Success and Risk Factors in the Pre-Startup Phase

Why does one person actually succeed in starting a business, while a second person gives up? In order to answer this question, a sample of 517 nascent entrepreneurs (people in the process of setting up a business) was followed over a three-year period. After this period, it was established that 195 efforts were successful and that 115 startup efforts were abandoned. Our research focuses on estimating the relative importance of a variety of approaches and variables in explaining pre-startup success. These influences are organized in terms of Gartner’s (Academy of Management Review 10(4), 696–706 [1985]) framework of new venture creation. This framework suggests that start-up efforts differ in terms of the characteristics of the individual(s) who start the venture, the organization that they create, the environment surrounding the new venture, and the process by which the new venture is started. Logistic regression analyses are run for the sample as a whole as well as for subgroups within the sample, namely for those with high ambition vs. low ambition and for those with substantial vs. limited experience. The results point to the importance of perceived risk of the market as a predictor of getting started vs. abandoning the startup effort.     

Exploring start-up event sequences

This research analyzed new venture start-up activities undertaken by 71 nascent entrepreneurs. Nascent entrepreneurs are individuals who were identified as taking steps to found a new business but who had not yet succeeded in making the transition to new business ownership. Longitudinal data for the study comes from a secondary data analysis of two representative samples, one of 683 adult residents in Wisconsin (Reynolds and White 1993) and the other of 1016 adult residents of the United States (Curtin 1982). These surveys were conducted between 1992 and 1993, and the nascent entrepreneurs were reinterviewed six to 18 months after their initial interview.Three broad questions were addressed: (1) What activities do nascent entrepreneurs initiate in attempting to establish a new business? (2) How many activities do nascent entrepreneurs initiate during the gestation of the start-up? and (3) When are particular activities initiated or completed?Between the first and second interview, 48% of the nascent entrepreneurs reported they had set up a business in operation. Over 20% had given up and were no longer actively trying to establish a business. Almost a third of the respondents reported they were still trying to establish a firm.As a way to summarize the results and as a springboard toward some insights into the implications of this research for practice and future research, we developed the following activity profiles of the three types of nascent entrepreneurs studied. These profiles are offered as a combination of both fact and some intuition about the findings.STARTED A BUSINESS. Nascent entrepreneurs who were able to start a business were more aggressive in making their businesses real. They undertook activities that made their businesses tangible to others: they looked for facilities and equipment, sought and got financial support, formed a legal entity, organized a team, bought facilities and equipment, and devoted full time to the business. Individuals who started businesses seemed to act with a greater level of intensity. They undertook more activities than those individuals who did not start a business. The pattern of activities seem to indicate that individuals who started firms put themselves into the day-to-day process of running an ongoing business as quickly as they could and that these activities resulted in starting firms that generated sales (94% of the entrepreneurs) and positive cash flow (50% of the entrepreneurs). What is not known is how successful or profitable these new firms will be over time. For example, 50% of the firms that were started had not reached positive cash flow and these firms may have been started by individuals who were foolhardy and rushed into operation of a business that would not be sustainable.GAVE UP. The pattern of activities for the group of entrepreneurs who gave up seem to indicate that these entrepreneurs discovered that their initial idea for their businesses would not lead to success. The finding that the activity of developing a model or prototype differentiated individuals who gave up from those who were still trying would suggest that those who gave up had “tested” their ideas out and found that they would not work according to their expectations. Nascent entrepreneurs who gave up seemed to be similar in their activity patterns compared with those who started their firms, that is, individuals who gave up pursued the activities of creating a business in an aggressive manner at the beginning of the process. But as the business unfolded over time, these entrepreneurs decreased their activities and then ceased start-up activities. This group of individuals might be seen as either having the wisdom to test their ideas out before jumping into something that might lead to failure or lacking the flexibility to find more creative ways to solve the problems that they were confronted with.STILL TRYING. It would seem that those who are still trying are not putting enough effort into the start-up process in order to find out whether they should start the business or give up. Those still trying had undertaken fewer activities than individuals in the other two groups. The still trying entrepreneurs were devoting their short-term efforts toward activities internal to the start-up process (e.g., saving money and preparing a plan) and less effort toward activities that would make the business real to others. The still trying entrepreneurs may be all talk and little action. Or these still trying entrepreneurs might be involved in developing businesses that take longer for these particular opportunities to unfold. (It should be noted that there was no industry effect across the three groups.)Our advice to individuals considering business start-up is that the results seem to provide evidence that nascent entrepreneurs should aggressively pursue opportunities in the short-term, because they will quickly learn that these opportunities will either reveal themselves as worthy of start-up or as poor choices that should be abandoned. Individuals who do not devote the time and effort to undertaking the activities necessary for starting a business may find themselves perennially still trying, rather than succeeding or failing.What entrepreneurs do in their day-to-day activities matters. The kinds of activities that nascent entrepreneurs undertake, the number of activities, and the sequence of these activities have a significant influence on the ability of nascent entrepreneurs to successfully create new ventures. This study suggests that the behaviors of nascent entrepreneurs who have successfully started a new venture can be identified and differentiated from the behaviors of nascent entrepreneurs who failed. We believe that future studies will more precisely identify the kinds of behaviors appropriate for certain new venture conditions. If such contingency information can be generated, entrepreneurship research is likely to have significant benefits for entrepreneurship practice, education, and public policy.     

