by others (Hill &Levenhagen, 1995; Lounsbury & Glynn, 2001).

Sensemaking is also a dynamic process, withthe social context of speaking and interactionswith others affecting the construction of mean-ing about a new venture (Slobin, 1987; see also

Alvarez & Barney, 2007, and Hill & Levenhagen,1995). Within this process, thought and languageare intimately and dynamically connected atthe point where entrepreneurs verbalize theirexperiences and elaborate these in a context ofspeaking to others. Baker, Miner, and Eesley’s(2003) study of entrepreneurial start-ups pro-vides an example of this process. Their studyshows that the design and implementation ofnew start-ups was not only “psychological ordriven by internal needs” but was also signifi-cantly “driven by exogenous demands by exter-nal resource providers for founders to provideaccounts that make their firms appear likelegitimate investment opportunities, suppliersor customers” (2003: 264). The result was animprovisational process, with the design andimplementation of these ventures emerging atleast in part from verbal interactions with re-source providers.

The crucial point here is that the social con-text interacts with processes of language useand cognition. We therefore cannot draw toosharp a distinction between sensemaking foroneself and sensegiving to others (Tetlock &Manstead, 1985). Once entrepreneurs communi-cate with others, these instances already inte-grate social pressures for persuasion and justi-fication with linguistic and cognitive processesof sensemaking. While this is a general featureof online processes of meaning construction(Fauconnier, 2000), it has been largely lost in thegeneral body of sensemaking research (e.g.,Weick, 1995; Weick et al., 2005; for a comprehen-sive review see Maitlis & Sonenshein, 2010),where individual cognition (sensemaking) istypically divorced from symbolic processes ofinfluence and impression management (sense-giving) in social settings.

Our goal here is to favor neither cognitiveaccounts (that see an entrepreneur’s sensemak-ing and action in context as derived from anddetermined by cognitive interpretations) norsymbolic accounts (that see it as largely condi-tioned and bounded by the discursive fields orcommunities in which entrepreneurs operate).Instead, we aim to conceptualize how languageand thought interpenetrate in context and howmeaning is not fixed but continually developingas a result of interactions with others. Such anapproach does not deny agency or structure butshifts attention to individual acts of sensemak-ing around the early stages of new venture cre-


ation. Specifically, we conceptualize how,through analogical and metaphorical reason-ing, entrepreneurs not only imagine new ven-tures that surpass their past experiences butalso, through such reasoning, attempt to estab-lish shared understanding, support, and legiti-macy for their burgeoning ventures. In the initialstages of a venture, entrepreneurs make senseof opportunities for novel ventures by settingthese apart from what already exists while lo-cating their ideas within stakeholders’ existingunderstandings in order to gain acceptance andsupport (Hargadon & Douglas, 2001; Santos &Eisenhardt, 2009). A sensemaking approach,therefore, bridges the established cognitive andinstitutional traditions in that it sees languageas not simply an extension or representation ofcognitively recorded experiences but as actu-ally formative of thought and, hence, as a re-source that individuals use to create or producea common understanding of new ventures.

A central assumption underlying our theoriz-ing is that individual entrepreneurs are “theo-rists of a pragmatic sort” (Strang & Meyer, 1993;Tetlock, 2000; Weick, 1995). They self-consciouslyand through verbal interactions with others de-velop notions about cause and effect, thus “the-orizing” their world and the relationships andopportunities within it (Alvarez & Barney, 2007;Tetlock, 2000). At the individual level, entrepre-neurs may be viewed as intuitive scientists, en-gaged in a continuous struggle to achieve cog-nitive mastery of their world (Sarasvathy, 2004),or as intuitive economists, using the resultingcognitive representations to identify courses ofaction that advance, if not maximize, their inter-ests (McMullen & Shepherd, 2006). In a socialcontext entrepreneurs may be seen as intuitivepoliticians (Alvarez & Barney, 2007) or culturaloperators (Rao, 1994; Zott & Huy, 2007) who seekto be accountable to different social groups andwhose choices and judgments are embeddedin and constrained by the “broader social andcultural dynamics that embed start-ups”(Lounsbury & Glynn, 2001: 546). These differentindividual-cognitive and social-cultural imagesof entrepreneurs are, as mentioned, not concep-tually incompatible. In fact, some key works inthe cognitive and institutional traditions ac-knowledge or implicitly assume that the indi-vidual and social realms can be bridged (Di-Maggio, 1997; March & Olsen, 1989). In thisarticle we similarly attempt to embed individual

entrepreneurs in social contexts that surroundnew venture creation.

INDUCTION AND NEW VENTURES

In this section we theorize how, in social con-texts of speaking, entrepreneurs use inductivereasoning to create a meaningful opportunityfor a novel venture and attempt to convince oth-ers of that opportunity in order to gain much-needed support. We first provide an introductionto the key concepts of analogy and metaphor asprimary forms of inductive reasoning. Throughsuch reasoning entrepreneurs verbally create ahypothetical world in which they highlight dis-cursive objects to themselves and others (Quinn& Dutton, 2005). A discursive object is a noun ornoun equivalent in a propositional phrase thatcan refer to a physical or material entity (e.g., atechnological innovation) or a symbolic entity(e.g., a societal role for a new venture).

Although we focus exclusively on verbal actsof sensemaking, we acknowledge that materialcircumstances and objects may trigger or an-chor verbally produced conceptual images orscenarios for a venture (e.g., Hutchins, 2005), butthis is beyond the scope of this paper. Also,while we do not address the specific ways inwhich the material environment or physical ob-jects may prime or anchor entrepreneurialsensemaking, Baker and Nelson (2005) andDenrell, Fang, and Winter (2003) demonstratethat this is accomplished through a correspon-dence between conceptualizations expressed inwords and potential or realized combinations ofphysical resources.

