Academy of Management Learning and Education ...jfstewar/Oct 20 papers/Honig paper AMLE 2004.pdf · Entrepreneurship Education: Toward a Model of Contingency-Based Business Planning

Entrepreneurship Education:Toward a Model of

Contingency-Based BusinessPlanning

BENSON HONIGWilfrid Laurier University and The University of Haifa

Despite the ubiquity of business planning education in entrepreneurship, there is littleevidence that planning leads to success. Following a discussion of the theoretical andhistorical underpinnings, three pedagogical models are compared, including twoalternative experiential methods: simulations and the contingency approach. Thecontingency model, as introduced, utilizes Piaget’s concept of equilibration, and isasserted to provide both cognitive tools and flexibility in accommodating unanticipatedenvironmental factors faced by future entrepreneurs.

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EDUCATING FOR ENTREPRENEURSHIP:THE NORMATIVE APPROACH

Entrepreneurship courses are taught at nearly ev-ery American Assembly of Collegiate Schools ofBusiness (AACSB) accredited institution, at over1400 postsecondary schools, and enjoy consider-able worldwide growth (Katz, 2003). Course contentvaries widely, including the use of case material,simulations, and various “hands-on” approaches(Gorman, Hanlon, & King, 1997; Vesper & McMul-lan, 1988). One of the more popular curricula for-mats consists of teaching and monitoring the pro-duction of a business plan. In a study of leadingentrepreneurship educators, the development of abusiness plan was identified as being the mostimportant course feature of entrepreneurshipcourses (Hills, 1988). We examined the 2004 collegecatalogs of all of the top 100 universities in theUnited States (U.S. News and World Report, 2004)for courses that specifically referred to businessplan education in their course descriptions. Notsurprisingly, we found 78 of the top 100 universitiesoffered such courses, typically in the area of entre-preneurship or small business management. Nota-

bly, neither the teaching of business plans, nor theplans themselves, are sufficiently justified on thebasis of theoretical or empirical literature. I ex-plore this anomaly here and offer a suggestedcourse of action.

Given both the extent and diffusion of entrepre-neurship education, the dearth of researchers sys-tematically evaluating the impact of course con-tent on postcourse entrepreneurial activity is quitesurprising (Gorman et al., 1997). One exception isresearch that examines the impact of education onentrepreneurial intentions, in terms of a student’sview of the desirability and feasibility of starting abusiness (Autio, Keelyey, Klofsten, & Ulfstedt, 1997;Krueger, 1993; Peterman & Kennedy, 2003). In gen-eral, research findings suggest that exposure tocertain types of entrepreneurship education in-crease individual self-reported intentions to begina business. In particular, practical programs thatprovide real-world experience seem particularlyuseful in enhancing intentionality through in-creased perceived desirability and feasibility (Pe-terman & Kennedy, 2003). Unfortunately, the litera-ture attempting to systematically connect muchentrepreneurial formal or traditional education toentrepreneurial activity or performance is virtuallynonexistent (Autio et al., 1997).

Thus, beyond entrepreneurial intentions, fewempirical findings exist to assist in the pedagogi-cal design of contemporary entrepreneurship edu-

I thank Tomas Karlsson, Kyung Bhin, two anonymous reviewers,and all three editors of this special issue. All of these individ-uals have, at various times, encouraged, critiqued, and assistedwith aspects of this work. All errors and omissions are entirelymy own.

� Academy of Management Learning and Education, 2004, Vol. 3, No. 3, 258–273.

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cation. The business planning paradigm has be-come so popular that many universities sendcompetitive teams around the world to enter intobusiness plan competitions (Ames, 1989; Hindle,1997; Kahrs, 1995; Maitland, 1996). Both product andprocess are considered to be very important, anduniversities appear to pride themselves on win-ning business plan contests nearly as much asthey do fielding successful athletic teams.

While athletics were originally introduced intothe curriculum to promote discipline, loyalty, andhealth (Tyack & Hansot, 1990: 199), the pedagogicalgoals of business planning education remainsomewhat murky. The enthusiasm for teachingbusiness plans most likely originates in the stra-tegic planning literature, where it is said to elim-inate haphazard guesswork and assist in the inter-pretation of data necessary for the maintenance oforganizational and environmental alignment(Armstrong, 1982). Despite the considerable curric-ula resources expended on efforts to train, super-vise, and promote competitions, both the theoreti-cal underpinnings and practical application ofbusiness planning usage are poorly understood(Castrogiovanni, 1996).

A business plan may be defined as a writtendocument that describes the current state and thepresupposed future of an organization. Evidencesuggests that business schools teach businessplanning because plans ostensibly assist entre-preneurs and nascent entrepreneurs as they en-gage in highly complex and uncertain activities(Ames, 1989; Burns, 1990; Kahrs, 1995; Rich &Gumpert, 1985). As frequently taught in businessschools, business plans consist of 20 to 40-pluspage documents that outline a proposed new prod-uct or service; the organizational and financialstrategies to be employed; marketing, production,and management activities; and an examinationof the competitive and environmental constraintsand resources. Students typically work in groups todevise these plans, and they present them either inthe classroom or to outside judges in order to dem-onstrate the quality of the plan and the idea, aswell as their ability to integrate material across abroad array of business school subjects.

