The theory of the threshold of consequence, necessity based entrepreneurs and their exit from self-employment: A grounded theory study

According to Stevenson (2000), self-employment as an alternative to traditional employment for displaced workers is one of the most important issues in entrepreneurship today. Corporate downsizing events create many necessity based entrepreneurs who are often strongly encouraged to enter self-employment as an alternative to returning to traditional based employment options. However, once they enter the entrepreneurial realm, most do not remain in self-employment for more than five years. The public policy question that needs to be considered is: is self-employment a viable option for this category of individuals? This paper draws from ten necessity based nascent venture cases studies, and develops a grounded theory to account for managerial differences in the processes utilized by the entrepreneurs depending on their specific exit trajectory; voluntary closure, failure or an acquisition/merger event. The ten research cases were nascent necessity based ventures founded between 1987 and 2004, in the greater Kansas City metropolitan area by former employees of five Fortune 100 and Fortune 500 Corporations with either their world or North America headquarters located in the area. All of the case participants held upper middle or senior level management positions at the time of their downsizing event. This paper examines one of two key findings as to why necessity based entrepreneurs don¿t remain in self employment at rates equal to other entrants. . The paper discusses the fact that the exit process is not a homogeneous phenomenon. Differences in the trajectory can be accounted for by considering three components ¿ legitimacy, motivation, specifically passion, and the presence of a triggering event or trigger point. From this work an emergent theory was developed, the theory of the threshold of consequence.