1 Introduction

After 40 years of inquiry into entrepreneurial organizations, an incredible volume of scholarship has examined entrepreneurial orientation (EO) (Diánez-González & Camelo-Ordaz, 2016; Scuotto et al., 2020; Urbano et al., 2019) and the relationship between EO and firm performance (Covin & Wales, 2019; Wales et al., 2021). While generally in agreement that the relationship between EO and performance is positive (e.g., Rauch et al., 2009; Rosenbusch et al., 2013; Saeed et al., 2014), the literature remains surprisingly silent about the theoretical underpinning for why EO is causing firm performance. This shortcoming not only reduces the ability of EO scholars to make causal claims but also leaves the question of its causal mechanisms underspecified (Anderson et al., 2022).

In this article, we advance EO as a theory of new value creation, including conceptualizing its main causal mechanism, the boundary conditions of this theory, and how future research may proceed. Central to our theoretical contribution, we introduce product-market variance as a new causal mechanism within EO research (Anderson et al., 2022; Makadok et al., 2018). Exploring these avenues can open up new opportunities for firm growth, a cornerstone of past empirical EO-performance investigations (Wales et al., 2013, 2021). Such development of foundational theory marks one significant opportunity to advance entrepreneurship research and to substantiate the broader EO-performance link.

This research promises to advance the conversation around EO in at least two significant ways. First, past resource-based rationales suggest that EO leads to firm performance because either it is a valuable resource or produces valuable resources that enhance firm performance (Wales et al., 2021). Although the organizational configuration which makes EO possible exhibits several hallmarks of itself being a valuable intangible resource, we clarify that successive attempts at new value creation characterize EO. As a strategic orientation, EO is an active behavioral posture, e.g., a sustained commitment to novel product-market experiments and trying new resource combinations. Building upon a resource-orchestration perspective (Carnes et al., 2022), we posit that a pattern of new entry is more entrepreneurial when entries exhibit bolder, more pioneering changes concerning the organization’s extant offerings, e.g., higher variance in product-market entries. In this vein, product-market variance (PMV) offers a means of (a) characterizing when an organization is being entrepreneurial and (b) a mechanism for explaining how entrepreneurial companies create new value. Over time, a pattern of bold, new product-market entries creates valuable new resource combinations—at which point firms often opt to be less entrepreneurial and more focused on exploitation and strategic management (Wales et al., 2011).

Second, our theory also sheds new light on the boundary conditions that shape when higher EO will be most efficacious for new value creation. Specifically, an organizational learning orientation, as well as organizational resource flexibility, are deemed central boundary conditions. The absence of these factors implies less targeted and recoverable investments when experimenting with new entries, which should make it harder to predict the efficacy of EO and thus renders the consequences of its employment more hazardous. In this vein, our research draws attention to the need to consider moderating influences from the perspective of whether and how they may bound predictions offered by a theory of EO as new value creation.

In sum and considering that theory provides a well-tested explanation of why an observed pattern exists, offers root causes and insight into underlying mechanisms, and helps predict the results of future actions, our research aims to offer a testable theory of EO that can be refined in future scholarship, communicated to students, and referenced by entrepreneurs. While our theory is not restricted to high-tech companies, it is particularly relevant to high-tech sectors marked by continual demand for new innovations and above-average rates of product-market entry. Thus, we notably encourage its consideration within technology-rich environments, where the ability to draw upon innovative technologies and knowledge spillovers may accelerate new market entries and thereby offer an ideal context for the employment of EO as a means of new value creation.

2 Theory development and EO

EO has long been understood as indicative of what it means in an operational or behavioral sense for a firm to “be entrepreneurial.” (Covin & Miller, 2014; Lumpkin & Dess, 1996). As argued by Covin and Lumpkin (2011) and Wales et al. (2020), EO can have several different manifestations. Consistent with this observation, George and Marino (2011) assert that EO is appropriately viewed as a family of constructs. Given the variety of concepts and phenomena to which the label EO may be applied, it is important for our current purposes to identify the specific definition and concept of EO adopted as the focus of our theorizing. In particular, we offer our proposed theory with reference to the definition and concept of EO advocated by Covin and Wales (2019, p. 5): EO is herein defined as an “attribute of an organization that exists to the degree to which that organization supports and exhibits a sustained pattern of entrepreneurial behavior reflecting incidents of proactive new entry.” Key to this definition and conceptualization, EO is indicated by the regularity with which organizations exhibit entrepreneurial acts, reflected in a “sustained pattern” of entrepreneurial behavior. Our theory of EO builds off this insight that new value creation is tied to a pattern of new entry.

To date, EO-performance studies either do not clearly articulate a causal chain based on a specific theoretical foundation or have principally examined whether theories, often borrowed from neighboring disciplines such as strategy (i.e., the resource-based view, RBV), hold when exploring EO relationships. For example, in their systematic literature review, Anderson et al. (2022) identified 27 EO—performance studies published in leading journalsFootnote 1, and 80% of these studies do not provide a theoretical explanation for the causal mechanism linking EO with performance but instead draw (sometimes quite superficially) on resource-based logics. From the RBV perspective, and in line with the valuable, rare, inimitable, organized (VRIO) resource-based model, the manifestation of EO itself has been viewed as a valuable configuration of organizational resources (Wales et al., 2021; Wiklund & Shepherd, 2003). However, EO’s ‘resource’ value exists only because it fosters a continuous pursuit of new entry opportunities. While theories such as RBV and its more recent extensions into resource-orchestration perspectives lend useful insight, theory testing (e.g., ‘can predictions be made based upon RBV?’, i.e., ‘EO is a valuable resource which enhances firm growth’) should not be mistaken for the inductive development of an EO theory (‘what does EO do which explains why some firms grow?’, i.e., ‘EO fosters opportunities for firm growth because of new value creation made possible through a continual introduction of bold new product-market entry experiments’).