Obviously, there were successful businesses,start-ups, and entrepreneurs long before the notionof business plans firmly took hold. The historicalgenesis of the contemporary business plan is mostprobably rooted in the long-term planning carriedout to turn around large firms (Fayol, 1988), as wellas that conducted by large corporations, such asthe Ford Motor Company (Ewing, 1956). Drucker(1959) wrote one of the first articles on long-rangeplanning utilizing an entrepreneurial approach,

where he attempted to define long-range planningas the organized process of making entrepreneur-ial decisions. Drucker’s framework for businessplanning gained additional currency with Halford(1968) and Webster and Ellis (1976). Several influ-ential texts were written in the eighties (e.g., Ames,1989; Fry & Stoner, 1985; Hisrich & Peters, 1989;McKenna & Oritt, 1981; Rich & Gumpert, 1985; Shu-man, Shaw, & Sussman, 1985; Timmons, 1980; West,1988). Common to these books and articles werethat they focused on new or small firms, they pre-sented arguments for and against business plans,and they promoted a structure of anywhere from 13to 200 essential points that an entrepreneur shouldcover when producing a business plan. Thesepoints covered everyday operational activities in-cluding attempts to forecast demand, as well as toprovide an analytical and strategic approach (Rob-inson, 1979). Competitions followed shortly after-ward. Management-consulting firms such as Ernst& Young (Siegel, Ford, & Bornstein, 1993) promotedbusiness planning through sponsored competi-tions and their own published material. In 1984Moot Corp. began one of the first business plan-ning competitions in the world (Moot Corp, 2003).The Moot model spread, and by 1989 competitionswere conducted at leading U.S. universities includ-ing Harvard, Wharton, Carnegie Mellon, Michigan,and Purdue. A recent Web site search showed that10 of the top 12 universities conduct their own busi-ness plan competitions, including Harvard, Stan-ford, Wharton, and MIT.

Given the considerable resources dedicated toteaching this activity, students who have learnedto plan should demonstrate increased mastery,knowledge, and comprehension that would assistthem in the process of starting a new firm. Assump-tions, generally untested, are that business plansassist individuals in the nascent firm to make bet-ter decisions, or that they help with the nascentorganization’s performance. Surprisingly, the lim-ited research conducted so far that evaluates theutility of business plans in entrepreneurial envi-ronments has failed to produce clear findings(Stone & Brush, 1996). One study found that only28% of a sample of Inc. 500 firms had completed aformal classic business plan, and only 4% con-ducted a systematic search (Bhide, 2000). Bhidepoints out how short the planning process actuallyis—in one study 63% of Inc. 500 firms took only afew months to plan, and only 9% took more than ayear (Bhide, 2000: 55).

Business plans may also be seen as the mani-festation of the activity to collect and summarizerelevant information. In this capacity they shouldincrease efficiency, through the reduction of uncer-

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tainty regarding possible outcomes, as well as re-duce the probability of bad choices being made atevery step of the organizing process (Hax & Majluf,1984). However, these assumptions have limitedand often contrasting empirical support. Most pre-vious research on this subject examines how busi-ness plans influence organizational profitability.Some of these studies found a positive relationshipbetween planning and profitability in terms ofgrowth and performance (Bracker, Keats, & Pear-son, 1998; Schwenk & Shraeder, 1993). Other studiesfound a negative, or lack of relationship, betweenbusiness plans and profitability (Boyd, 1991; Rob-inson, 1979; Robinson & Pearce, 1984). Even fewer innumber are studies that have examined businessplanning activities for new venture development(Delmar & Shane, 2003). Researchers in one studyof nascent entrepreneurs found no relationship be-tween profitability and those that had written aformal business plan 2 years after founding (Honig& Karlsson, 2004). Institutional factors were citedas influencing and coercing some entrepreneursinto writing business plans, including those whothought of the activity as a futile exercise. In an-other study, researchers taking a slightly differentapproach found a positive relationship betweenbusiness planning and survival after 18 months,and they observed a relationship between ongoingplanning activities and product development (Del-mar & Shane, 2003). Unfortunately, neither studyexamined the business plans qualitatively, norwere they able to examine the potential impact ofentrepreneurship education (although the Honig &Karlsson study did fail to find a relationship be-tween performance and business education). Thus,despite a somewhat feeble and controversial em-pirical record, the fact that business plan educa-tion continues to be taken for granted as an edu-cational good continues to be surprising.

Its near universal popularity, despite mixed em-pirical data, suggests that the business plan andbusiness planning education are more deeplyrooted in ritual than in efficiency (Meyer & Rowan,1977), particularly in the field of entrepreneurship.Planning activity is supported from numeroussources and incorporates many facets of the con-temporary business landscape. For example, banks,venture capitalists, and angel investors frequentlydemand the completion of a business plan beforeactually making investments. Informal discus-sions frequently indicate that the business plan iseither developed after actors make a decision toinvest, or is not a critical or significant factor inmaking financial investment (Bhide, 1994). Honigand Karlsson (2004) conducted an empirical anal-ysis utilizing institutional theory (DiMaggio & Pow-

ell, 1983; Oliver, 1991) to explain the ubiquity of thebusiness plan promoted by educational, govern-mental, nongovernmental, and industrial fields.They found elements of coercive, mimetic, and nor-mative isomorphism influencing nascent entrepre-neurs to produce business plans.

Business planning is so legitimized that the mo-ment someone publicly announces their intentionto start their own business, friends, family, bank-ers, and investors begin asking for their businessplan. Preparing a business plan produces an auraof formality and conviction often required beforean individual’s creation of a new organization willbe taken seriously. A business plan is meant to bethe first step toward a specific process widelyknown as entrepreneurship, but unlike the activityof entrepreneurship, it focuses primarily on ideasas opposed to actions.

Thus, business planning for new entrepreneursseems to have taken on ideological elements. It isas though a new business idea or intention withoutan accompanying plan is either not viable ordoomed to failure, a consequence of the lack ofcommitment on the part of the entrepreneur(s).Ideological and socially normative behavior of thistype may lead to superstitious learning, wherebyunrelated activities are associated with successfuloutcomes (Skinner, 1953; Herriott, Levinthal, &March, 1985).

