Falling Forward: Real Options Reasoning and Entrepreneurial Failure
Academy of Management ReviewPublished 1 January 1999
Rita Gunther McGrath
Citations1,165
SJR quartileQ1
SJR score14.40
SNIP6.11
Generate an AI Snapshot to get a quick, structured summary of this paper.
Study Snapshot
ObjectiveStudy objective
MethodsResearch methodology
PopulationPopulation studied
Sample sizeSample sizes
OutcomesStudy outcomes here
ResultsStudy results comes here
LimitationsResearch study limitations comes here
A concise AI-generated summary of the paper will appear here once you click Generate AI Snapshot.
Abstract
Although failure in entrepreneurship is pervasive, theory often reflects an equally pervasive antifailure bias. Here, I use real options reasoning to develop a more balanced perspective on the role of entrepreneurial failure in wealth creation, which emphasizes managing uncertainty by pursuing high-variance outcomes but investing only if conditions are favorable. This can increase profit potential while containing costs. I also offer propositions that suggest how gains from entrepreneurship may be maximized and losses mitigated.
Keywords
Economics, Econometrics and Finance
EconometricaProspect Theory: An Analysis of Decision under Risk
47,019 Citations1979Daniel Kahneman, Amos Tversky
Cambridge University Press eBooksProspect theory: An analysis of decision under risk
33,002 Citations1988Daniel Kahneman, Amos Tversky
Journal of Political EconomyThe Pricing of Options and Corporate Liabilities
29,429 Citations1973Fischer Black, Myron S. Scholes
Judgment under Uncertainty: Heuristics and Biases
23,088 Citations1975Amos Tversky, Daniel Kahneman
The Economic JournalAn Evolutionary Theory of Economic Change.
21,720 Citations1983Brian J. Loasby, Richard R. Nelson +1 more
Organization ScienceExploration and Exploitation in Organizational Learning
21,364 Citations1991James G. March
Foreign AffairsCapitalism, Socialism and Democracy
15,546 Citations1997Francis Fukuyama, Joseph A. Schumpeter
Academy of Management ReviewUpper Echelons: The Organization as a Reflection of Its Top Managers
10,275 Citations1984Donald C. Hambrick, Phyllis A. Mason
The Journal of FinanceInvestment Under Uncertainty.
9,863 Citations1994Eduardo S. Schwartz, Avinash Dixit +1 more
Academy of Management ReviewClarifying the Entrepreneurial Orientation Construct and Linking It To Performance
8,142 Citations1996G. T. Lumpkin, Gregory G. Dess
Cambridge University Press eBooksJudgment under Uncertainty
8,011 Citations1982Kahneman, Daniel 1934-2024, Slovic, Paul 1938- +1 more
Strategic Management JournalThe myopia of learning
7,209 Citations1993Daniel A. Levinthal, James G. March
The imperfections of learning are not so great as to require abandoning attempts to improve the learning capabilities of organizations, but that those imperfections suggest a certain conservatism in expectations.
Journal of Small Business ManagementJournal of Small Business Management
6,683 Citations2020Stoian, MC, Rialp, J +1 more
An evolutionary theory of economic change
6,324 Citations1982Winter, G Sidney
Strategic Management JournalCore capabilities and core rigidities: A paradox in managing new product development
6,320 Citations1992Dorothy Leonard‐Barton
Management ScienceStrategic Factor Markets: Expectations, Luck, and Business Strategy
5,535 Citations1986Jay B. Barney
SSRN Electronic JournalA Behavioral Theory of the Firm
4,905 Citations1963Richard M. Cyert, James G. March
Journal of Personality and Social PsychologyThe illusion of control.
3,675 Citations1975Ellen J. Langer
The Economic JournalCapitalism, Socialism, and Democracy.