Table 1 The central elements of EO as a theory of new value creation
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To understand how and why EO’s dynamics can be presented as a formal theory, it is important to recognize the components of theory and the “litmus tests” regarding when an explanatory proposal might rightfully be advanced as a theory. In this regard, the insights of Makadok et al. (2018) are useful. These scholars propose that “any theory can be viewed as combining eight parts: (a) a research question, (b) a mode of theorizing, (c) a level of analysis, (d) a phenomenon, (c) a causal mechanism, (f) a set of constructs or variables, (g) a set of boundary conditions, and (h) a set of outputs, such as explanations, predictions or prescriptions” (p. 1533). As revealed throughout this essay and summarized in Table 1, these are the considerations for our theory of EO.

In this research, we examine EO as an attribute of extant companies (irrespective of size or age, e.g., whether sole proprietorships or large established corporations) and develop inductive theory (our mode of theorizing) to explain observed relationships with new value creation, our theory’s “output” variable. However, EO has also been described broadly as a phenomenon that applies to nascent entrepreneurs and organizations pursuing new venture creation (Lumpkin & Pidduck, 2021). That is, the origins of the Lumpkin and Dess (1996) perspective was originally “spurred by several factors, including a key insight from an early scholarly article on new venture creation [that] the creation of a new venture is a multidimensional phenomenon [based on] complex and unique combinations in the creation of each new venture.” Thus, we begin our theorizing by bounding its scope to the prediction of new value creation and creating potential opportunities for growth among extant organizations. We submit that a separate theory is required to explain EO’s relationship with organizational creation. Simply put, we argue that the question of ‘how does the EO of a founding individual or team predict new venture creation’ is distinct from ‘how do extant entrepreneurial firms realize new value creation?’ the research question addressed by our theory.

3 EO as a theory of new value creation

Firm growth can stall for a myriad of reasons, including when an organization is no longer able to keep up with the offerings of competitors (Sirmon et al., 2007), the demands of their environment (Fainshmidt et al. 2019), a robust externally-focused social network (Leyden & Link, 2015), or to maintain a strong alignment between their product-market offerings and what their customers value (Blank, 2013). An extensive history of empirical findings has established that organizations exhibiting EO tend to achieve above-average firm growth (Rauch et al., 2009) because EO’s exhibition combats trends toward product-market obsolescence and consumer fatigue (or market saturation). However, direct positive relationships between EO and firm growth do not account for variance within the outcomes of a firm’s entrepreneurial efforts that may contribute to firm performance swings and survivor bias (Wiklund & Shepherd, 2011). Entrepreneurial search and exploration are costly endeavors which can strain a firms resource bases (Leyden & Link, 2015). This suggests that a theory of EO as a performance-mean enhancing phenomenon would not reflect the reality that EO, as a pattern of bold new product-market entry experiments, i.e., experiments often fueled by applications of new technologies and a strong R&D commitment, may (or may not) lead to firm scaling and growth. That is, it creates a distribution of outcomes, both wins and losses. Past models depict a direct relationship between EO and firm growth performance (e.g., Covin & Slevin, 1991, p. 10; Lumpkin & Dess, 1996, p. 152). Arguably what has been absent from the conversation, although often mentioned, are new entries, which constitute an integral mechanism through which more distally related growth may occur (Wales et al., 2020). We theorize that EO most directly contributes to new value creation through a commitment to bold, pioneering, innovative new entry experiments and, thereby, opportunities for firm growth.

It has long been recognized that entrepreneurially-oriented managers tend to focus more on value creation (e.g., new product development) over value appropriation (e.g., advertising) (Mintzberg, 1973; Wang et al., 2020). In our view, new value creation is increasing the benefits or decreasing the costs of an organization’s product-market offering, or, more formally, value is a function of benefits/costs. Benefits refer to the attractiveness of a new entry within the market. In contrast, costs encapsulate the principal barrier to adoption. Together, the value of a new entry predicts its adoption rate, albeit subject to organizational and environmental scaling constraints. That is, greater new value indicates a stronger alignment between what the organization is offering (e.g., the product solution) and the market demands (e.g., the consumer problem or job-to-be-done), which provides an opportunity for entrepreneurial growth and organizational scaling (Blank, 2013; Christensen et al., 2016). A new product-market offering with greater value is more compelling to consumers and more likely to improve an organization’s growth prospects in areas such as sales, employees, and social impact. Thus, more dramatic increases in value, often afforded by the creation or adoption of new technologies, provide a foundation for more dramatic potential increases in entrepreneurial growth. New technologies enable competitive actors to produce larger product-market variations and potentially more productive steps forward between successive new entries. Notable examples of new value creation predicated on substantial leaps forward in technological arenas include Google dramatically increasing the breadth and accuracy of consumer search or Square sharply reducing payment processing costs for small businesses.