ANALOGICAL ANDMETAPHORICAL REASONING

When entrepreneurs perceptually sense orfeel that there may be an opportunity for a ven-ture in a particular industry, they make thatopportunity intelligible to themselves and oth-ers through inductive reasoning (Hill & Leven-hagen, 1995). Because no entrepreneur, howeverprescient, can see into the future or know withcertainty how decisions and actions will panout, they necessarily rely on inductive reasoningfor this purpose. By inducing images or scenesof how new ventures are likely to function in anindustry and grow, or, alternatively, of howentrepreneurs want them to function and


grow, entrepreneurs as well as relevant others(e.g., investors and employees) achieve someability to comprehend the opportunity for aventure and the future consequences of deci-sions and actions.

Specifically, the literature on induction (e.g.,Gentner, Bowdle, Wolff, & Boronat, 2001; Hol-land, Holyoak, Nisbett, & Thagard, 1986; Nisbett& Ross, 1980) generally explicates how usinganalogies or metaphors—that is, verbally refer-ring to other cases and domains of experience—can guide thinking and create understandingand social acceptance. It suggests that entrepre-neurs may invoke analogical or metaphoricalcomparisons with other cases and experiencesto familiarize themselves and others with a newventure, to reduce uncertainty, and to supportfurther inferences (e.g., Lounsbury & Glynn,2001; Sternberg, 2004; Ward, 2004). Analogies andmetaphors are useful in this context becausethey “convey relationships to concepts alreadyunderstood . . . [and hence] facilitate the con-struction of meaning by the person or groupexperiencing them” (Gioia, 1986: 53). As part ofsensemaking, analogies and metaphors givestructure, allowing entrepreneurs to make senseof puzzling or unfamiliar situations (e.g., Gioia,1986; Gioia, Thomas, Clark, & Chittipeddi, 1994),and produce links to action by virtue of the in-ferences for action that they evoke (e.g., Gioia,1986; Weick, 1995). Besides structuring situationsinto an understandable format, analogies andmetaphors also socially justify decisions andactions to others (Creed, Langstraat, & Scully,2002) by validating some accounts and discred-iting or preempting others (e.g., Rindova,Becerra, & Contrado, 2004; Weick et al., 2005).

Strictly speaking, analogies and metaphorsare verbally drawn similarities with other casesand experiences that are either directly ex-tended to a new venture situation (as the target)or elaborated in interaction with the target as abasis for inferences (e.g., Gentner et al., 2001).The difference between analogies and meta-phors rests in the literal versus figurative natureof the comparison (Fauconnier & Turner, 1998,2002). Analogies, in the context of new ventures,involve literal references to cases and observa-tions associated with entrepreneurship, market,or industry contexts, and ventures and busi-nesses in general. An analogy, in other words,conjoins cases from the same category of obser-vations (e.g., Gavetti, Levinthal, & Rivkin, 2005;

Terlaak & Gong, 2008). Metaphors, on the otherhand, refer to figurative—and hence cross-categorical— comparisons (Cornelissen, 2005;Lakoff, 1993), where the creation of a new ven-ture is likened to cultural domains of experience(e.g., parenting, sports, and warfare) outside aspecific entrepreneurial or business context(Cardon, Zietsma, Saparito, Matherne, & Davis,2005; Rindova et al., 2004). As a result, the newventure in a particular industry is not simplyrepresented to be as or like other ventures orindustries (as in the case of analogies) but as ifit resembles in some form a literally unrelatedbut culturally familiar domain of experience.

The specific analogies and metaphors that en-trepreneurs use can be already familiar andconventional or wholly novel and creative (Cor-nelissen, 2005). Entrepreneurs may simply ex-tend conventional analogies or metaphors intheir speech to the new venture situation as thetarget. This kind of induction is known as aprojection-first model (Gentner et al., 2001), sincethe analogical or metaphorical reasoning in-volves the direct projection of an entrencheddescription of a source domain onto a targetdomain, after which it is corrected and adjustedto the target (see also Cardon et al., 2005; Far-joun, 2008; Gavetti et al., 2005: 696). Entrepre-neurs may also draw novel analogical or meta-phorical comparisons in relation to a newventure (e.g., Baker & Nelson, 2005). This kind ofinduction is known as an alignment-first model,since entrepreneurs discursively align thesource and target and elaborate the comparison,before any likely inferences can be drawn fromthe source to the target (e.g., Fauconnier, 1997;Gentner et al., 2001). Alignment-first models arecreative and may deliver emergent inferencesthat, when evaluated and verified in relation tothe target of a novel industry, may turn out to becredible and useful (Cornelissen, 2005; Stern-berg, 2004).

The use of analogies or metaphors in relationto new ventures is, we argue, conditioned by thedegree to which an entrepreneur has had previ-ous experiences in and has learned about thesame or similar industries in which the newventure will be based (Shane, 2000, 2003). It isalso conditioned by the activation of social pres-sures to demonstrate the predictability and le-gitimacy of a venture to stakeholders (Aldrich &Fiol, 1994; Lounsbury & Glynn, 2001). These twodeterminants influence the extent to which as


well as how an entrepreneur uses analogical ormetaphorical reasoning during the initialstages of exploring ideas and planning andlaunching a venture. Indeed, in the initialstages of a venture, entrepreneurs squarely relyon analogical and metaphorical reasoning tocreate the opportunity for new ventures and toset these apart from what already exists whilelocating their ideas within stakeholders’ exist-ing understandings in order to gain acceptanceand support (Hargadon & Douglas, 2001; Santos& Eisenhardt, 2009). After the launch, and whenthe venture achieves a turnover and earlygrowth as indicators of its profit-making abil-ity (Hite & Hesterley, 2001; Zimmerman & Zeitz,2002), entrepreneurs generally become less re-liant on inductive reasoning. Instead, theymay shift to more calculated reasoning that isbased on direct experiences and the perfor-mance of the new venture in its industry (Al-drich & Fiol, 1994; Hargadon & Douglas, 2001;Hill & Levenhagen, 1995).

In the next section we unfold these argumentsand illustrate our main propositions with caseexamples of novel ventures in nascent marketsthat emerged through the confluence of the com-puting, electronics, and telecommunication in-dustries in the mid 1990s (Santos & Eisenhardt,2009). Santos and Eisenhardt’s (2009) originalstudy described how entrepreneurs framed theexistence of novel markets and subsequently sig-naled the leadership and feasibility of their ven-tures in these markets. We shed new light on theircases by demonstrating how they exemplify themain inductive processes and determinantswithin the initial stages of venture creation.

