RAZORFISH: A CASE STUDY IN OVERCONFIDENCE
Daniel P. Forbes, University of Minnesota, Carlson School of Management
Principal Topic
It has been widely observed that entrepreneurs often exhibit unjustifiably high levels of confidence, or “overconfidence” (Busenitz & Barney, 1997; Cooper, Woo & Dunkelberg, 1988; Forbes, 1999). However, the field of entrepreneurship needs a clearer theoretical understanding of the concept of overconfidence and its role in the entrepreneurial process. Specifically, although there is a widely-shared sense that overconfidence contributes to entrepreneurs’ initial decisions to launch their ventures (e.g., Dosi & Lovallo, 1997), there is very little theory concerning the role overconfidence might play in the management of new ventures once they are founded. There exists a need for qualitative empirical research to help generate new theory in this area. Inspired by this need, I am undertaking a case study in an effort to understand how overconfidence is manifested in the management of a new venture once it is founded.
The history of the Internet consulting firm Razorfish, founded in 1995, provides an appropriate setting within which to explore these questions. Unlike many other Internet-era IPOs, Razorfish has not only earned significant revenue from blue chip clients, it was actually profitable for three of its first five fiscal years. Thus, its story is not that of the simple “concept play.” Razorfish’s overconfidence has been a subject of extensive observation and description by customers, analysts and others familiar with the firm. It is manifested on two levels: individually, in its founder, Jeff Dachis, who also served as the firm’s CEO for its first 6 years, and organizationally, in its corporate culture.
Method
My method draws on the grounded theory approach of Glazer and Strauss (1967) and utilizes an embedded, single-case design (Yin, 1994). My data sources include a wide range of archival sources, including corporate Websites, SEC documents, newspaper and magazine articles, press releases and analyst reports dating from the firm’s founding. In addition, my analyses are informed by more general research that I have conducted on the “Silicon Alley” community of Internet startups in New York City, from which Razorfish arose.
Results and Implications
From a research standpoint, I intend to: 1) explain how entrepreneurial overconfidence operates at various levels in the process of new venture management; and 2) generate some testable propositions concerning the strategic implications of overconfidence. From a practical standpoint, I intend to offer entrepreneurs, investors, employees and others a story that can enhance their abilities to recognize overconfidence in new ventures and new venture managers and assess the strategic value of overconfidence.
CONTACT: Daniel Forbes, U. of Minnesota, Carlson School of Management, Suite 3-365, Minneapolis, MN 55455; (T) 612-625-2989; (F) 612-626-1316; dforbes@csom.umn.edu
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