Entrepreneurship and the Process of Obtaining Resource Commitments

Most theories of the firm ignore the entrepreneurial process of how the various resources of the firm are combined in the first place. This paper examines the process of how an entrepreneur obtains commitments from multiple resource providers to create a new venture. Resource providers may be reluctant to commit to an unproven concept, and the commitment of one gives external validation for the others. The entrepreneur has to decide in what order to approach potential providers, and what to bargain for. The optimal sequence of commitments depends on the entrepreneur's own credibility. Additional problems arise when no resource provider wants to be the first to commit. In this case the entrepreneur may shuttle between resource providers for a long time and the venture may never get started. The paper also shows how, as a result of the entrepreneurial process, the resources in a firm may differ from their first-best combination.