PRIOR EXPERIENCE ANDINDUCTIVE REASONING

Goodman (1955) gave a well-known account ofthe basis of inductive reasoning—one pointingtoward the historical practices and experiencesof entrepreneurs, particularly their languageuse rather than simply their psychology (Sloman& Lagnado, 2005). He claimed that induction mayconsist of a mental habit formed by past obser-vations and experiences but that language isdriving whatever past regularities are selectedand thus projected onto a novel or future situa-tion. Goodman (1955) specifically argued thatthe entrenchment of language affects inductivereasoning. In short, entire verbal descriptions or

specific words are entrenched when they andtheir metaphorical extensions have historicallyfigured in this usage.

Applied to entrepreneurship, this means thatthrough depth of experience in or through learn-ing about one or multiple industries, entrepre-neurs may have entrenched descriptions of thekey features driving success or performance in aparticular industry (e.g., Baron & Ensley, 2006;Gavetti et al., 2005; Haunschild & Miner, 1997).For example, based on depth of experience inthe media industry, an entrepreneur may ver-bally describe the industry as one where “ad-vertising is key because intrinsic product qual-ity is hard to assess, and therefore customers’taste is easily shapeable” (Gavetti & Warglien,2007: 7). Depth of experience refers to the timespent by an entrepreneur operating in or learn-ing about a particular industry (Gavetti et al.,2005). The principle of entrenchment suggestsfirst of all that those entrepreneurs with depth ofexperience in industries deemed relevant to thenew venture will refer to their past descriptionsof those industries and will analogically projectthese onto the novel venture as a working hy-pothesis. This also implies that novice entrepre-neurs or those without experience in relevantindustries do not have any direct analogies tohand and therefore face a clear sensemakingimperative (Santos & Eisenhardt, 2009; Saras-vathy, 2004). As a consequence, these entrepre-neurs are likely to draw on entrenched, idio-matic words or expressions in their speech thatthey metaphorically extend to the new ventureas a way of creating understanding for them-selves and others (e.g., Cardon et al., 2005; Dodd,2000; Nicholson & Anderson, 2005). Specifically,we argue that in the absence of directly relevantprior experiences and observations, entrepre-neurs will induce metaphors to suggest an oppor-tunity and to construct a basic scenario for thecreation and commercialization of a new ven-ture in an unfamiliar industry (Hill & Levenha-gen, 1995; Sarasvathy, 2004). This leads to ourfirst proposition.

Proposition 1: The degree to which en-trepreneurs have depth of experiencein industries related to the target in-dustry for the new venture is associ-ated with the use of analogies (pres-ence) or metaphors (absence) when


they are initially speaking to othersabout the venture.

In addition, those entrepreneurs with prior ex-perience may also have a certain breadth ofexperience in that they have observed orlearned about different industries. Combiningbreadth with depth of experience means thatsome entrepreneurs have fully developed verbaldescriptions that distinguish multiple industrieson the basis of significant features, such as, forexample, the size of economies of scale, the sizeof customer switching costs, and the heteroge-neity of customer tastes (Farjoun, 2008; Gavettiet al., 2005). Where entrepreneurs indeed havedepth and breadth of experience in multiple in-dustries, we argue that they are likely to refer tothose descriptions of industries that are caus-ally specific and include multiple features, asopposed to descriptions built around featuresthat are isolated or generally less entrenched(cf. Goodman, 1955).

Gentner highlights, in this respect, the pre-ferred use of relational analogies, where there is“an assertion that a relational structure that nor-mally applies in one domain can be applied inanother domain” (1983: 156). The emphasis hereis on the relationships between features in therelevant source domain and their underlyingcausality, as opposed to analogies that simplyhighlight common features between industries(Gentner & Clement, 1988; Gentner et al., 2001).

Where entrepreneurs have access to multiplesuch causal descriptions for relational analo-gies, Goodman (1955) predicts that the entrench-ment (i.e., repeated mention) of parts of suchdescriptions (e.g., around economies of scaleand customer tastes) determines the likelihoodof their use. A good example of these principlesis the case of Magic, a venture based on “cus-tomer-centric online shopping” (Santos & Eisen-hardt, 2009: 650). When the venture was founded,online shopping was a novel concept and onethat was poorly understood. There was confu-sion about basic elements of the service, includ-ing how to evaluate products and how to makepayments (Santos & Eisenhardt, 2009: 650).The entrepreneur behind Magic who faced thesechallenges coined the analogy of seeing onlineshopping like (offline) retailing—specifically,like the experience of supermarket shop-ping—an image that provided a clear model forthe new venture. The user interface, for exam-

ple, became based on such concepts as “self-service,” “shopping cart,” and “checkout.” Thisanalogy also led to the inference that the entre-preneur needed to provide the world’s widestselection in its product category—an insightstemming from the source image of a self-service retail shop selling a wide range of prod-ucts and services with economies of scale in thesupply chain (buying, checkout selling points,and self-service).

The induction of the retail supermarket imagein this example suggests that entrepreneurs donot import random facts or features from asource to a target but instead prefer to projectinferences that build on a whole set of relationsthat can be discursively projected to or alignedwith a target domain (cf. Gentner & Clement,1988). The retailing domain was also intimatelyfamiliar to the founding entrepreneur and Magicexecutives. Retailing concepts had already beenan established part of their vocabulary whilespeaking to each other (cf. Goodman, 1955). Thisleads to the following proposition.

Proposition 2: Entrepreneurs withdepth and breadth of experience inmultiple industries are likely to in-duce analogies that highlight a com-mon set of relations between an (ex-perienced or observed) industry andthe target industry when they are ini-tially speaking to others about a novelventure.