3,613 Citations1951Joan Robinson, Joseph A. Schumpeter
Management ScienceManagerial Perspectives on Risk and Risk Taking
3,192 Citations1987James G. March, Zur Shapira
Fools Rush in? The Institutional Context of Industry Creation*
2,657 Citations2007Howard E. Aldrich, C. Marlene Fiol
Long Range PlanningBuilt to last: Successful habits of visionary companies
2,322 Citations1996James C. Collins, Jerry I. Porras
Real Options: Managerial Flexibility and Strategy in Resource Allocation
2,250 Citations1996Lenos Trigeorgis
Foreign AffairsDeterminants of Economic Growth: A Cross-Country Empirical Study
1,994 Citations1997Richard N. Cooper, Robert J. Barro
Administrative Science QuarterlyAlternative Forms of Fit in Contingency Theory
1,914 Citations1985Robert Drazin, Andrew H. Van de Ven
Choice Reviews OnlineDeterminants of economic growth: a cross-country empirical study
1,706 Citations1997
Administrative Science QuarterlyManagerial Response to Changing Environments: Perspectives on Problem Sensing from Social Cognition
1,206 Citations1982Sara Kiesler, Lee Sproull
Management ScienceOperating Flexibility, Global Manufacturing, and the Option Value of a Multinational Network
1,142 Citations1994Bruce Kogut, Nalin Kulatilaka
Research PolicyThe competitive challenge: Strategies for industrial innovation and renewal
1,080 Citations1988Mark Dodgson
Kirk-Othmer Encyclopedia of Chemical TechnologyResearch/Technology Management
1,008 Citations2000J. A. Miller, Per Norling +1 more
Academy of Management ReviewStrategy through the Option Lens: An Integrated View of Resource Investments and the Incremental-Choice Process
895 Citations1993Edward H. Bowman, Dileep Hurry
CERN Document Server (European Organization for Nuclear Research)Winning through innovation : a practical guide to leading organizational change and renewal
809 Citations1997Michael L. Tushman, Charles A. O’Reilly
Academy of Management ReviewThe Architecture of Simplicity
760 Citations1993Danny Miller
It is argued that over time the world views, goals, strategies, cultures, and processes of successful organizations will become more pure or “simple”: They will come to focus more narrowly on a single theme, activity, or issue at the expense of all others.
Academy of Management ReviewA Real Options Logic for Initiating Technology Positioning Investments
716 Citations1997Rita Gunther McGrath
SSRN Electronic JournalResource Cooptation Via Social Contracting: Resource Acquisition Strategies for New Ventures
708 Citations1990Jennifer Starr, Ian C. MacMillan
Organization ScienceCrossroads—Organizational Performance as a Dependent Variable
691 Citations1997James G. March, Robert I. Sutton
Contemporary Sociology A Journal of ReviewsPermanently Failing Organizations.
656 Citations1990Stephen J. Mezias, Marshall W. Meyer +1 more
Advances in entrepreneurship, firm emergence, and growthAdvances in entrepreneurship, firm emergence and growth
594 Citations2009
Strategic Management JournalResearch notes and communications management objectives in mergers and acquisitions
561 Citations1990Gordon A. Walter, Jay B. Barney
A taxonomy of managerial goals in mergers and acquisitions is developed through a cluster analysis of data from interviews with merger and acquisition practitioners, showing that different types of merger and acquisitions are characterized by different managerial objectives.
Administrative Science QuarterlyThe Justification of Organizational Performance
544 Citations1983Barry M. Staw, Pamela I. McKechnie +1 more
The Economic JournalEntrepreneurship, Management, and the Structure of Payoffs.
515 Citations1996Colin Mayer, William J. Baumöl
Journal of Management StudiesCHALLENGER: FINE‐TUNING THE ODDS UNTIL SOMETHING BREAKS
448 Citations1988William H. Starbuck, Frances J. Milliken
EconometricaFunding Criteria for Research, Development, and Exploration Projects
446 Citations1981Kevin Roberts, Martin L. Weitzman
Medical Entomology and ZoologyCorporate Venturing : Creating New Businesses Within the Firm
399 Citations1993Zenas Block, Ian C. MacMillan
Academy of Management ReviewA PRISONER'S DILEMMA APPROACH TO ENTREPRENEUR-VENTURE CAPITALIST RELATIONSHIPS
351 Citations1997Daniel M. Cable, Scott Shane
Administrative Science QuarterlyEnvironments and Strategies of Organization Start-Up: Effects on Early Survival
334 Citations1989Elaine Romanelli
Results indicate that market demand, both by itself and when interacting with strategy variables, is the primary environmental influence on the probability that startups will survive.
