Alvarez, S. A., & Barney, J. B. (2007). Discovery and creation: Alternative theories of entrepreneurial action. Strategic Entrepreneurship Journal, 1(1–2), 11–26. https://doi.org/10.1002/sej.4
Summary
In their influential article, Alvarez and Barney argue that there isn’t just one way entrepreneurs create businesses. Instead, they present two fundamentally different paths: the discovery of opportunities and the creation of opportunities. These two perspectives offer competing views about where opportunities come from, how entrepreneurs behave, and what kind of strategies are most effective in uncertain environments.
The discovery perspective assumes that opportunities exist independently of the entrepreneur—like gold hidden in a mountain, waiting to be found. The role of the entrepreneur is to uncover these opportunities through search, analysis, or superior alertness. This view is consistent with environments where market conditions are relatively stable, and risks can be calculated based on available data.
In contrast, the creation perspective holds that opportunities do not preexist. They emerge through the actions, experimentation, and learning of entrepreneurs who operate in highly uncertain environments—where outcomes are unknowable, and customers, products, and even problems are not yet well-defined. Entrepreneurs in this view are not searching for a treasure—they are shaping it as they go.
Understanding these two approaches is crucial. They affect not only how businesses start but also how leaders hire, plan, market, raise capital, and build strategy. Choosing the wrong approach for the wrong environment can lead to poor decisions and missed opportunities.
How Opportunities Come to Be
Alvarez and Barney begin by distinguishing between the origin of business opportunities. In the discovery theory, opportunities are assumed to result from external changes in technology, regulation, or consumer preferences. These shifts happen independently of any entrepreneur and can be identified through research, observation, or expertise.
In the creation theory, however, opportunities emerge from within the entrepreneurial process itself. They are not found—they are made. Entrepreneurs, through a process of trial and error, conversations with potential customers, and iterative product development, help bring the opportunity into existence. Before they start, there may be no defined customer, market, or even need.
Who the Entrepreneur Is
In the discovery view, entrepreneurs are people who are unusually alert to opportunities. They possess superior information, cognitive abilities, or search skills that allow them to see what others don’t. Their main advantage is recognizing value in situations others overlook.
In the creation view, the entrepreneur is not necessarily different from anyone else at the start. Instead, the entrepreneur becomes distinctive through action. As they engage in experimentation and interact with the world, they gradually shape the opportunity and define their role in it. It’s their behavior—more than their traits—that distinguishes them.
How Decisions Are Made
Entrepreneurs operating under the discovery model tend to approach decisions analytically. They assess market size, calculate expected returns, and reduce risk through planning. Because the opportunity is assumed to be knowable, decision-making focuses on optimization, efficiency, and execution.
In contrast, creation theory assumes radical uncertainty. Since the future is unknowable, entrepreneurs cannot calculate risks or predict outcomes. They instead rely on experimentation and what is called “effectuation”—deciding based on what they can afford to lose rather than chasing projected profits. Planning is replaced with flexibility, and strategy evolves as new information emerges.
How the Business Is Built
Discovery-oriented entrepreneurs tend to follow a structured path: raise funding based on a business plan, hire specialized talent, enter known markets, and quickly scale to capture value before competitors do. The emphasis is on execution and speed.
Creation-oriented entrepreneurs often begin with minimal resources, relying on personal networks, co-creation with early customers, and generalist teams who can adapt to changing needs. They don’t necessarily start with a clear destination but adapt their goals based on feedback and what they learn along the way. Growth may be slower, but the model is more flexible and resilient in dynamic or uncertain markets.
10 Practical Insights for Business Owners and Managers
- Understand which environment you’re in.
If you’re in a stable industry with established rules and data, discovery may work. But in fast-moving or emerging markets, you’re likely in a creation context. - Avoid rigid planning when the future is unknowable.
In creation settings, business plans are outdated the moment they’re printed. Focus instead on learning and iteration. - Lead with credibility or with vision.
Discovery environments reward technical and industry expertise. Creation environments need leaders who can inspire, build trust, and manage ambiguity. - Choose the right approach to financing.
Bankers and VCs are more comfortable with discovery-style ventures that come with forecasts and milestones. Creation entrepreneurs may need to rely on bootstrapping or informal investors early on. - Build teams to match your strategy.
Discovery ventures benefit from specialists and experts. Creation ventures often thrive with flexible generalists who can wear multiple hats and pivot as needed. - Decide based on affordable loss, not ROI.
In uncertain environments, ask: what can we afford to lose if this doesn’t work? That’s a better guide than predicting impossible-to-know outcomes. - Expect your business model to change.
If you’re creating a new market or product, your original idea will likely evolve. Embrace this process instead of resisting it. - Protect your advantage accordingly.
In discovery contexts, speed and IP protection matter. In creation, your advantage lies in learning faster than others and developing deep customer relationships. - Use failure as feedback.
Don’t treat failure as an endpoint. In creation environments, each failure is a step toward a better opportunity. - Adapt your leadership style.
Discovery ventures may need strong decision-makers and planners. Creation ventures benefit from collaborative, adaptive leadership that encourages experimentation.
Closing Thought
Alvarez and Barney’s framework challenges a one-size-fits-all approach to entrepreneurship. Some opportunities are waiting to be found; others are built from scratch. Successful entrepreneurs—and smart managers—understand the difference. They choose their actions, strategies, and leadership style based on the nature of the opportunity they’re pursuing.
For business owners and decision-makers, the lesson is clear: Before you start planning your next venture or investment, ask yourself, Are you discovering something that’s already there—or creating something the world has never seen? The answer should shape everything that follows.