In considering entrepreneurship education, thepedagogical implications of business plans areparamount and should be of concern to many ed-ucators in the field. Entrepreneurship frequentlyconsists of an inductive process by which variousproducts, services, and ideas are examined, at-tempted, modified, and delivered. The endpoint ofthe process is frequently the result of this inductiveactivity (Sarasvathy, 2001), as opposed to positivistdeductive rationality. Perhaps educators like thebusiness plan model because it provides themwith a specific project-oriented output that assistswith student evaluation, and helps provide focusand structure in a field that is, by definition, with-out conventional borders. Note, however, that al-though the business plan format may be expedi-ent, there is little or no conclusive proof that ithelps students learn the requisite aspects of thefield, or that it is of any benefit should they even-tually decide to become entrepreneurs. Further,once a plan is written, it may psychologically limitthe framework of options available to an organiza-tion and be outdated due to a constantly changingenvironment. The contemporary model of entrepre-neurship business planning education, in whichthe business plan occupies a central position, isdepicted in Figure 1.

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Contemporary business planning education isstructured in such a way that students may inter-pret entrepreneurship as a linear process, bywhich budding and nascent entrepreneurs are ex-pected to learn the necessary analytical tools andsteps, produce a high-quality plan, and only after-ward begin the activities involved in starting theirventures. Yet, despite a great many advocates, aswell as its increasingly certain place in the aca-demic curriculum, critics argue that planning isirrelevant and constraining, resulting in the limi-tation of the range of activities and creative re-sponses to environmental changes (Mintzberg,1987). Maintaining that the contemporary MBA fo-cuses too much on analytical decision making,Mintzberg has developed this critique by advocat-ing pedagogical devices that improve the situa-tional, collaborative, and global problem-solvingcapabilities of contemporary managers (Mintzberg& Gosling, 2002).

From a theoretical perspective, Mintzberg’s callsuggests the concept of equilibration as stated byPiaget (1950). Piaget, trained as a biologist, firstbecame interested in why children fail to answerquestions correctly, and concluded that logic isincrementally learned (Messerly, 1996; Gardner,1991). For Piaget, intelligence and learning takeplace in evolutionary stages, called structural evo-lution, resulting in adult cognition. Equilibrationis how Piaget describes our attempt to create abalance between the environment and existingcircumstances. While we respond to the world

according to our assimilation (analytical tools),unique experiences in life require accommodation(minor changes in our cognitive structures). Ourintellect develops as we attempt to achieve a bal-ance between ourselves and the environment, withunique situations bridged by changing mentalstructures to reflect these new experiences. Pi-aget’s intellectual equilibrium is not static, butprepares the individual for the next subject of dis-equilibrium. Thus, while a university studentwould presumably be bored by a lesson in how tocount to 10, a session on derivatives may provide aprogressive challenge leading to intellectual de-velopment.

Piaget’s theory of learning is particularly appro-priate to the preparation of potential entrepre-neurs. For comparison, we can examine the studyof technology, an arguably important componentof many entrepreneurial endeavors. The strictlyrational approach of neoclassical economics,based on mathematical models and a monodisci-plinary approach, has failed to yield an explana-tion of technological advance (Solo, 1975). Eveneconomists who attempt to understand technolog-ical development inevitably find themselves in themore abstract and arcane world of organizationalstudies (David, 1985; Rosenberg & Birdzell, 1986), asubject more conducive to the Piagetian structur-alist approach. Solo (1975) argues forcefully thatonly an epistemology such as Piaget’s structural-ism—which incorporates learning functions thatoperate though a complex of cognitive structures—

FIGURE 1Conventional View of Entrepreneurship Business Planning Education

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can explain the multifaceted interrelationships ofindividual, social, and organizational learning.Even understanding entrepreneurship retrospec-tively necessitates an interdisciplinary iterativeapproach. For example, research examining theentrepreneurial activities of Thomas Edison re-quired approaches including technology, lan-guage, strategy, and management, to name but afew (Hargadon & Douglass, 2001). Because entre-preneurs must focus on both the science of inven-tion and the institutional constraints of noveltyand the marketplace, success is determined not bypreplanned activities, but through the observation,interpretation, introduction, and reevaluation ofnew products and activities. The Piagetian modelis particularly well suited to the sort of interdisci-plinary learning that occurs through collaboration,an essential factor in bridging the myriad of dif-ferent knowledge systems. Learners are encour-aged to utilize cognitive relationships that are al-ready embedded in their social practices, and thatare anchored in authentic tasks (Wood, 1995). Asimilar example where Piaget’s theory has beensuccessfully utilized is the study of business eth-ics, an arena that also requires individuals tosolve problems that require cross-disciplinary log-ical judgment and critical analysis (Kavathat-zopoulos, 1994). Understanding creativity and thecreative process is only possible through the ex-amination of how we come to learn, and of how ourminds progressively map out our distinct identi-ties. Piaget’s theory allows us to begin to under-stand the nature of inquiry through a disciplinedmethod. As a learning theory, it most closely ap-proximates the requirements of entrepreneurialendeavors, which consist of both recognizing op-portunities and applying novel and creative solu-tions. It seeks to develop an overarching epistemo-logical inquiry that allows for the reflection of thesource and character of knowledge.

I return to Piaget’s theory below when discuss-ing models of entrepreneurship learning, then pro-ceed to discuss current educational theory andmethods regarding business planning for entre-preneurship training, followed by the introductionof two alternative models that incorporate aspectsof the assimilation and accommodation processesas conceptualized by Piaget. I conclude with ageneral discussion of entrepreneurship education.