At the heart of our theorizing is the recognition that firms with greater EO manifest stronger patterns of new entry over time (Covin & Slevin, 1991). Entrepreneurial managers configure their organizations to support innovation, take risks, and proactively pioneer new entry opportunities (Wales et al., 2020). Risk-taking captures a willingness to place bets on new possibilities, i.e., developing new technologies that can be the basis for innovative products or services. Innovation captures new experiments in pursuing higher bases of competition and customer value. Proactiveness refers to pioneering new product-market entries before competitive and consumer data have made their efficacy well understood. Together these dimensions capture an orientation toward novel new product-market entries.

A critical assumption of our theory is that firm behavior takes precedence over managerial attitudes, analysis, and proclamations in new value creation. That is, value creation depends on action, such as the embodiment of organizational knowledge within new products, services, and technologies, which form the basis of new entries. A new or dramatically refined product-market offering, and the technology upon which it is based, is an attempt at new value creation and, therefore, the principal unit of action within our theory of EO as new value creation. We define technology broadly as the practical application of knowledge in ways that make it possible to create new products, exploit new markets, use new ways of organizing, incorporate new raw materials, or use new processes to meet customer needs (Merriam-Webster, 2023; Shane, 2005).

A related assumption is that EO examines both the ‘frequency’ with which new entries are undertaken (i.e., ‘how many new lines of products or services has your firm marked in the past 5 years’, Covin and Slevin (1989) as well as the ‘degree’ to which these new product-market entries differ from extant offerings (i.e., ‘changes in product or service lines have usually been quite dramatic’, Covin and Slevin (1989). Our theorizing assumes a continuous frequency of new product-market entries, drawing attention to whether this stream of new entries is more (or less) entrepreneurial based on the degree of product-market variance (or changes) introduced in the pursuit of new value. In this vein, Morris and Sexton (1996) observe the degree of entrepreneurship (e.g., the extent to which new entries were innovative, proactive, and risk-taking) to matter more for growth than the number of new entries. Nonetheless, both frequency (e.g., sustained attempts) and degree (e.g., novel changes) were deemed essential to capturing the ‘intensity’ of a firm’s entrepreneurial efforts.

Why is sustained entrepreneurial behavior at the heart of EO as a theory of value creation? This research asserts that a higher new entry ‘velocity’, e.g., more significant changes within a stream of new product-market entries, increases the chances that firms may create or discover new opportunities with the potential to shift the status quo of consumer behavior by introducing better solutions to their ‘jobs to be done.’ According to jobs theory, new entries that more accurately solve a customer’s ‘job to be done’ have the clearest, most substantial benefits of relevance to the central areas where a customer is attempting to progress (Christensen et al., 2016). The extent to which a new entry creates new value (or not) reflects a demand condition often not considered within EO research—that is, how well the new product-market offering accurately solves an actual ‘job’ that a customer is seeking to accomplish. New entries achieving more substantial value creation are the most likely option to be ‘hired’ (purchased) by a customer to solve their struggle, thereby affording organizations stronger potential bases for new growth and scaling.

New value creation ultimately occurs at the product (or service) level, and, as such, product-market engagement via repeated acts of new entry is at the center of our theorizing about new value creation within EO research. A sustained pattern of new entry is critical given that uncertainty pervades the launch of each individual new entry, and predictions about the promise of a new technology or customer demand often fail to meet expectations, requiring course correction in the form of subsequent new entries (Blank, 2013). With each new entry, firms can alter their offerings to better solve a customer’s most important job to be done. Thereby, firms may get closer to a compelling product-market offering that customers value and adopt. Organizations are more entrepreneurially oriented when they exhibit greater product-market “variance” (our causal mechanism) in the form of variously diverse (relative to existing offerings) product-market trials, which open the firm up to more significant opportunities for learning about potential opportunities. In contrast, organizations are more conservative when they slow down or freeze product-market changes.

Consequentially, with each new entry, organizations have the potential of identifying a hitherto unnoticed opportunity for dramatic growth that would have been difficult, if not impossible, to predict ex-ante and absent the presence of entrepreneurial behavior within the market (e.g., Sarasvathy, 2001). As EO implies that new entries are tried with regularity (Covin & Lumpkin, 2011; Covin & Wales, 2019), information is being generated that may lead to discoveries in the way customer jobs can be solved that would have been difficult to envision absent the newly introduced, primary market information made available from previous new entries. Thus, with each new entry, new information is presented, and the entrepreneurially-oriented firm can learn how to more decisively leap forward within the uncertain problem space of new value creation.

As a theory of new value creation, EO creates new value based upon the changes or variations an organization introduces between its successive new entries. More entrepreneurially-oriented firms introduce greater variation between successive entries. That is, these organizations try more dramatically different products, services, experiences, and markets. In doing this, they open themselves up to greater chances of striking a new business ‘vein’ they may productively ‘mine’ to foster new growth. We recognize that EO may produce variation in firm performance as well, e.g., tremendous gains and losses (Wiklund & Shepherd, 2011), though this is merely a symptom or outcome of EO, whereas product-market variation can be regarded as the actual root cause which explains the presence of firm performance variance. As remarked by Reid Hastings, co-founder, and CEO of Netflix:

In the industrial era the goal was to minimize variation, but in creative companies today maximizing variation is more essential… the biggest risk is not making a mistake or losing consistency, it is failing to attract top talent to invent new products or to change direction quickly…. A lot of little mistakes, while sometimes painful, help the organization learn quickly and are a critical part of the innovation cycle.