Venture capitalists and serial entrepreneurs

Habitual entrepreneurship is receiving growing attention, much of which has focused on entrepreneurs who have started more than one venture. This paper examines the importance of habitual entrepreneurs to the venture capital industry, with particular emphasis on those who have exited from an initial investment in the venture capitalist's portfolio, termed serial entrepreneurs. As venture capital markets mature, increasing numbers of entrepreneurs are likely to exit from their initial enterprises, creating a pool of entrepreneurs with the potential for embarking on subsequent ventures. Venture capitalists making investments may invest both in entrepreneurs starting new ventures and those who purchase a venture through a management buy-out or buy-in. On this wider basis, the paper develops a classification of types of serial venture. A number of issues are raised for venture capitalists, notably the relative attractiveness of reinvesting in exited entrepreneurs and the policy they adopt in tracking and assessing such individuals.The paper addresses venture capitalists' perspectives on investing in serial entrepreneurs based on a representative sample of 55 UK venture capitalists (a response rate of 48.7%, and a follow-up survey of those who had more extensive experience of serial entrepreneurs (23 respondents). The results of the survey show that despite a strong preference for using an entrepreneur who had played a major role in a previous venture, the extent to which exiting entrepreneurs are funded from their own portfolio again is limited, though there is more extensive use of such individuals in a consultancy capacity. In screening entrepreneurs exiting from previous ventures for subsequent investments, venture capitalists scored attributes relating to commercial awareness, experience in a particular sector, and personal ambition of the entrepreneur most highly.Venture capitalists do make extensive use of serial entrepreneurs who have exited from other venture capitalists' portfolios, primarily to lead management buy-ins. Indications from the survey are that venture capitalists rarely assess entrepreneurs formally at the time of exit and that it is unusual to maintain formal links with entrepreneurs after they have exited. These apparent shortcomings suggest that perhaps investment opportunities are being missed. Those venture capitalists preferring serial entrepreneurs generally had a larger volume of funds under investment and were rather older than those venture capitalists who do not prefer to use serial entrepreneurs, reflecting the possibility that longer established venture capitalists have had more opportunity and experience in relation to second-time entrepreneurs.Investment appraisal factors were subject to a principal components analysis to identify underlying dimensions/relationships between them. With respect to the general investment appraisal factors, five factors were identified. Two factors were related to track record; one of these reflected ownership experience, while the other represented management experience. The third factor was related to personal attributes such as age, knowledge, and family background. The fourth factor represented links to the funding institution, and the final factor (a single variable factor) concerned financial commitment. The principal components analysis for screening factors on management buy-ins produced a single factor comprising all variables. These factors were then subject to a multivariate analysis of variance (MANOVA), with preference for use of a serial entrepreneur as the independent variable. The results suggest that there are significant differences between venture capitalists who prefer serial entrepreneurs and those who do not in respect to their business ownership experience, the length of their entrepreneurial careers, and the number of their previous ventures.The results of the study have implications for practitioners. First, the findings emphasize the importance of not considering previous venture experience in isolation but in the context of other key investment criteria. Second, the lack of strongly greater performance from serial, versus novice, entrepreneurs further emphasizes the care to be taken in assessing experienced entrepreneurs. Third, the relatively low degree of formal and rigorous post-exit assessment and monitoring by venture capitalists suggests that important opportunities to invest in experienced entrepreneurs may be missed.     