The Theory Behind Business Planning Education

Despite the ubiquity of business plans and busi-ness planning in university education, there arefew formal theoretical models and scant researchdata to support the activity. For those that argue

that management education relies too much uponuntested assumptions, trends, and fads, this comesas no surprise (Abrahamson, 1991). Because theability to manage, implement, and observe the im-pact of changes in entrepreneurial environmentshas been quite limited, much of what is knownregarding planning and performance comes fromthe strategic planning literature. Although there islittle conclusive evidence to prove that a diffusionof the planning perspective from strategy to entre-preneurship occurred, casual observation, includ-ing cross-field publication records, suggests thatmany scholars of entrepreneurship were originallytrained in strategy and are likely to have carriedtheir perspectives on the importance of planningwith them to entrepreneurship.

Two major theoretical views of strategic long-range planning contrast the synoptic, or highlyrational proactive process of goal setting, monitor-ing, and evaluation with incremental processesthat are less structured and rational (Fredrickson &Mitchell, 1984). Advocates of formal planning re-side in the synoptic camp, cognizant that the busi-ness environment may be one of the most criticalelements of the effective implementation of anybusiness plan. Uncertainty varies considerablyfrom environment to environment, market to mar-ket (Aldrich, 1979, 1999). When uncertainty is great-est, plans may actually constrain the ability oforganizations to adapt, a finding supported by anumber of studies (Fredrickson & Acquinto, 1989;Fredrickson & Mitchell, 1984). The empirically sup-ported perspective that dynamic environments areless suitable to strategic planning has importantimplications for educators interested in start-upplanning. In many cases, new firms must enterhighly dynamic unstructured new markets withnovel or radically altered products. Planning maypresent a liability to such firms by constrainingtheir willingness to adapt to new conditions.

Strategic theory asserts that there are two ad-vantages resulting from the planning process: con-tent and process (Weir, Kochhar, LeBeau, & Edge-ley, 2000). Content includes the choices, plans, andactions of a strategy, while process refers to thecreation and analysis of strategy, as well as theorganizational implementation. A cursory exami-nation of the instructional literature on businessplanning, as well as my own experience in exam-ining various business plans and discussing thesubject informally with venture capitalists and en-trepreneurs, suggests that content issues representthe dominant aspect of entrepreneurial businessplans.

The content of any strategic plan consists of themethod of obtaining sustained competitive advan-


tage. In manufacturing, this mainly consists ofidentifying performance objectives and organiza-tional expertise based on cost, quality, complexity,and available resources. In the marketing arena, aSWOT analysis is frequently used to identify com-petitive advantage through either segmentation oridentification of an effective marketing mix (Weiret al., 2000).

The results of empirical studies testing theoret-ical relationships between strategic planning andoutcomes for existing businesses tend to be incon-clusive, with some research identifying the utility oflong-range planning in organizations (Andersen,2000; Karger & Malik, 1975; Wood & LaForge, 1979),others failing to identify positive outcomes(Grinyer & Norburn, 1975; Sapp & Seiler, 1981; White-head & Gup, 1985), and still others conditional onthe relative stability of the industrial environmentunder study (Powell, 1992; Fredrickson & Mitchell,1984). Many studies have been faulted for method-ological weaknesses. For instance, it is very diffi-cult to prove causality, which typically assumesthat firms that plan better are more successful. Analternative view is that more successful firms havemore resources available to spend on activitiessuch as strategic planning. Other criticisms in-clude a difficulty in identifying appropriate out-comes, subjectivity regarding assessment of whatconstitutes strategic planning, lack of commonal-ity according to factors such as size, industry, andproduct, and general methodological weaknesses(Greenley, 1986). One approach to adjudication re-garding these mixed findings has been to examinethe range of studies through meta-analysis. Oneearly metastudy failed to draw any conclusionsfrom the existing empirical literature (Gordon,1986), although more recent meta-analysis sug-gests there may be some positive relationshipsbetween strategic planning and performance(Miller & Cardinal, 1994). Miller and Cardinal’smeta-analysis found planning to be positively re-lated to profitability, but of particular note wasthat the relationships were only observed whenplanning was defined as not requiring written doc-umentation. As they state: “if an archival source ofperformance data is used, planning is defined asstandardized and formalized planning, a low-qual-ity assessment strategy is used, and the environ-ments are only moderately turbulent, the correla-tion falls to approximately zero” (Miller &Cardinal, 1994: 1661). Thus, even for preexistingfirms, it appears that overly formalized planningfails to universally provide a significant advan-tage and is most useful only in a specific subset ofenvironments.

An Experiential Approach Toward the Teachingof Entrepreneurship

Much of what entrepreneurs do is the product oftacit knowledge, also referred to as knowledge-by-doing (Polyani, 1967). Because of the nature of tacitknowledge, it is most often acquired through learn-ing by experience. Educators can address the gapbetween formal explicit knowledge and tacitknowledge by incorporating experiential educa-tion, also known as informal education, into thecurriculum. Informal education can be defined as“the life-long process by which every person ac-quired and accumulates knowledge, skills, atti-tudes and insights from daily experiences and ex-posure to the environment—at home, at work, atplay” (Coombs, 1985: 24). Informal education is howindividuals develop practical skills both insideand outside the formal educational curricula. Oneway of incorporating informal education into thecurricula is to utilize action learning (Revans,1978), which envisions learning as a social andorganizational process. The action-learning pro-cess has also been addressed at the organizationallevel to characterize the learning organization (Le-itch, Harrison, Burgoyne, & Blantern, 1996).