As mentioned, entrepreneurs with a lack ofprior industry experience need to draw on idi-omatic words and expressions metaphoricallyto create meaning, reduce uncertainty, and pre-scribe a course of action (e.g., Gioia, 1986; Hill &Levenhagen, 1995). In this circumstance entre-preneurs will initially be primed, we argue, todraw upon basic argument constructions be-cause these are entrenched in language use ingeneral (Goldberg, 1995). Argument construc-tions include grammatical forms with a subjectand operative verb, such as to give (the ditran-sitive construction—i.e., where the verb can takea direct and indirect object); to make or to cause(the resultative construction); or to move, to go,or to enter (the caused motion construction).These constructions are prime material for met-aphorical reasoning and “encode as their cen-tral senses event types that are basic to humanexperiences” (Goldberg, 1995: 39). For example,


entrepreneurs often refer to “leveraging” a cli-ent base, “building” market awareness, “ex-panding” market share, “acquiring” market ac-ceptance (Martens et al., 2007: 1118), “gettingnew customers,” or “making it happen” (Saras-vathy, 2004). In this way they metaphoricallysuggest that they can physically manipulateand control markets as if these were objects.

The entrenchment of argument construc-tions—and their preferred use for metaphoricalinduction—is consistent with Lakoff and John-son’s (1980, 1999) embodiment hypothesis. Thebasic hypothesis is that the inductive creation ofmetaphorical meaning is directed and con-strained in that individuals choose from a finitenumber of semantically autonomous argumentconstructions and their associated embodiedsource domains (i.e., human motor actions in-volving physical movement or physically hold-ing or manipulating an object).

A good example of this thesis is the case ofSecret, another venture studied by Santos andEisenhardt (2009). Secret’s founders began witha sophisticated cryptography technology butwithout a clear model of the venture or a well-defined product or market in mind. They exper-imented with several ideas while talking toeach other and started to focus on the develop-ment of a security product in the context of dig-ital communications. One executive honed in onthe notion of trust, which he described as “notjust security in terms of keeping people out but italso was letting people in” (Santos & Eisen-hardt, 2009: 649; emphasis added). The basicmetaphorical image of the controlled movementof people in and out of a system provided theimpetus for the new venture and defined theproduct in comparison to standard security tech-nology focused on restricting access. Secret’sexecutives therefore emphasized trust as centralto the new venture’s identity and its product.However, ambiguity in the market remained,prompting them to adopt additional metaphorsto describe their venture for would-be customersand other stakeholders, as well as for them-selves (Santos & Eisenhardt, 2009: 649). To em-phasize the product’s ability to support andcontrol legitimate movements in digital commu-nications, they shifted to a metaphor of bordercontrol. According to Santos and Eisenhardt,“They used well-known terms such as ‘ID card,’‘wallet,’ and ‘passport’ as part of their vocabu-lary” (2009: 649). This particular framing gained

acceptance, as illustrated by the followingquote from Secret’s venture capital backer: “Youknow, you have kind of an electronic wallet andhave all your IDs on one thing, and it wouldbecome your passport around the net” (Santos &Eisenhardt, 2009: 649).

As this example illustrates, the default induc-tion of argument constructions may be correctedor adjusted when entrepreneurs speak to stake-holders and gain feedback, a point that we willreturn to below. For now, it is important to high-light that such a correction or adjustment pro-cess is likely to operate as a gradual process(Epley & Gilovich, 2006). Based on the plausibil-ity of the communicated image for the ventureand the ambiguity in the market, an adjustmentaway from the default inductive base is madeuntil a satisfactory solution is reached (Good-man, 1955). Specifically, this means that defaultbasic argument constructions (such as thecaused motion construction of people moving inand out of a digital system) are primed for met-aphorical induction and will initially be ad-justed with further information on cultural do-mains, such as, for example, border control(Santos, & Eisenhardt, 2009) or, alternatively, en-gineering (Sarasvathy, 2004), parenting (Cardonet al., 2005), theater, or warfare (Dodd, 2000; Ni-cholson & Anderson, 2005). These cultural do-mains still include concrete, embodied activi-ties, but their adjustment involves further detailon the culturally specific context of such activi-ties that may resonate with stakeholder expec-tations and understandings (Hannan, Polos, &Carroll, 2007). When such anchoring in furthercultural knowledge is still unsatisfactory interms of stakeholder comprehension and sup-port, the correction process continues andshifts, as we explain below, toward alterna-tive cultural metaphors that have a history ofuse but may be a move away from the initialbasic argument constructions (Epley & Gilo-vich, 2006). However, in the initial stages of aventure, we expect the default induction ofargument constructions that are metaphori-cally used to describe the basic idea of theventure in the target industry. This leads to thefollowing proposition.

Proposition 3: Entrepreneurs who lackprior experience in industries associ-ated with the new venture are likely toextend argument constructions meta-


phorically when they are initiallyspeaking to others about it.

THE MEDIATING INFLUENCE OFUNCERTAINTY AND LEGITIMACY

While making sense about and identifyingnew opportunities for ventures plays a centralrole in the process of new venture creation, it isnot sufficient simply to envision an opportunity.Rather, for a venture opportunity to succeed, en-trepreneurs need to convince relevant others(e.g., investors and employees) publicly of thefeasibility and legitimacy of the venture and, asa result, gain their support (Aldrich & Fiol, 1994;Starr & MacMillan, 1990; Zott & Huy, 2007). Giventhat most start-ups or new ventures lack proventrack records, entrepreneurs need, while speak-ing, to construct accounts that help explain, ra-tionalize, and promote a new venture and re-duce the uncertainty typically associated with it(Aldrich & Fiol, 1994; Lounsbury & Glynn, 2001).Their sensemaking has to demonstrate to othersthe feasibility of any new venture and its poten-tial for wealth creation.

Entrepreneurs, as we have argued, will ini-tially draw from their own experiences to in-duce, while speaking, the opportunity for anovel venture and will seek to gain initial feed-back from others, without yet committing them-selves publicly to a venture or a particularcourse of action (Alvarez & Barney, 2007; Hite &Hesterley, 2001). At the outset, entrepreneurs arelikely to speak to a small circle of close contacts(e.g., Hite & Hesterley, 2001), most stemmingfrom preexisting social, family, or historical re-lationships (e.g., Hite & Hesterley, 2001; Stam &Elfring, 2008). They will, as we have argued, useanalogies or metaphors to articulate basic im-ages or scenes of both cause and effect, but withmany essential elements initially undefined(Sarasvathy, 2001, 2004). Such images or scenesare further explored and possibly revisited as aresult of communication with others (Alvarez &Barney, 2007).