Women business owners in traditional and non-traditional industries

Small businesses continue to grow in importance to the national economy. According to the Small Business Administration, America's 22 million small businesses generate more than half of the nation's Gross Domestic Product and are the principal source of new jobs. The National Foundation for Women Business Owners reported that between 1987 and 1994, the number of women-owned businesses grew by 78% and women-owned firms accounted for 36% of all firms. Although the growth in the number of women-owned businesses is encouraging, the size of such businesses remains small in terms of both revenues and number of employees, especially in comparison to male-owned businesses. One explanation for this disparity is that female business ownership is concentrated primarily in the retail and service industries where businesses are relatively smaller in terms of employment and revenue as opposed to high technology, construction, and manufacturing.One of the most fruitful streams of research in women's occupational choice has been based on social learning theory. Specifically, self-efficacy has been found to relate to both type and number of occupations considered by college men and women, and with regard to traditional and non-traditional occupations. Entrepreneurship researchers have also used social learning theory to study entrepreneurial intentions. This study builds on that background of women's career development and entrepreneurial intentions to examine differences between traditional and non-traditional women business owners. We examine 170 women business owners in various traditional and non-traditional businesses in Utah and Illinois. Questionnaires were the primary method of collecting data, in addition to 11 in-depth interviews from a sample of the survey respondents. Using a careers perspective, based on social learning theory, we hypothesized that women in these two different categories of industries would differ on levels of self-efficacy toward entrepreneurship or venture efficacy, their career expectations and their perceived social support. A second analysis was also done that explored the relationship between the same independent variables and success or performance of the business. The results offer support for using this integrative model to understand differences between women in traditional and non-traditional industries. The first analysis revealed that significant differences exist between the two groups on several of the independent variables. Traditional business owners had higher venture efficacy for opportunity recognition, higher career expectations of life balance and security and they reported that the financial support received from others was more important to them than those in non-traditional businesses. On the other hand, the non-traditional owners had higher venture efficacy for planning and higher career expectations for money or wealth than the traditional group.The second analysis explored whether success, as measured by sales, was affected by differences in venture efficacies, career expectations, or perceived support received by women in traditional businesses as compared to those in non-traditional ones. This analysis revealed that traditional women business owners might have different factors that contribute to their success than non-traditional owners. Specifically, for the traditional owners, venture efficacies for opportunity recognition and economic management as well as the career expectation of autonomy and money (or wealth) were positively related to sales. For the same group efficacy toward planning and the need for security were negatively related to sales. For the non-traditional women, venture efficacy toward planning and the career expectation of autonomy were positively related to sales while the expectation of money or wealth was negatively related. Also for the same group, the perceived importance of the emotional and financial support was negatively related to sales.In the past, most of the entrepreneurial research has used predominantly male samples of entrepreneurs. Those that include women entrepreneurs generally are comparative, between men and women. This study's comparison of two groups of women entrepreneurs offers a unique contribution to the field.Future research is recommended to further understand how venture efficacy and career expectations affect the decision to start a new business in a particular industry. It would be particularly beneficial to study venture efficacy and career expectations of prospective women entrepreneurs prior to the start of the business. Similarly, greater attention should be given to understanding how venture efficacy develops in different individuals.     

Exit, stage left why entrepreneurs end their entrepreneurial careers before retirement

This article examines the process of entrepreneurship from a different perspective. It considers evidence not only about practicing entrepreneurs but also about ex-entrepreneurs: individuals who have ended their entrepreneurial pursuits to work for someone else.Why entrepreneurs ended their entrepreneurial careers is understood by examining not only their expressed reasons for leaving, but also by observing how they exited, when they exited, and who exited compared to who remained.The study's findings are tentative. They are published now because they have important implications for potential entrepreneurs, for practicing entrepreneurs, and for those working with entrepreneurs either directly or indirectly (e.g., policymakers) who must make important decisions before more evidence is available .Overall, the findings indicate that a high-risk profile exists that distinguishes ex-entrepreneurs, particularly those with brief careers, from “more seasoned” entrepreneurs who have experienced longer lives as entrepreneurs.Perhaps the most important implication is that early-career start-ups may be better than previously thought. Preexisting profiles of the “ideal entrepreneurs” place them in their mid- to late thirties at the time of venture start up. But this start-up age (and older ages) were highly correlated in this study with very short, aborted careers compared to practicing entrepreneurs and ex-entrepreneurs who started earlier.A second implication is related to the first: those who started earlier were able to do a better job of anticipating their future entrepreneurial pursuits than were those who started later, mainly because they were sensitized to entrepreneurship as a career possibility at a much earlier age. Early planning for an entrepreneurial career is correlated with longer careers not just because they start earlier but because they last longer.A third implication is the need to scale down the scope (and risk) of the first venture. Such venture “downsizing” can lessen financial requirements while also giving new entrepreneurs the flexibility to start another, often better, venture after they get into business and learn about new opportunities, contacts, and skills that they could not foresee or develop before starting their first ventures.A fourth implication reinforces existing notions about the relative perils of the first few years of an entrepreneurial career. Survival rates increase considerably after the completion of the second year and the probability of a long career rises substantially after the sixth year of entrepreneurial life.A final implication is that the overall costs, risks, and dangers of entrepreneuring have been overstated. Career exit rates are much lower than venture exit rates. Relatively few ex-entrepreneurs apparently suffered truly catastrophic career exits, at least to the extent that they felt that their careers had been very unrewarding and that they had ruled out ever entrepreneuring again.     