~ Hastings and Meyer (2020)

The innovative, proactive, and risk-taking dimensions of EO, separately and in aggregate, increase product-market variation and offer means of new value creation. Greater innovation enhances variation and paths to new value through more substantial product-market and technological novelty. With high innovativeness, critics may call a firm’s management ‘imaginative’ or even ‘crazy’ for pursuing an idea quite far from the mainstream. Greater proactiveness suggests that new markets, sometimes referred to as ‘blue oceans’ (Kim & Mauborgne, 2015), are being pioneered, thereby generating immense primary market insight. Increased risk-taking implies a desire to avoid ‘missing the boat’ and a management style embracing more dramatic changes in the organization’s product-market entries. Of note, the traditional Miller (1983)/Covin and Slevin (1989) measure does not reference substantial resource commitments as the EO literature has often interpreted and alluded to Wales et al. (2020), but rather the willingness of organizational managers to pursue (and not miss) new opportunities. As a state of EO is foremost characterized based on search (exploration) rather than commitment (exploitation), we further clarify that being entrepreneurially oriented does not imply that an organization always goes ‘all in’ on identified opportunities with large resource gambles. Such organizations are, rather, committed to introducing bold new product-market entries whose resource commitments may be modest at first but may create an opportunity for the organization to ramp up investment as warranted, i.e., based on consumer demand. Taken together, an organizational commitment to experimenting with bolder, more innovative, and proactive new entries provides more substantial opportunities for new value creation.

Proposition 1

EO creates new value by increasing the quantity and variation of an organization’s new product-market entries over time. By contrast, conservative organizations introduce few new product-market variations and eschew steady experimentation.

4 Boundary conditions

With the articulation of formal EO theory, certain influences can now be more clearly described as central boundary conditions to its predictions. While broad, task environmental considerations dictate whether and when returns to EO will be the most lucrative, e.g., value capture from identified new growth opportunities (a topic we return to within our discussion), certain organizational factors are deemed essential conditions for the operation of the causal chain which explains how EO creates new value based on product-market variance. These conditions explain at what critical points the theory and associated predictions about new value creation are less applicable or no longer hold. That is, boundary conditions to a theory suggest when a theory needs to be refined to incorporate exceptions to the rule. In this case, when might EO not create new value for an organization or when might it not be as powerful in doing so?

A central boundary condition to our theorizing is an organizational learning capability. The creation of product-market variance demands organizational learning to ensure that lessons learned from productive variations are capitalized on within subsequent new entries. Although EO is primarily viewed from a strategic choice perspective and described as a top management style (Wales et al., 2020), managerial choice is strongly guided based on market feedback (i.e., Baines et al., 2023). That is, from a variation-selection-retention perspective (Simonton, 1999), a central selection mechanism within our theorizing is external to the firm in the form of consumer behavior. Commenting on the power of market demand to shape the outcomes of new entries pursued by aspiring entrepreneurial organizations, Paul Graham, founder of the Y Combinator business accelerator, has articulated the sentiment that “Here, we don’t fire you. The market fires you.” (Stross, 2012). As selection is rooted in consumer choice, an organizational learning capability is critical to help organizations determine the largest opportunities to create new value for their customers.

EO captures a pattern of new product-market entries in which each new entry represents the embodiment of an organization’s current market knowledge in creating a new product, service, or market. Presumably, each new entry represents an organization’s perceived ‘best bet’ when launched. Nevertheless, new, better bets are required because many new entries fail to generate substantial market traction. However, making a better bet depends on learning, and uncertain problem spaces are notoriously difficult to predict, placing particular emphasis on primary insights generated from market contact (Blank, 2013; Sarasvathy, 2001). With each new product-market entry, firms generate additional information about consumer preferences. As such, we consider an organizational learning capability, particularly when it is directed at understanding markets (e.g., core aspects of marketing orientation), as an essential boundary condition of whether EO predictably creates new value (or not) for an organization. Consistent with this point, Schweiger et al., (2019) argued and found that EO is most positively associated with various firm performance outcomes when it is manifest along with a robust market orientation (MO) and learning orientation (LO)—that is, EO, MO, and LO work together in the creation of value for firms. Entrepreneurially-oriented firms introduce a stream of novel product-market variations, but if they do not learn what is (and is not) working better, value creation from successive new entries will not manifest as expected. With limited organizational learning, they will continually be ‘blindly throwing darts,’ never improving their decision acumen on new attempts and gaining a principal benefit of their EO, that is, an enhanced opportunity to recognize and capitalize on new insights into how they might better serve their customers.

When operating within the uncertain problem space of new opportunity identification, bold, innovative, and pioneering new entries actively create critical information about hitherto imperceptible opportunities with the potential to enhance the value created by subsequent entries. As such, learning about markets is critical and helps to explain EO’s established relationships with concepts such as organizational learning and/or marketing orientation (Wales et al., 2013). Customers lining up to purchase a new entry will lead to it being selected and retained. A lackluster consumer response will motivate entrepreneurial managers to consider a new entry. Top management will find it challenging to back a failing new entry ‘bet’ for long. Instead, managers are likely to take what they have learned and introduce a refined or wholly new product-market entry. Thus, whether variation in new entries predictably leads to new value creation is critically bounded by organizational learning capability.