When such initial images and scenes evolveinto a more determinate commitment, entrepre-neurs need to convince other individuals (e.g.,potential employees) and investors who havedirect business or capital links to support theventure (Alvarez & Barney, 2007; Mosey &Wright, 2007). The broader range and diversity ofpeople that entrepreneurs speak to may activate

added pressures to make the venture under-stood and legitimate in the eyes of others (Han-nan et al., 2007). Entrepreneurs will be motivatedto resolve this uncertainty and to adapt theirreasoning in such a way that they demonstrateefficacy. They may be prompted to elaborate orto replace the image or scene for the novel ven-ture in an attempt to explain it to stakeholders.They may also be triggered to adapt their sense-making so that their accounts make direct refer-ences to implications for growth (Baron & Mark-man, 2000; Baum & Locke, 2004; Chen, Yao, &Kotha, 2009).

Specifically, in the early stages of a venture,entrepreneurs need to reduce stakeholders’ un-certainty, at least in part with the goal of dem-onstrating the predictability and cognitive legit-imacy of the venture (e.g., Aldrich & Fiol, 1994;Zimmerman & Zeitz, 2002). Predictability relatesto uncertainty about the probability of the suc-cess of the new venture or uncertainty stemmingfrom a lack of information about cause-effectrelationships in a particular industry. This un-certainty primes the use of analogies and met-aphors in an entrepreneur’s speech to others(Aldrich & Fiol, 1994; Lounsbury & Glynn, 2001).In the absence of a performance track recordthat entrepreneurs can point to, they often relyon analogies or metaphors to provide an induc-tive rationale that projects a trajectory for theventure (Lounsbury & Glynn, 2001).

Cognitive legitimacy refers to the comprehen-sion and taken-for-grantedness of a new venture(e.g., Aldrich & Fiol, 1994; Zimmerman & Zeitz,2002). When incentives for legitimacy are high,because of the absence of rival entrepreneurialventures with similar innovations or of rivalfirms operating in the same industry, entrepre-neurs often rely on analogies and metaphors toput the novel venture within a familiar frame ofreference and to legitimize its existence (Harga-don & Douglas, 2001; Lounsbury & Glynn, 2001).As Lounsbury and Glynn argue, entrepreneursneed to “make the unfamiliar familiar by fram-ing the new venture (often through metaphorand analogy) in terms that are understandableand thus legitimate” (2001: 549).

These two main factors (uncertainty and cog-nitive legitimacy), we argue, mediate the use ofanalogies and metaphors while entrepreneurscommunicate about the venture to stakeholdersin an effort to gain their behavioral support.Figure 1 depicts the overall process model of


entrepreneurial sensemaking during the earlystages of venture creation, including the medi-ating role of uncertainty and legitimacy.

In line with Figure 1, we argue that entrepre-neurs reinforce, adapt, or replace the initiallyinduced image or scene of the venture, depend-ing on the feedback of others and in response tostakeholder perceptions of uncertainty and thecognitive legitimacy of their ventures. Rein-forcement is like to occur when the induced im-age or scene is easily comprehended, reducesuncertainty about the venture’s predictability,and is perceived as legitimate by stakeholders(Zott & Huy, 2007: 94–95). For example, whenentrepreneurs can make relevant links to theirpast experiences with ventures in related indus-tries or to certain competencies acquiredthrough previous ventures, they can analogi-cally refer to these as a way of strengtheningtrust in a venture in a novel industry and, hence,increasing its predictability (Martens et al., 2007;Zott & Huy, 2007).

In the case of Magic, its analogical model of“customer-centric online shopping” was rein-forced in all of its communications after themodel had been quickly accepted by the market.One outside expert confirmed the success ofthese reinforcement tactics when he commentedthat “Magic has become the default name whenyou think of buying on the net” (Santos & Eisen-hardt, 2009: 651). While the venture was quicklyunderstood and was seen as destined for suc-cess, the executives of Magic did encountersome customer insecurity surrounding the lowlegitimacy of online shopping at the time. Inresponse, Magic slightly adapted its sensemak-ing by widely disseminating another story thatmetaphorically referred to U.S. history, portray-ing the founder as a “pioneer moving west” to

“open up a new frontier” (Santos & Eisenhardt,2009: 651). This was meant to increase the legit-imacy of the nascent market to customers and,in turn, the ability of the venture to profit from it.

Adaptation refers to a reformulation or elabo-ration of the induced image or scene for theventure. It is a process at the level of a previ-ously articulated basic image or scene. It occurswhen prior entrenched descriptions serve as anautomatic base for the induction of a basicscene but are further extended and elaboratedin response to a persistent need for efficacy anduntil uncertainty and legitimacy in the eyes ofstakeholders are satisfied. Baker et al. illustratethe process of adaptation in their observationthat, in interactions with employees, entrepre-neurs added analogies or metaphors (e.g., of theventure organization as a “family”) that theyhad “made up on the fly to make their fledglingfirms seem comfortable and normal—that is, le-gitimate—to potential employees” (2003: 263). Inturn, such social constructions “became part ofemployee expectations and the emerging cul-ture of the organization after the people [had]joined the firm” (Baker et al., 2003: 263).

