An Optimal Stopping Model for the Exploration and Exploitation of a New Venture Opportunity

Entrepreneurs discover new business opportunities. Discovering and exploring the potential of a new business opportunity, however, are not sufficient to obtain entrepreneurial rents; subsequent exploitation must be taken. Successful entrepreneurs seem to shift from exploration (a focus on activities and/or investments to reduce technological and market uncertainties surrounding the potential opportunity) to exploitation (activities and/or investments committed to building efficient business operational systems to generate profits) at the most appropriate time.1 For example, http://Boo.com, a UK-based on-line fashion retailer, incurred large losses from what appears to be a hasty decision to pursue full-scale operations. Value America, one of the pioneers of on-line retailing, also appears to have suffered problems associated with premature exploitation by beginning full-scale operations based on an incomplete business model.