Proposition 2

When organizations exhibit an entrepreneurial orientation, an organizational learning capability is a critical boundary condition to new value creation.

Additionally, contexts that hinder or limit organizational flexibility and change also serve as critical boundary conditions to our theory as they limit the ability of firms to support experimentation with new product-market entries. Inflexible structures, sometimes referred to as ‘mechanistic’ structures, have long been observed to be incompatible with EO (Covin & Slevin, 1988). In our view, such structures limit the value creation potential of EO because they are commonly associated with resource inflexibility. Specifically, resource flexibility exists when asset specificity is low, e.g., the number of discrete investments made into assets that cannot be readily put to work for other purposes has been limited (Williamson, 1983). If a firm’s resources are, however, committed to very specific, e.g., nonfungible, assets that cannot be easily liquidated or converted into other forms, we posit that an organization’s capacity to explore promising new product-market variations is constrained. When a firm exhibits EO, it requires resource flexibility. Increasing EO in less resource-flexible organizational contexts is hazardous as the loss of capital for failed product-market trials would be more substantial because nonfungible assets are less adaptable in response to lessons learned about consumer demand. On the other hand, if an organization has more flexible, divisible, and combinable resources, then new product-market variations will be easier to experiment with when launching new entries. Consistent with this point, Ireland et al. (2003) observed that managerially, an entrepreneurial organization’s path to value creation depends on flexible resource management practices. When managerial freedom of action is restricted, e.g., limited resource flexibility is present within an organization, a firm’s ability to experiment with and adapt successive product-market entries is significantly hamstrung. Therefore, we theorize:

Proposition 3

When organizations exhibit an entrepreneurial orientation, organizational resource flexibility is a critical boundary condition to new value creation.

Incorporating these boundary conditions, our theoretical model is illustrated in Fig. 1.

Fig. 1
figure 1

An expanded theoretical model of EO

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5 Implications for component-level conceptualizations of EO

Our theorizing captures EO as a holistic organizational strategic orientation. However, we recognize that more granular views of the phenomenon are possible. To that end, we now assess several component-level implications of our theory within the broader EO conversation (Covin & Wales, 2019; Miller, 2011). One manner in which EO can be separated into distinct components is in terms of entrepreneurial beliefs (e.g., an entrepreneurial top management style) and behaviors (e.g., new product-market entry) (Anderson et al., 2015; Covin & Lumpkin, 2011). In this vein, Wales et al. (2020) conceptualize EO as a multi-level phenomenon, including entrepreneurial management style, organizational configuration, and new product-market entries. Covin and Slevin (1989, p. 77 emphasis added), note that “entrepreneurial firms are those in which the top managers have entrepreneurial top management styles, as evidenced by the firms’ strategic decisions and operating management philosophy.”

As components of EO, entrepreneurial managerial beliefs are typically viewed as supporting new entries (Anderson et al., 2019; Wales et al., 2020) and offering critical assurance that firms’ entrepreneurial behavior will persist over time (Covin & Lumpkin, 2011). In line with our theorizing, Covin and Slevin (1991, p. 8) emphasize the criticality of ensuring behavior, noting that “behaviors rather than attributes are what give meaning to the entrepreneurial process.” According to the literature on attitude-behavior linkages, individuals make decisions in accordance with their intentions, which depend on factors such as favorable attitudes toward an action (Ajzen & Fishbein, 1977; Madden et al., 1992). This model has received broad support (Armitage & Conner, 2001). For instance, firms with top managers who are more comfortable engaging in risky initiatives tend to be more proactive and innovative regarding new technologies and market entry (Hoskisson et al., 2017).

Therefore, building on our theorizing, we posit that entrepreneurial beliefs will indirectly improve new value creation as they most directly and consequentially support organizational commitment to a pattern of new entry behavior, which, in turn, explains new value creation. This is because EO, as a theory of new value creation, depends on market contact to refine successive new entries and identify unnoticed opportunities that enable rapid progress in value creation beyond competitors. EO captures managers’ attitudes toward bold and wide-ranging acts with the ambition of not ‘missing the boat’ (Covin & Slevin, 1989). As such, entrepreneurial top managerial attitudes correspond to a strategic decision-making style that drives a firm’s new entry behavior and, therefore, indirectly contributes to new value creation by enhancing an organization’s commitment to new entry behavior (Anderson et al., 2019; Wales et al., 2020). Of note, our theory is predicated on a pattern of innovative, proactive, risk-taking new entries, and this firm behavioral pattern depends upon the support of entrepreneurially-oriented individuals, e.g., an entrepreneurially-oriented top management style or individual/team-level disposition (Covin & Lumpkin, 2011; Lumpkin & Pidduck, 2021).

Proposition 4

When organizations exhibit an entrepreneurial orientation, the beliefs inherent to an entrepreneurial management style positively affect new value creation indirectly via their encouragement of new product-market entries.