The example of Secret also illustrates the pro-cess of adaptation during the early stages oflaunching a venture. Initially, as mentioned, themodel for the venture had been induced on theback of an argument construction that had, aftera few iterations, shifted to the metaphor of se-curity, or rather trust, in the case of border con-trol. Secret’s executives disseminated storiesand organized events to convey its unique “trustidentity” and intertwined it with a market fortrust services (a conception that was distinctfrom competing market conceptions of sellingsecurity products). They also signaled theirleadership by setting online certification stan-

FIGURE 1Entrepreneurial Sensemaking and the Venture Creation Process


dards for this nascent market. Investors had ac-cepted the image early on. Uncertainty aboutthe legitimacy of the market, however, persistedin the eyes of customers; this prompted Secret’sexecutives to adjust their projected identity byanalogically “adding the template of a ‘publicutility’ that conveyed the ubiquity and high re-liability of a trusted service” (Santos & Eisen-hardt, 2009: 650). This adjustment helped themgain legitimacy for their venture and the nas-cent market. This elaborated vision also guidedlater decisions, such as which activities to pur-sue (Santos & Eisenhardt, 2009: 650). In otherwords, as a result of interactions with stakehold-ers, these kinds of adapted images become “so-cial constructs that guide subsequent actions ofthese entrepreneurs and others associated withan industry or market—including customers andsuppliers” (Alvarez & Barney, 2007: 15).

Replacement refers to the substitution of theinitial induced image with an alternative anal-ogy or metaphor in response to persistent uncer-tainty and low levels of legitimacy in the eyes ofstakeholders. It refers to the process where en-trepreneurs substitute, while speaking, the ini-tial image and its associated elaborating ele-ments toward stakeholders with “later verbalarticulations [providing] a framework for devel-oping shared understanding” (Hill & Levenha-gen, 1995: 1071). Haven, another venture studiedby Santos and Eisenhardt (2009), is a good ex-ample of this process. Haven’s founder hadstumbled upon the nascent market of onlinemarketplaces. He personally valued egalitari-anism and fused these values into an identityfor the venture using the metaphorical frame of“community,” which led to an emphasis on how“friends” could connect, share information, andtrade in a “safe neighborhood” (Santos & Eisen-hardt, 2009: 651). Although this identity was clearand understood within Haven itself, the teamexperienced some difficulties in explaining thisto prospective customers. Thus, it decided to re-place the community image with a more factualaccount of the venture’s existence based on abalanced, fair marketplace for buyers and sell-ers. This approach failed, however, and led to areturn to the “community identity,” which wassubsequently emphasized through the dissemi-nation of a romantic and personal (albeit ficti-tious) story about the founding of the venture.

Generally speaking, the adaptation and re-placement of initially induced images for a ven-

ture are done to quell concerns about its predict-ability and legitimacy (Figure 1). As mentioned,this adjustment or correction process is likely tooperate as a gradual process (Epley & Gilovich,2006) in which, based on the plausibility of theinitial image for the venture and the ambiguityin the market, an adjustment away from thedefault inductive base is made until a satisfac-tory solution is reached (Goodman, 1955). Ini-tially, entrepreneurs are likely to elaborate orextend the induced image by adding furtheranalogies or metaphors. In the case of Secret,the additional public utility analogy blendedcoherently with the initial trust image andhelped communicate the predictability of theventure to customers. These kinds of elabora-tions or extensions, providing they are coherentin terms of the underlying representation, mayhelp tune communication about the feasibilityof the venture toward specific stakeholders oraudiences. Combinations of analogies and met-aphors are possible because although exact in-terpretations may vary between stakeholdersand audiences, their intuitions about the under-lying representation tend to be largely consis-tent in terms of causes, individual roles, inten-tionality, and manner of actions (Gibbs &O’Brien, 1990).

Besides addressing the uncertainty about aventure and its predictability, an entrepreneur’sadjustments of the image for a venture may alsobe guided by assessments of the plausibility ofthe analogy or metaphor and its ability to conferlegitimacy on the new venture. Douglas (1986)famously argued that new conventions, such asclaimed new markets or ventures, gain institu-tional legitimacy on the back of a “naturalizinganalogy”—a drawn parallel or association withanother domain that sustains the novel conven-tion by demonstrating its fit with the naturalorder. In her analysis, when the association withthe other domain points to strong parallels withrelations “found in the physical world, or in thesupernatural world, or in eternity, anywhere, solong as it is not seen as a socially contrivedarrangement” (Douglas, 1986: 48), the status andtaken-for-granted nature of this source domainmay by association justify the reasonablenessof the new convention.

Recently, Hannan et al. (2007) argued that thegrounds for legitimacy stem from the degree towhich a venture (or indeed any other organiza-tion) is seen by a stakeholder audience as a


default or prototypical member of an existingcategory or domain of understanding. This ar-gument is akin to Glucksberg, McGlone, andManfredi’s (1997) account of analogies and met-aphors as category-inclusion statements inwhich a new venture such as Magic is posi-tioned as a central or prototypical instance ofnovel, ad hoc constructed categories, such asonline shopping (Gentner et al., 2001). With suchcategory-inclusion statements, potential catego-ries are generated or invoked from the source ofthe comparison (e.g., offline shopping) whilesets of modifiable dimensions are simulta-neously identified in the topic (e.g., self-serviceshopping on the web). The interpretation of thelegitimacy of the analogy or metaphor, thus, is akind of negotiation between the category of under-standing prototypically associated with thesource and the dimensions of the described target.If the target is indeed judged by stakeholders to bea prototypical member of the ad hoc constitutedcategory (i.e., online shopping), then the compari-son is more likely to confer legitimacy.

The foregoing discussion leads to the follow-ing general propositions regarding the mediat-ing influence of uncertainty and legitimacy onentrepreneurial sensemaking in interactionswith stakeholders. Analogies and metaphorsare reinforced, adapted, or replaced until uncer-tainty about the venture’s predictability is sat-isfied and cognitive legitimacy is attained, atwhich point the motivation diminishes.

Proposition 4: The degree of uncer-tainty regarding the predictability ofa venture in an industry mediates thelikelihood that entrepreneurs will relyon their initial analogies or metaphorswhen speaking to others. A high levelof uncertainty is associated with anadaptation or replacement—and alow level of uncertainty with a rein-forcement—of these initial analogiesor metaphors.

Proposition 5: The degree of cognitivelegitimacy of a venture in an industrymediates the likelihood that entrepre-neurs will rely on their initial analo-gies or metaphors when speaking toothers. A low level of legitimacy isassociated with an adaptation or re-placement—and a high level of legit-

imacy with a reinforcement—of theirinitial analogies or metaphors.