Academy of Management JournalEXTENDING MODERN PORTFOLIO THEORY INTO THE DOMAIN OF CORPORATE DIVERSIFICATION: DOES IT APPLY?
313 Citations1994Michael Lubatkin, Sayan Chatterjee
Administrative Science QuarterlyExpo 86: An Escalation Prototype
295 Citations1986Jerry Ross, Barry M. Staw
Strategic Management JournalAn empirical evaluation of the internal corporate venturing process
284 Citations1992Raghu Garud, Andrew H. Van de Ven
Analysis of data from a venture within a large diversified corporation that was to develop cochlear implants, beginning in 1978 and ending in 1989 when the venture was terminated, indicates that there was strong action persistence during the expansion period.
Journal of Business VenturingNew firms: Societal contribution versus survival potential
227 Citations1987Paul D. Reynolds
Research-Technology ManagementManaging R&D As a Strategic Option
218 Citations1988Graham R. Mitchell, William F. Hamilton
Journal of Business VenturingCompensating corporate venture managers
195 Citations1987Zenas Block, Oscar A. Ornati
Strategic Management JournalCalls on high‐technology: Japanese exploration of venture capital investments in the United States
188 Citations1992Dileep Hurry, Adam Miller +1 more
Strategic Management JournalMEASURING ORGANIZATIONAL DOWNSIDE RISK
186 Citations1996Kent D. Miller, Jeffrey J. Reuer
Journal of Business VenturingStarting up in a turbulent environment: A process model of failure among firms with high customer dependence
174 Citations1990Satchi Venkataraman, Andrew H. Van de Ven +2 more
A process model of failure of new small businesses in turbulent environments is proposed by explaining how and why significant reversals and shifts occurred between 1983 and 1985 in the entrepreneurial, organizational, and ecological conditions of ten new educational software companies.
Journal of Business VenturingCapital market myopia
150 Citations1985William A. Sahlman, Howard H. Stevenson
Venture CapitalCalls on High-Technology: Japanese Exploration of Venture Capital Investments in the United States
132 Citations2022Dileep Hurry, Adam T. Miller +1 more
Strategic Management JournalThe role of new firms: Births, deaths and job generation
126 Citations1986Sue Birley
Journal of Small Business ManagementDo Small Businesses Have High Failure Rates: Evidence from Australian Retailers
126 Citations1996John Watson, Jim Everett
The male genitalia of the damselfly Calopteryx cornelia are morphologically symmetric just after emergence but asymmetric after reproductive maturation, and males of C. cornelsia are left-handed in their sperm removal behaviour at copulation.
Sloan management reviewSuccess as the Source of Failure? Competition and Cooperation in the Japanese Economy
64 Citations1997Heroyuki Tezuka
RePEc: Research Papers in EconomicsFailing Concerns: Business Bankruptcy in Canada
54 Citations1998John R. Baldwin
Academy of Management ProceedingsOPTIONS AND THE ENTERPRISE: TOWARD A STRATEGIC THEORY OF ENTREPRENEURIAL WEALTH CREATION.
39 Citations1996Rita Gunther McGrath
Journal of Personality and Social PsychologyThe roles of self-esteem and self-consciousness in the Wortman-Brehm model of reactance and learned helplessness.
37 Citations1983Jo Brockner, et al
Questionnaire data from Experiment 2 were consistent with the notion that enhanced performance reflected reactance, whereas impaired performance signified helplessness, and the effect of private self-consciousness was considerably weaker in this study.
Journal of Business VenturingBusiness creation with minimal resources: Some lessons from the African experience
22 Citations1990Mamadou Diomandé
…