In many ways, starting a new business is similarto going into battle, whereby the entrepreneurmust allocate sufficient resources and a workablestrategy capable of overcoming competitive andhostile adversaries. For this reason, students ofstrategy and entrepreneurship are often referred toworks such as Sun Tzu’s The Art of War, and Ma-chiavelli’s The Prince. Lanchester’s mathematicalmodels were originally applied to military strategyand the battleground, where the casualties suf-fered by two opposing armies are moderated byweapons efficiency. These equations are now acomponent to examine business competition andoperations research with the well-known annualLanchester prize (Cambell & Roberts, 1986). Thus,the “fight between two armies is comparable to thecompetitive struggle between a market leader andthe rest” (Onoda in Cambell et al., 1986: 190). One ofthe most common elements shared by war andentrepreneurship consists of a lack of certainty.Resources, reactions, and the environment all con-verge to present a virtually unpredictable soup ofingredients. Robert McNamara, defense secretaryunder both Presidents Kennedy and Johnson, re-peatedly observed that ad-hoc rules and proce-dures are of little use when dealing with the real-ities imposed by a radically changing environment(McNamara, 1986). Rather than attempting to fore-cast the long-range effects to particular actions, hestresses the importance of maintaining clear dia-

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logue and reacting creatively to the particular sit-uation at hand. Another insightful example is thefall of France in 1940, whereby extensive and elab-orate planning failed to anticipate the impact oftechnological solutions that opened up new oppor-tunities, such as the blitzkrieg, that made theMaginot Line redundant (Kiesling, 1996). The role ofthe leader, whether a general or an entrepreneur,is to make sense of uncertainty and chaos andbring about reasoned and efficient adaptation andorganization (Amit & Schoemaker, 1993). Flexibil-ity, as opposed to planning, more frequently winsthe battle of the day. Van Creveld (1985) makes thispoint repeatedly in evaluating successful militarystrategies throughout history. For example, in re-viewing Napoleonic battle strategies (Koniggratz,in 1866, between the French and the Prussians), heconcludes:

To Moltke [the Prussian general], strategy wasalways a system of expedients, and he alwaysinsisted that planning should go only as far asthe first encounter with the enemy . . . Moltke,like Napoleon, but to a greater extent, knew fullwell that the flow of information to and from theunits would never be sufficiently detailed orarrive sufficiently fast to allow control by acommander sitting at his headquarters in therear, the invention of the telegraph notwith-standing (Van Creveld, 1985: 145–147).

Venture capitalists, like generals, are more likelyto focus on factors such as teamwork and othernonexplicit criteria that emphasize adaptability,seldom placing a high value on the business planitself (Macmillan, Siegel, & Subba Narasimha,1985; Zacharakis & Meyer, 1998).

Entrepreneurship, like military strategy, sug-gests the need for entrepreneurs to avoid focusingtheir efforts on the production and evaluation ofsystematic detailed plans, and instead to developthe necessary skills to reevaluate, adapt, and re-vise activities in a resourceful manner to suit newenvironmental contingencies. Rather than pursinga causal model of planned behavior, entrepreneur-ial activities may best be described as having anexperimental focus that utilizes environmentalfeedback (Sarasvathy, 2001). Outcomes are fre-quently impossible to predict and represent deci-sions that are impossible to anticipate. Pedagogi-cal techniques should therefore be developed thatfocus on applied hands-on activities, resulting inexperiential learning, as opposed to the teachingof general principles.

Traditional pedagogy is frequently in contrast tothe needs of entrepreneurial education. Knowl-

edge and skills presented with traditional methodsoften fail to transfer to the actual environmentwhere they might be utilized, in contrast to nonfor-mal techniques such as apprenticeship (Wood,1995). Academic learning typically consists of pre-senting information in a consistent and predict-able manner. We allow students to review, digest,and repeat previously dictated solutions to specificabstract problems, and to demonstrate compe-tence during examinations. While these tech-niques are well adapted for teaching foundationmaterial, such as providing tools that assist stu-dents in analytical decision making, this methodof learning is ill suited to the complex and dy-namic problems typically faced by contemporarymanagers (Mintzberg & Gosling, 2002) or adults(Wood, 1995).

Beyond the well-discussed forces of globaliza-tion and the knowledge economy, firms them-selves are quite heterogeneous regarding the suit-ability of their activities to conventional planning(Perrow, 1967). Entrepreneurs also differ from man-agers and other organizational actors in theirlearning requirements, while empirical researchhas shown that considerably different learningstyles are pursued by entrepreneurs versus intra-preneurs (Honig, 2001). The distinction betweenmanagerial, intrapreneurial, and entrepreneurialactivities and learning requirements has not beenmade in contemporary business planning educa-tion. Books and teaching modules are designed toconclude with a standardized formatted businessplan, complete with multiple chapters covering arange of analyses in a formal structure. Such struc-tured closed-ended pedagogical activities may beparticularly inappropriate for entrepreneurial ac-tivities, where the very nature of the problem, aswell as the necessary analytical tools employed,changes radically as the business, the market, andthe product emerge.

Entrepreneurs, as well as intrapreneurs, may bethought of as experts, much in the way chess mas-ters, radiologists, physicists, or judges are consid-ered experts. They are required to solve problemsthat are ill structured and open ended. Researchexamining the nature of expert knowledge sug-gests that through familiarity and experience, ex-perts are in a position to approach problems from abroader, qualitative perspective, maximizing theirefficiency when they move on to quantitative ac-tivities (Glaser & Chi, 1988). Experts, as well asentrepreneurs, gain critical experience by engag-ing in their professional activities, but this is oflittle help regarding the design of university cur-ricula. We may, however, consider utilizing simu-lations and exercises that help prepare students


for the unpredictable nature of entrepreneurship,resulting in the generation of empathy and expe-riential learning (Hindle & Angehrn, 1998).