As labeled by Lumpkin and Pidduck (2021), we draw in our theorizing on the traditional or corporate version of EO. This version of EO emphasizes the concurrent exhibition of innovation, proactiveness, and risk-taking as essential characteristics of the sustained pattern of new entry behavior which defines an organization as entrepreneurial. Our theory of how EO fosters new value creation requires a pattern of new entry behavior characterized by these three dimensions to operate (Miller, 1983, 2011). Nonetheless, we recognize the value of more configurationally expansive versions of EO, which incorporate a broader set of component dimensions as independent stimuli, such as the ‘global’ conceptualization of EO advanced by Lumpkin and Pidduck (2021), when assessing the entrepreneurial beliefs which predict whether individuals or teams will support entrepreneurial new entry behavior (or not). That is, when evaluating entrepreneurial beliefs, the additional components of EO proposed by Lumpkin et al. (1996, 2021), e.g., competitiveness and autonomy, are particularly informative to consider.

Whereas increased competitiveness is an outcome of EO in our theorizing, it appears useful to include competitiveness as a distinct factor when assessing beliefs about entrepreneurial behavior, given that individuals with greater competitiveness are more likely to support and follow through with creating something new. Additionally, autonomy and its associated freedom of action capture an aspect of organizational resource flexibility within our theory of EO as new value creation and thereby offers a boundary condition (rather than a new entry characteristic). Yet, when investigating support for entrepreneurial behavior, it is easy to envision how a desire for autonomy could be a critical factor in the decision to support a new entry. Taken together, when separating entrepreneurial beliefs and behaviors, we submit that a broader set of dimensions than is necessary to characterize new entry behavior as entrepreneurial (e.g., innovativeness, proactiveness, and risk-taking) will be useful to better assess the unique combination of factors that motivate individuals’ support of new entries. Given the myriad configurations of entrepreneurially-oriented beliefs which may coalesce and encourage individuals (or teams) to pursue new entries, an opportunity exists to develop configurational theory across a broader set of dimensions (Miller, 2011) to enhance our understanding of how, when, and why entrepreneurial beliefs contribute to sustained patterns of new entry behavior.

Proposition 5

When predicting whether decision-makers support a pattern of new entry, a configuration of entrepreneurially-oriented beliefs across innovativeness, proactiveness, risk-taking, competitiveness, and autonomy is beneficial to understand when, how, and why some actors (and not others) transition their entrepreneurial beliefs into new entries.

6 Discussion

Entrepreneurial firms must navigate an uncertain problem space on their path towards achieving productive product-market ‘fit’ (Blank, 2013) and a better solution to their customer’s jobs to be done (Christensen et al., 2016). In this study, we theorize that EO creates new value through a commitment to continuous novelty within an organization’s product-market offerings, which affords an organization with potential new avenues for growth and renewal. This research provides insight into the causal mechanism which explains how and why an entrepreneurially-oriented firm commonly achieves performance gains and suggests product-market variance (PMV) as the principal differentiator between entrepreneurial and conservative firms.

Following our theory, EO implies that an organization is continually trying bold product-market experiments, developing and utilizing new technologies, and reconfiguring its processes in an effort to achieve new value creation and, in turn, potentially substantial firm growth. Thus, our theory does not predict organizational scaling, per se, but rather how organizations create new value and thereby, opportunities for firm growth through new entry behavior. As such, it is a precursor to theories of strategic management emphasizing competitive advantage. Our theory draws attention to the need to consider the new entries firms undertake more deeply to better understand the EO phenomenon and the importance of learning more about how and when ‘turning the dial up’ on product-market variance will be most effective. Next, we outline key theoretical and practical implications for future research on the EO phenomenon.

6.1 Theoretical implications

Our theory emphasizes a new perspective on the importance of variation within EO research by critically shifting the emphasis from firm performance variance (Wiklund & Shepherd, 2011) further ‘upstream’ to product-market variance (Anderson et al., 2022). In this way, EO suggests that quality (e.g., new value creation) is bred from commitment (e.g., regularity of new product-market entry variance). Our theorizing implies that EO is particularly applicable to firms operating within sectors such as high-tech, where new technologies commonly accelerate the rates of new product-market entry. With an increased commitment to the novelty of solutions being offered to the market, EO increases an organization’s chances of creating new opportunities for dramatic gains within an uncertain problem space. Given that firms with higher EO uncover new value and potential opportunities which may (or may not) be productively scaled, there is a need to further consider boundary conditions between the creation of new value and the achievement of organizational growth. We broadly acknowledge these factors as organizational and environmental scaling constraints within our model and return to them within our discussion of future research.

Our theorizing also advances a new perspective on the EO-performance nexus, explicating a more nuanced picture of the EO-firm growth relationship. Given the uncertainty pervading each new entry’s success, the principal prediction of the EO-firm growth relationship cannot, unfortunately, be reduced to ‘launch a new entry, gain higher firm growth’ given that individual new entries may constitute sources of new value creation too limited to foster substantial firm growth. Consequently, EO is not a direct performance-mean enhancing phenomenon (Wiklund & Shepherd, 2011). Instead, our theorizing suggests that with each new entry, organizations generate insights into new value creation, gaining a greater understanding of what consumer jobs are most critical and how they may position subsequent entries for higher consumer adoption. Thus, the principal prediction of EO research can be more accurately reduced to, ‘launch a bold new entry (innovative, proactive, risk-taking relative to your extant offerings), gain higher new value creation potential; commit to a sustained pattern of new entries, create new value and opportunities for firm growth over time’. Notably, even when a new entry turns out to be a ‘total bomb’ from an organizational growth perspective, an organization nonetheless moves up the ‘new value creation capability ladder’ by gaining primary market insight into what is likely to constitute a better subsequent new entry. As EO captures a sustained pattern of new entries, it reliably predicts new value creation. Following our theorizing, once new value creation is realized, firms are afforded a new competitive foundation for achieving organizational growth—manifesting in a positive, moderately strong relationship between EO and firm growth as observed within past meta-analytic research (Rauch et al., 2009). However, how much firms vary their new entries over time, how easily they are able to accommodate bold new entries and emerging technologies, and how much progress each new entry makes towards new value creation depend upon critical boundary conditions such as an organizational learning capability and organizational resource flexibility.