DISCUSSION

In this article we have elaborated a processtheory of new venture creation that highlightsthe role of entrepreneurs’ sensemaking to them-selves and to others whose understanding andsupport are critical to a venture’s success. Wehave argued that in the absence of a perfor-mance trajectory, entrepreneurs rely on induc-tive (analogical or metaphorical) reasoning tocreate and justify a rationale for a novel venturethat accounts for its existence and garners thenecessary support from relevant stakeholdersand resource providers. We next discuss theimplications for theory and research on entre-preneurship, sensemaking, and new venturecreation.

Contributions and Implications

First, we believe this article illustrates thesignificant potential that exists for a focus onsensemaking (Taylor & Van Every, 2000; Weicket al., 2005) to contribute to existing theories andconcerns within entrepreneurship research. Todate, research on entrepreneurial cognition andresearch on the institutionalization of novel ven-tures have tended to remain relatively self-referential (e.g., Alvarez & Barney, 2007), with asignificant gap between them as a result of therather different scholarly traditions and meth-ods associated with positivist psychology andinterpretive sociology (e.g., DiMaggio, 1997). Al-though this may have been necessary for eachof these research streams to develop a strong setof theoretical and methodological principles(e.g., Baron & Ward, 2004; Mitchell et al., 2002),we believe that it is time to integrate their in-sights into a more comprehensive and proces-sual understanding of how entrepreneurs de-velop and explore ideas for a novel venture,plan and launch their ventures, and seek to ac-quire support and legitimacy to sustain andgrow these ventures over time.

The sensemaking approach that we haveelaborated in this paper focuses on how entre-preneurs, while speaking, construct meaningabout novel ventures for themselves and othersin the early stages of the venture creation pro-cess. This particular approach provides a fertile


area for such integration, with its assumptionsregarding the socially constructed nature of re-ality and its singular focus on the verbal speechacts through which entrepreneurs simulta-neously envision and rationalize the potentialfor novel ventures. In developing our model, wehave attempted to show not only the commonthreads that cut across the areas of entrepre-neurial cognition and institutional theory butalso how systematic, empirically useful theorycan be derived from their integration. Specifi-cally, we have combined determinants (prior ex-perience and uncertainty about the predictabil-ity and legitimacy of a novel venture) derivedfrom cognitive and institutional theory and havespecified how together they impact the entrepre-neurial process by which new ventures areimagined, developed, and sustained over time.Thus, we believe our work highlights that theconnection between cognitive and institutionaltheory in entrepreneurship has significant po-tential for both theory development and empiri-cal research.

A second implication involves the specifica-tion of varieties of inductive analogical andmetaphorical reasoning about novel ventures.Scholars recognize induction as central not onlyto how entrepreneurs envision novel opportuni-ties (e.g., Baker & Nelson, 2005; Baron & Ward,2004; Sarasvathy, 2001, 2004; Sternberg, 2004) butalso to how they legitimize those opportunitiesto others (e.g., Lounsbury & Glynn, 2001; Zott &Huy, 2007). Yet very little existing research onentrepreneurship has provided a theoreticalspecification of when and how entrepreneursuse specific analogical or metaphorical compar-isons as an inductive anchor to reason about aventure in a novel, unfamiliar industry. We ad-dress this shortcoming by defining the determi-nants and variety of analogical and metaphori-cal reasoning in venture creation processes. Inso doing we contribute directly to central ques-tions about how opportunities for a novel ven-ture are identified or created (e.g., Alvarez &Barney, 2007; Baron & Ward, 2004) and how theinstitutionalization of a novel venture occursover time (e.g., Lounsbury & Glynn, 2001; Santos& Eisenhardt, 2009). Our model extends the cog-nitive tradition by specifying the processes andconditions of inductive reasoning by which en-trepreneurs envision opportunities for novelventures. Within this tradition these processeshave often been implied as invariant and auto-

matic psychological processes (e.g., Baron &Ensley, 2006) rather than directly theorized(Baron & Ward, 2004; Ward, 2004). Further re-search, we suggest, can draw directly on thepropositions on prior experience and inductive(analogical or metaphorical) reasoning to studythe cognitive processes by which the opportu-nity for a novel venture is created or identified.

Our model also extends institutional researchon entrepreneurship and begins to explain howand why, through inductive reasoning, the insti-tutionalization of a venture may occur (e.g.,Lounsbury & Glynn, 2001; Phillips et al., 2004).Institutional research has been largely silent onhow the content or structure of speech reflectsand shapes the institutionalization process andhow entrepreneurs, through inductively gener-ated associations and arguments, establishshared understanding and legitimacy for theirnovel ventures (e.g., Santos & Eisenhardt, 2009;Zott & Huy, 2007). Such associations and argu-ments may be analogically connected to institu-tionalized standards and conventions in anygiven industry (Hannan et al., 2007) or to the pastexperiences of an entrepreneur, but they mayalso involve creative metaphorical comparisonsor coherently blended images that provide thebasis for institutionalization. In making thesedistinctions, we believe that we have enrichedthe institutional literature. Lounsbury andGlynn (2001) and Zimmerman and Zeitz (2002)argue that there is a limited understanding ofthe symbolic processes through which new ven-tures are framed as viable and legitimate busi-nesses. By identifying varieties of inductive rea-soning and by formalizing them into a set ofpropositions, we point to a number of ways tostudy the institutionalization of new ventures.

A third implication relates to the proposedprocess model of entrepreneurial sensemaking.This model adds to process studies of entrepre-neurial action (McMullen & Sheperd, 2006; Zott &Huy, 2007) in that it theoretically links cognitiveand symbolic activities performed by entrepre-neurs across the early stages of setting up newventures. As such, it is more widely applicablethan studies that have focused on specificstages, such as the launch or initial public of-fering of a new venture (e.g., Chen et al., 2009;Martens et al., 2007). Underpinning the model isa theory of sensemaking as a socially situatedprocess by which individuals construct meaningwhile speaking. This definition of sensemaking


applies to the context of new ventures—wherethe demands of online sensemaking requirethat individual entrepreneurs think by speak-ing, meaning that conscious thought emergesin the act of speaking with others (Hill & Lev-enhagen, 1995)— but potentially also extendsto sensemaking in other social and organiza-tional settings.