Figure 2 shows the incorporation of experientialtrial and error (action learning) in the learningexperience. Experts build their knowledge struc-ture on a base of trial and error, culminating in thekind of experience that allows them to approachthe problem with a more efficient paradigm (Gla-ser & Chi, 1988). One example of such a pedagog-ical device is to teach students to be prepared fornovelty and surprise, because this is the environ-ment they will be facing. Sitkin (1996) refers to thisas training by inoculation. Individuals learn byexperiencing small failures in order to build upresilience in the face of future organizational con-ditions. From Piaget’s standpoint, learning throughfailure provides the necessary incentive to producea situation of disequilibrium. The resulting imbal-ance motivates the student to learn and invoke anew concept introduced to avoid future failure.Thus, these failures may be organized as part ofteam-building exercises, whereby only following asubstantial number of failures is sufficient mate-rial unveiled in order to solve the simulated prob-lem (Robinson, 1996). Examples of this approach

include the use of simulators for the training ofultrasound radiologists, simulated patients foremergency and general medical training, and air-plane simulators for training pilots. Each simu-lated environment encourages students to both ex-perience and learn from failure in a real-timesimulation mode.

The impact of entrepreneurial simulations is stillpoorly understood and represents a significantfuture research activity. From the perspective ofPiaget’s theory of cognitive development, the model,while useful, is somewhat weak regarding the dy-namic process resulting in dialectical synthesis.For an individual to maintain motivation duringthe simulation, the activity must be both believ-able and continuously adaptable. It is the latteraspect of simulation design that may impact thelong-term ability of students to obtain maximumlearning. As the external (to the classroom) envi-ronment changes, the simulation should alsochange to reflect the individual’s cognitive expec-tations. Otherwise, the activities may seem sense-less and boring. Few simulations are sufficientlymalleable to track the constant changes of thebusiness world. Hindle and Angehrn (1998) intro-duced a theory to guide in the development, selec-

FIGURE 2An Experiential Model of Entrepreneurship Education

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tion, and evaluation of entrepreneurship simula-tion activities. They categorized relevant factorsinto four areas: communication skills, controlskills, human resource skills, and technical skills.Each criterion should be examined according totheoretical categories that include adequate sus-pension of belief, unambiguous communication,technical reliability, and a general cost–benefitanalysis. Adequate suspension of belief is neces-sary to gain the participant’s “buy in” in order tomaximize the simulated experience. Simulationsmust be credible, relevant, and illustrative to beeffective (Hindle & Angehrn, 1998). Credibility ofthe simulation activity depends, in part, on unam-biguous communication. Participants, guides, andsoftware must all communicate immediate andclear situational assessments.

Multimedia simulations, such as the Harvardsimulation “Launching a High-Risk Business”(Sahlman & Roberts, 1999), can help students pre-pare for failure, learn from it, and adapt their fu-ture activities in a more cogent and efficient man-ner. The topic of simulation and entrepreneurshipeducation was well reviewed in a series of articlesin Simulation and Gaming, guest edited by Katz,Gundry, Low, and Starr (1994, 1995, 1996). In oneinsightful empirical study in this series, Low, Ven-kataraman, and Srivatsan (1994) attempted to de-velop a simulation that would be both pedagogi-cally useful and provide a theoretical–researchperspective. They found these two goals to be mu-tually exclusive. This suggests that considerableresearch is necessary to explore both ends of theequation—how much students learn, and sepa-rately, whether what they learn is relevant. Otherstudies appear to demonstrate effective and ap-plied learning, in terms of the application ofstereotype formation, resulting from simulationactivities (West & Wilson, 1995).

In sum, the experiential model is designed tohelp students learn to tolerate risk, learn from fail-ure, and develop some managerial skills neces-sary to motivate and lead a team through unknownterritory. Although they are designed to preparestudents for ambiguity, simulations are still basedon convergent thinking in that the solutions mustbe predesigned into the activity. Note, however,that students are both capable and likely to intro-duce new factors and alternative solutions not pre-programmed into the simulation, particularly vis-a-vis their social and bargaining position asstudents, individuals, and actors in the simulation(Low, Venkataraman, & Srivatsan, 1994). These un-anticipated solutions and extraenvironmental ne-gotiations (such as, “I agree to give you X in thisassignment, if you agree to give me Y in the next

assignment” are exceptionally difficult to monitor;however, an alert instructor may be able to utilizethem as part of the learning process. Of course,simulation learning may not provide the necessaryspecific skills and techniques to assist entrepre-neurs as they navigate the decision tree of theirfuture businesses—it cannot help them solve prob-lems as they encounter them in the real world, andmay not reflect current environmental changesand conditions.

A Contingency Approach Toward TeachingEntrepreneurship

A third approach to teaching and preparing stu-dents for entrepreneurial activities consists of pro-viding tools that assist in the navigation and de-velopment of paths characterized by uncertaintyand unpredictability. Entrepreneurial activitiescan be characterized as requiring an open learn-ing environment. There are few answers in theentrepreneurial process and not many best prac-tices, only opportunities and exploitation (Shane &Venkataraman, 2000). Entrepreneurial activitieshave many features of open systems, wherebythere may be more variables than can be pre-dicted, understood, or controlled (Thompson, 1967).Rather than accumulating structured formalknowledge, the sustained competitive advantagemaintained by entrepreneurs may best be charac-terized as a component of tacit, rather than explicitknowledge (Polanyi, 1967). Tacit knowledge, basedon experience, is very difficult to codify or decom-pose into rule-based language, indeed, this is oneof the sources of its strategic advantage, particu-larly with the advent of new information technol-ogies (Teece, 1980).

Thus, educational activities should be devel-oped that interrelate in an open-ended dialecticmanner, supporting the development of tacitknowledge and the ability to adapt and modify aplan, rather than the ability to preconceive anddetail one. While it may be useful for students tolearn each step necessary to complete a businessplan, there is no requirement that this be done in alinear or task-specific integrated manner. What isrequired is the development of capabilities to man-age knowledge assets in a dynamic manner, insupport of the learning theory promoted by Piaget,and following action-learning precepts. Figure 3depicts a proposed contingency model for teachingbusiness planning.