Despite the confusion in the literature regarding the role of new entry within EO research (i.e., Wales et al., 2015), we offer a clarified theoretical perspective that the act of new entry is an essential and inseparable element of how and why EO creates new value for organizations. EO predicts new value creation reliably because firms continually try new entry experiments irrespective of how poorly or well a past attempt went. That is, even when experiments prove successful at creating new value, new opportunities and potential avenues of growth are always enticingly possible. As such, entrepreneurially-oriented firms are continuously morphing and therefore, this experimentally-oriented strategic orientation based upon continual bold product-market entry is not always well-suited to a firm’s competitive scenario (Wales et al., 2011). Put more directly, at some point, a sufficient new value is created to fuel acceptable firm growth, at least for a period of time, and thus argument can be offered at such time in favor of transitioning to a more conservative, exploitative strategic posture (Slevin & Covin, 1990).

Finally, an additional theoretical implication involves the changing role of asset specificity as firms begin to scale. When exhibiting EO, each new product-market entry is essentially a gamble. With greater asset specificity, fewer resources can be recovered from failed gambles to explore new product-market entries (e.g., Gali et al., 2023). As such, when exhibiting EO, asset specificity constrains experimentation. However, asset specificity takes on a more beneficial role once a firm transitions to exploiting an uncovered new growth opportunity. From a resource-based perspective, increased asset specificity indicates a firm’s unique competencies and resource bases. Paradoxically, firms are often incentivized to increase their asset specificity from a competitive perspective, but this same asset specificity constrains their ability to be entrepreneurial. Given this tension, entrepreneurial firms may consider ways of ambidextrously pursuing entrepreneurial exploration and the managerial exploitation of extant competencies across business units and/or over time (Wales et al., 2011).

6.2 Practical implications

Among the practical insights brought into focus by our theorizing is that the ‘hit rate’ of an organization’s new entry initiatives is less important to (net) new value creation than whether their collective total returns exceed their collective total costs (Roberts, 1980). As discussed by a popular allegory, if you are working in an uncertain problem space, such as a novice attempting to create a remarkable clay pot, your best bet is to make as many clay pots as possible in the time allotted rather than spending most of your time designing your best guess as to what the ultimate clay pot might beFootnote 2. Introducing attempts and variations increase opportunities to learn, generate insights, and ultimately make dramatic gains in creating new value for customers.

Empowering entrepreneurially-oriented firms to meaningfully enhance their prospects of success implies considering how their resources might be used to solve new and different jobs that arise within their customers’ lives. For instance, a bakery might consider the new product-market entry experiment of adding breakfast sandwiches to their menu as a way to (a) leverage their strengths and capacity in bread/roll production, (b) solve a job, e.g., breakfast, which occurs more frequently than the need for pastries, and (c) synergistically enhance sales of their other offerings through greater foot traffic. Actionable advice to firms looking to enhance their EO is, therefore, to think about what new product-market experiments they can undertake to leverage their strengths in novel ways and to continually explore what new jobs they might be able to help existing (or entirely new) customers make progress with in their lives.

To summarize, advising an organization to adopt greater EO is to suggest that they embrace at least three ethos: First, experimentation and a philosophy of action toward trying new ways of solving their customers’ jobs they need to get done. Second, proactively testing new approaches that are not yet common knowledge within the mainstream. Third, making frequent new entry bets to explore, create, and discover new opportunities. When combined with an emphasis on organizational learning and resource flexibility, EO offers practitioners a powerful strategic orientation for creating new value and avenues of organizational growth.

6.3 Future research directions

Future research is encouraged to further examine and potentially refine our theory of how EO enhances new value creation and its implications for firm growth. Doing so will help scholars and practitioners make better predictions about the consequences of an organizational orientation predicated on creating and discovering new opportunities through a commitment to novel and pioneering new product-market entries.

In terms of further investigating the relationship between EO and new value creation, there are several helpful theories about when bold new entries will better align with consumer adoption, such as whether a new entry solves a customer’s job to be done as previously discussed (Christensen et al., 2016). Is there an actual improvement in a compelling problem to be solved? Will people actually change their consumer behavior? These aspects of market understanding are critical and highlight the importance of integrating jobs theory (Christensen et al., 2016) within future EO research. Moreover, theories related to innovation ‘targeting’ to improve the chances that a new entry will meet with favorable consumer adoption are welcomed within the EO conversation. These theories have the potential to help explain (a) when EO is most effective at increasing new value creation and in turn, potential value capture in terms of growth performance, and (b) when EO strengthens organizational retention mechanisms by, for instance, providing a solution to a customer’s problem that works so well that it becomes embedded as part of the firm’s entrepreneurial culture and an unconscious basic assumption when crafting future new entries. Thus, our theory suggests the importance of deepening the theoretical connections between EO and organizational learning, including related knowledge management considerations such as managerial attention (e.g., what they are learning about; Ocasio et al., 2018) and networking (e.g., who they are learning from; Leyden & Link, 2015), as critical to understanding EO as a means of new value creation.