Existing research on sensemaking, however,largely separates individual cognition, or sense-making, from symbolic “sensegiving” processesin social or organizational settings (see Maitlis& Sonenshein, 2010; Weick et al., 2005). We argueinstead that language and thought interpene-trate in context and that meaning develops as aresult of interactions with others. In the classiccase of the Mann Gulch disaster (Weick, 1993),for example, when the spotters on the aircrafthad labeled the fire as a “10 o’clock fire,” thefirefighters on the ground committed them-selves to this interpretation and believed it to bea fire that was relatively contained. Accordingto Weick (1993: 635), they also reinforced and“rationalized this image until it was toolate”—an analysis that points to the formativeeffect of language and to social validation inreifying the circumstances the firefighters faced.Another more recent study of the hijacking ofUnited Airlines flight 93 (Quinn & Worline, 2008:501) demonstrates how people aboard the planeresponded to this “shocking and incomprehen-sible” event by constructing a sensible narrativethat allowed them to deliberate the action ofcollectively counterattacking the hijackers. Thenarrative evolved while people on the planewere phoning their close relatives and partnersfor approval and emotional support, which, inturn, gave the passengers the confidence to goahead with their courageous counterattack(Quinn & Worline, 2008).

Although settings of crisis and change are notnecessarily the same as the early stages of ven-ture creation, there are clear parallels acrossthese sensemaking scenarios in the sense thatindividuals, drawing from their own experienceand identity, construct meaning of inchoate cir-cumstances, while speaking with others, andreinforce, replace, or adapt their sensemakingin the context of voiced or perceived social ex-pectations. This particular formulation offers thepotential for a more parsimonious perspectiveon sensemaking that, we argue, may benefitresearch. Over the past fifteen years, sensemak-

ing has become an increasingly popular um-brella construct (Hirsch & Levin, 1999) that hasusurped divergent theoretical principlesaround, for example, cognitive dissonance, theautonomic nervous system, behavioral enact-ment, social identity, behavioral routines, emo-tions, speech acts, and escalation of commit-ment (e.g., Weick, 1995; Weick et al., 2005).Integration of these principles into a single con-struct is laudable, but it lacks specificity andprovides broad, rather than specific, guidance toempirical research.

A fourth related and final implication con-cerns the empirical examination of speech andcommunication in entrepreneurship research.The constructs and propositions in our modelcan be readily connected to techniques for theidentification and analysis of analogies andmetaphors (e.g., Cornelissen, Oswick, Chris-tensen, & Phillips, 2008; Putnam & Fairhurst,2001) and their use in the context of entrepre-neurial sensemaking (e.g., Lounsbury & Glynn,2001)1. For example, further research may sys-tematically study argument constructions (Gold-berg, 1995), which provide the inductive corearound which entrepreneurs elaborate largerscenarios or narratives for their ventures. Suchstudies will buttress the arguments and analy-ses of the burgeoning tradition of interpretiveresearch on entrepreneurial narratives (e.g.,Martens et al., 2007).

We furthermore believe that a key strength ofour theorizing is that it provides a potentialfoundation for empirical process studies of theproposed links between an entrepreneur’s priorexperience and speech, social contexts of speak-ing, and institutionalized discourses in an in-dustry, using either a qualitative or quantitativeresearch design. Each of the theorized links thatwe have elaborated and illustrated with caseexamples (Santos & Eisenhardt, 2009) can pro-vide the focus for intensive qualitative investi-gations that might serve to confirm or refute ourarguments, as well as flesh out the details ofthese complex relationships. The model could

1 We restrict our focus here to verbal analogies and met-aphors. We acknowledge that inductive reasoning may alsoinvolve analogies or metaphors in other “modalities,” in-cluding the drawing of pictorial images or the constructionof prototypes or artefacts (e.g., Cornelissen et al., 2008), butthis is beyond the scope of the paper. We thank one of thereviewers for providing this insight.


also inform a quantitative examination of thedynamics of entrepreneurial speech and the in-stitutionalization of ventures in an industry overtime, with the propositions that we have devel-oped forming the basis for a set of testable hy-potheses. This would require the assembly of adatabase of novel ventures in specific indus-tries, speech acts of novice and experienced en-trepreneurs, and the measurement of perfor-mance outcomes and the legitimacy of venturesover time. This database would need to be largeenough to allow for systematic comparisons;such a study might easily be done in the form ofa longitudinal study of novel ventures in a par-ticular set of industries so that other factorsmight be at least partially controlled.

Conclusion

In this article we have theorized about howinductive reasoning through analogies or meta-phors is central not only to how entrepreneursenvision an opportunity for a novel venture butalso to the way in which they communicateabout that venture so that it can be understoodand made acceptable and legitimate in the eyesof key stakeholders. Connecting strands of cog-nitive and institutional research, we highlightedtwo determinants (prior experience and uncer-tainty about the predictability and legitimacy ofa novel venture) that influence how entrepre-neurs envision and rationalize the opportunityfor a novel venture. These contributions can beused to reconceptualize and guide the study ofhow entrepreneurs imagine venture opportuni-ties and of how they simultaneously developand legitimize new ventures to exploit suchopportunities.

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Joep P. Cornelissen ([email protected]) is a professor in corporate communi-cation at Leeds University Business School, the University of Leeds. He received hisPh.D. from the Manchester Metropolitan University (UK). His current research focuseson narratives and processes of framing in the context of entrepreneurship and orga-nizational change.

Jean S. Clarke ([email protected]) is a lecturer in entrepreneurship at LeedsUniversity Business School, the University of Leeds. She received her Ph.D. from theUniversity of Leeds (UK). Her research interests include narrative, metaphor, andvisual symbols in entrepreneurship and legitimacy creation.


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