In the contingency model of business planningintroduced here, there are no a priori direct orassumed relationships between the differentphases of preparatory activities consisting of op-


FIGURE 3A Contingency Model of Business Planning Education

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portunity recognition and exploitation. Rather thanpresent a prestructured relationship based on in-formation retrieval, analysis, and decision mak-ing, this model is designed as an open system thatcan be started from virtually any point in the en-trepreneurial cycle. The individuals simply selectthose modules they view as important, and pro-ceed through an evaluation exercise. Modules mayconsist of any activities that appear relevant to theentrepreneurial practice. Further, the choice ofwhich module to select at what time or period iscontingent on multiple factors addressing the “art”of entrepreneurship, as opposed to the science. It ismore akin to an artist who selects one particularcolor from his or her palette—the choice is deter-mined according to the situation, environment,goals, and individual proclivities—there is no rec-ipe for success. The role of the instructor is to assistthe individual by advising them regarding theirmanipulation of the module, helping them to inte-grate the activity into their cognitive map. Whilethis would ideally be done on an individual basis,practicality might necessitate the activity be con-ducted in small groups of students attempting tosolve the same modular components (although notnecessarily facing the same problems). As an ex-ample, consider how medical interns typicallylearn diagnosis and treatment. Groups of internswander through hospital wards accompanied byan expert (experienced physician) who observesand advises them regarding their assessments.Entrepreneurship students utilizing the contin-gency model will be asked to implement solutionsresulting from either actual business activitiesthey may be involved in, by assisting firms theyare consulting with, or by observing business en-vironments they are familiar with in their commu-nities. Student groups attempting to solve actualproblems will be able to help each other to reachan understanding of appropriate actions. Ratherthan attempting to do “everything” from concep-tion to exit, they will work on subcomponents ofentrepreneurial activities, reporting on only theactivities that, with advice of the instructor, aredeemed essential. Five common business plan el-ements are depicted in Figure 3, consisting of mar-keting, product development, production, financialplanning, and human resource planning, althoughadditional components can be added or removedas necessary, as can be variation in repetition andsequence.

The World Bank has begun utilizing a system ofrapid-results initiatives that allows for cross-func-tional efforts quite similar to the contingency planoutlined above. Their new system allows for themodification and adjustment of plans in real time,

overcoming conventional planning hurdles suchas bureaucracy, inflexibility, and slowness of im-plementation. In one example, a team whoseplanned goal was to increase milk production forrural farmers discovered the real problem was oneof spoilage, allowing for a redirection of effortspromoting quality control, rather than productiongoals (Matta & Ashkenas, 2003). The team leader ofthe milk productivity team (renamed the clean-milking team) observed: “I now realize how muchof the overall success of the effort depends onpeople discovering for themselves what goals toset and what to do to achieve them” (Matta & Ash-kenas, 2003: 112).

The contingency model makes extensive use ofPiaget’s theory of equilibrium (1950). Equilibrium isactually a dynamic process, whereby the individ-ual repeatedly and incrementally assimilates newknowledge and applies this knowledge with in-creasing levels of sophistication and complexity.During each iteration, the individual, by activelyseeking interaction with the environment, progres-sively satisfies that need. In particular, the indi-vidual is interested in exercising newly learnedapproaches. “To Piaget . . . the individual is mostinterested in that which is moderately novel. Thatis, interest is highest in that which is neither toofamiliar nor too novel to correspond to existingschemas” (McNally, 1973: 11). In the contingencymodel presented here, students have an opportu-nity to dynamically and incrementally learn newapproaches to entrepreneurship and apply themas they make sense in terms of novelty, appropri-ateness, and cognitive development. This modelmaintains that business planning is a dynamicactivity, as opposed to a summative one. Followingeach iteration of new learning, students are ex-pected to move the approach toward a position ofdisequilibrium, one that will be satisfied onlywhen they successfully incorporate a new learningactivity. In sum, the contingency model presents alearning structure that focuses on dialectical syn-thesis, as opposed to one based on the accumula-tion and application of static information and tech-niques.

Unlike the previous two models, students usingthe contingency planning model are encouraged topursue divergent thinking (Getzels & Jackson,1962). Convergent thinking assists students in ob-taining a single precise answer, while divergentthinking encourages students to discover alterna-tive solutions based on the same information(Sternberg & Lubart, 1999). Completing any and allof the modules provides a systematic method ofcollecting the necessary information to explore di-vergent thinking. It follows Piaget’s model of equil-


ibration by providing intellectual tools to accessthe environment, as well as accommodating cog-nitive changes necessary when new unanticipatedexperiences occur (Piaget, 1950). According to Pi-aget, the autonomous individual attempts to findoptimal solutions to situations by attempting toregulate certain fundamental constructs throughother means, such as, for example, social relations(Kavathatzopoulos, 1994). Thus, individuals moder-ate and adjust their world view to solve problemsin incrementally novel ways.

In addition to promoting divergent thinking,there is no expectation that any or all modules becompleted before beginning entrepreneurial activ-ity. This is helpful in supporting entrepreneurs toact on the moment, maximizing opportunity, asopposed to waiting and deliberating with furtheranalysis. Speed is one of the critical factors inproviding competitive advantage to new entrepre-neurs over larger, existing firms. Rather than ex-pecting a nascent entrepreneur to complete arange of activities, this model suggests that stu-dents learn instead how to master discrete evalu-ation models that are designed to encourage re-flexive and creative thinking. Thus, instead ofsolving a particular problem, the modules are de-signed to identify what the problem might be(Runco, 1994).