Moreover, it would be useful to consider specific aspects of a firm’s technological operating environment that may influence new product-market entry rates, including questions such as how, when, and which technologies enable entrepreneurially-oriented firms to achieve higher rates of new entry with more substantial variation from past offerings. Of particular timeliness is the consideration of artificial intelligence-based technologies with the potential to greatly accelerate the rate at which organizational communications are produced. These technologies promise to afford entrepreneurial organizations more time and resources to devote to ‘working on their business’, e.g., thinking about new potential product-market entries, rather than focusing on recurring operational tasks, e.g., ‘working in their business’. Additionally, how might various technologies’ impact on product-market entry rates vary across the organizational lifecycle and different degrees of organizational scale?

In terms of capturing the new value created by EO, beyond aggregate growth metrics in areas such as sales or employees, more granular, customer-focused metrics, including the rates of both new customer acquisition and existing customer retention, would be informative. As the data necessary to conduct analyses at a more granular product-market level is notably more challenging to attain than aggregate organizational or industrial metrics, it is our hope that studies based on such data with the potential to help advance (or refute) key aspects of our theory will be applauded by reviewer and editorial gatekeepers for their data collection efforts.

Moreover, whether new firm growth avenues afforded by a firm’s new value creation efforts are substantially capitalized on depends upon various internal and external factors with the potential to constrain (or enable) the organization’s scaling efforts. A particularly salient factor to new value capture is an organization’s production and use of new technologies (i.e., tools such as artificial intelligence, cloud computing, social media, big data analytics, etc.). From a value capture perspective, new technologies hold the potential to accelerate the rate of new product-market adoption, i.e., digital platforms, goods, marketing, and analytics, which help companies reach a broader set of potential customers quicker (Barbosa et al., 2022). Thus, from an internal perspective, it is reasonable to expect that when entrepreneurially-oriented organizations are more adept at new technological development and employment (i.e., having a technical co-founder), they are more likely to achieve higher levels of value capture from their EO. Internally, a flexible organizational structure is also likely to benefit value capture as many new product-market entries pull the organization in directions that are new to the firm (if not the world) and, in doing so, prompt the need for new organizational configurations, or the architectures, processes, cultures, etc. which enable the organization to exploit new growth opportunities (Wales et al., 2020).

Externally, considerations that may impact value capture include a variety of factors related to the task environment, such as dynamism, munificence, and complexity (Wales et al., 2013). However, as these considerations have been extensively investigated as moderators of the EO-firm growth relationship in past research (Covin & Lumpkin, 2011), deeper insight may be afforded when considering how such environmental conditions influence an entrepreneurially-oriented firm’s ability to scale its most promising product-market entries. For instance, Eisenhardt and Bourgeois (1988: 738) proposed the term “high velocity” to refer to those “environments in which there is dynamism (Dess & Beard, 1984) overlaid by sharp and discontinuous change such as changing competitors, technology, or government regulation (Sutton et al., 1986).” By contrast, “low velocity” environments are those in which these conditions are not present. Research by Nadkarni and Narayanan (2007) suggests the relevance of high versus low-velocity environments to the returns likely generated via the sustained exhibition of new entry initiatives. High-velocity environments are more likely to reward a continuous search for new growth trajectories and bases for competitive advantage (Fainshmidt et al., 2019), as enabled through EO. Additionally, we acknowledge the importance of considering environmental and organizational constraints in tandem, given their complex interplay on entrepreneurial outcomes (Wiklund & Shepherd, 2005). Taken together, a number of potential avenues for future research are summarized in Table 2.

Table 2 Future research directions
Full size table

Beyond drivers of entrepreneurial growth, there is a need and opportunity to develop theory that explains the effect of EO upon other outcomes of relevance, including new organizational creation. Additionally, how EO originates, such as among individuals (see Covin et al., 2020) and within organizations via nonmanagerial employees (see Urbano et al., 2022), represent promising areas. In sum, opportunities to expand our understanding of EO abound.

7 Conclusion

The literature has long accepted the conclusion that EO generally “works” as a driver of entrepreneurial growth (see, for example, Rauch et al., 2009). Still, as argued by Covin and Lumpkin (2011), Miller (2011), and Wales (2016), a theory gap is evident in much of the research that portends to link EO to firm performance outcomes. Specifically, how and why EO contributes to firm growth is often only vaguely or incompletely presented in the literature. Moreover, firm growth is arguably not the most causally adjacent outcome of EO. In recognition of these circumstances, the current essay has sought to illuminate a bit more of the black box existing between EO and firm growth by recognizing the value creation potential of EO enabled by the exhibition of product-market variance implicit in the popular definition and conceptualization of EO advanced by Covin and Wales (2019). We hope that our theory enhances, motivates, and continues to be refined within future scholarship.