More closely attuned to a method incorporatingeffectuation (Sarasvathy, 2001), the contingencymodel of business planning allows for a phased,cyclical approach, complete with feedback paths,at each critical stage of organizational develop-ment. There is no a priori assumption that anyexercise must occur before the organization is cre-ated, and there is no expectation that activitiesproceed through a sequential manner. Instead, theentrepreneur is free to select discreet modules,such as market analysis, marketing, productionand development, financial planning, and humanresource strategy, as they become necessary. Eachpackage is autonomous in that it does not rely oninformation provided by other modules; however,there are informational feedback loops in eachmodule allowing for the incorporation of newknowledge based on current information availableto the entrepreneur.

REDESIGNING BUSINESS PLANNINGEDUCATION

Education is a surprisingly durable and inflexiblesocial institution, not necessarily rooted in effi-ciency (Meyer & Rowan, 1977). There is little incen-tive, and so it is quite unlikely that many profes-sors of entrepreneurship will suddenly remove the

ubiquitous business plan from their syllabi. Teach-ing entrepreneurship students how to write a busi-ness plan is so firmly entrenched in our educa-tional, financial, and social system, that it maypersist in the face of any critical empirical data.

Perhaps one of the weakest aspects of existingmodels of business planning education is that, forthe most part, they focus on idea convergence.Students are taught an ideal method of conveyingor marketing their ideas, and they are encouragedto conform as closely as possible to this ideal. Theprocess supports thinking “inside the box” as op-posed to outside it, and may serve to reduce ratherthan expand the range of activities and potentialsolutions pursued by nascent entrepreneurs.

I have introduced two proposed alternative mod-els of teaching entrepreneurship here, each with arange of different properties and characteristics.Both utilize Piaget’s theory of equilibration,whereby the individual is believed to learn in mo-ments of assimilation and accommodation that it-eratively increase in terms of complexity. The ex-periential model requires the development of newpedagogical aides that provide worthwhile simu-lations resulting in high-quality learning experi-ences. The objective of these simulations is to ad-vance beyond the analytical skill development incontemporary entrepreneurial education towardthe promotion of self-confidence and motivation,both the result of an increased tolerance for risk.Simulations are typically designed with a particu-lar set of solutions, supporting convergent think-ing. With careful attention to design, however, itmay be possible to develop experimental modelsincorporating simulations that focus on idea diver-gence into the entrepreneurship curricula. For ex-ample, software might be designed to incorporatenew solutions provided by players, by way of thegame administrator. So, too, can a careful monitor-ing of the environment, in order to include currentsituations into the simulation decision tree. Forexample, as both new accidents and new solutionsto avoid accidents are discovered by the FederalAviation Authority, they are fed into pilot simula-tors for updated training routines.

The contingency model of entrepreneurial edu-cation represents a second alternative pedagogi-cal perspective. Instead of insisting that studentslearn to package the components of a contempo-rary business plan at one point in time, this modelsuggests the promotion of new behaviors, as wellas the development and utilization of new toolsthat exercise and enhance reflective, longitudinalanalysis. The proposed model makes extensive

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use of Piaget’s concept of equilibration by provid-ing the analytical tools as well as the experientialopportunity to combine problems and solutions dy-namically with the environment. Because the con-tingency model allows for continual reevaluationas well as for iterative feedback opportunities, it isboth dynamic and dialectic, resulting in a synthe-sis of assimilation and accommodation. Studentsare taught discrete modules that pertain to uniqueevents contingent upon time and place. No expec-tation is made that any or all modules are com-pleted before start-up activities begin, and, unlikewith simulations, there is no necessity to introduceelements and characteristics of the business envi-ronment ex ante. This more closely tracks the gen-uine business environment faced by entrepreneursand nascent entrepreneurs, yielding increased be-lievability and therefore a higher potential oppor-tunity for intellectual development. It is particu-larly appropriate for environments that lack asustained or static structure, such as that experi-enced by entrepreneurs who engage in new activ-ities, or who are highly subject to a barrage ofchanging resource factors in the marketplace.Thus, while certain business subjects can be reli-ably taught by relaxing one theoretical environ-mental constraint at a time (e.g., finance), entrepre-neurship is an integrative subject that virtuallyprecludes this type of systematic and static andincremental knowledge building. For entrepre-neurship education to be effective, it must adhereas closely as possible to the genuine businessenvironment.

One obvious weakness of the contingency modelis that it leaves educators with an assessmentquandary—they can no longer demand a com-pleted written business plan at the end of a term,as is customarily required. Instead, the instructorwill have to be content with completed modulesthat may or may not be related to one another,undoubtedly a more complex set of products toevaluate. Further, students will be faced with theuncomfortable fact that the tools and modules theyare being taught may be inadequate for publicconsumption, and that they may need to completea formal business plan to satisfy investors, regard-less. These limitations suggest the need for spe-cific research examining both the utility of thecontingency model as a pedagogical device andits currency in the competitive world of investment.Of course, not all problems faced by entrepreneursrequire divergent thinking. Some, such as finan-cial evaluations, require convergent thinking.Thus, a blend of Models 2 and 3 may be mostappropriate.

A significant portion of contemporary entrepre-neurship education appears to be atheoretical andlargely unsupported by empirical evidence of itspractical effects. Given the importance of entrepre-neurial education in the academic and public sec-tors, and given the increasing sums of money al-located for the various promotional activities, theneed for careful pedagogical analysis and designis both immediate and critical. Entrepreneurshipeducation requires a body of empirical literatureall its own. Rather than accepting at face valuestandardized activities and routines, we shouldbegin examining our learning interventions in or-der to identify those activities most suitable forpresent and future entrepreneurs we hope toassist.

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Benson Honig (PhD, Stanford University) is an associate professor at Wilfred Laurier School ofBusiness, and senior lecturer, University of Haifa. Studying microenterprise and entrepreneur-ship worldwide, Honig’s current research interests include business planning, nascent entre-preneurship, strategic learning and creativity, social capital, and entrepreneurship in envi-ronments of transition.

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