Gender,Risk, and Venture Creation Intentions

This paper is concerned with whether women are less likely to express business start‐up intentions because of a less favorable attitude to risk. Previous research suggests that attitude to risk differs significantly between genders, but has not addressed the question of whether this contributes to lower levels of female interest in venture creation. This paper describes a conceptual basis for this question, and investigates it using a survey of business start‐up intention from across a sample of European universities. A large proportion of the difference in average levels of intention between genders appears to be associated with attitude to risk.     

Competing models of entrepreneurial intentions

Why are intentions interesting to those who care about new venture formation? Entrepreneurship is a way of thinking, a way of thinking that emphasizes opportunities over threats. The opportunity identification process is clearly an intentional process, and, therefore, entrepreneurial intentions clearly merit our attention. Equally important, they offer a means to better explain—and predict—entrepreneurship.We don't start a business as a reflex, do we? We may respond to the conditions around us, such as an intriguing market niche, by starting a new venture. Yet, we think about it first; we process the cues from the environment around us and set about constructing the perceived opportunity into a viable business proposition.In the psychological literature, intentions have proven the best predictor of planned behavior, particularly when that behavior is rare, hard to observe, or involves unpredictable time lags. New businesses emerge over time and involve considerable planning. Thus, entrepreneurship is exactly the type of planned behavior Bird 1988, Katz and Gartner 1988 for which intention models are ideally suited. If intention models prove useful in understanding business venture formation intentions, they offer a coherent, parsimonious, highly-generalizable, and robust theoretical framework for understanding and prediction.Empirically, we have learned that situational (for example, employment status or informational cues) or individual (for example, demographic characteristics or personality traits) variables are poor predictors. That is, predicting entrepreneurial activities by modeling only situational or personal factors usually resulted in disappointingly small explanatory power and even smaller predictive validity. Intentions models offer us a significant opportunity to increase our ability to understand and predict entrepreneurial activity.The current study compares two intention-based models in terms of their ability to predict entrepreneurial intentions: Ajzen's theory of planned behavior (TPB) and Shapero's model of the entrepreneurial event (SEE). Ajzen argues that intentions in general depend on perceptions of personal attractiveness, social norms, and feasibility. Shapero argues that entrepreneurial intentions depend on perceptions of personal desirability, feasibility, and propensity to act. We employed a competing models approach, comparing regression analyses results for the two models. We tested for overall statistical fit and how well the results supported each component of the models. The sample consisted of student subjects facing imminent career decisions. Results offered strong statistical support for both models.(1) Intentions are the single best predictor of any planned behavior, including entrepreneurship. Understanding the antecedents of intentions increases our understanding of the intended behavior. Attitudes influence behavior by their impact on intentions. Intentions and attitudes depend on the situation and person. Accordingly, intentions models will predict behavior better than either individual (for example, personality) or situational (for example, employment status) variables. Predictive power is critical to better post hoc explanations of entrepreneurial behavior; intentions models provide superior predictive validity. (2) Personal and situational variables typically have an indirect influence on entrepreneurship through influencing key attitudes and general motivation to act. For instance, role models will affect entrepreneurial intentions only if they change attitudes and beliefs such as perceived self-efficacy. Intention-based models describe how exogenous influences (for eample, perceptions of resource availability) change intentions and, ultimately, venture creation. (3) The versatility and robustness of intention models support the broader use of comprehensive, theory-driven, testable process models in entrepreneurship research (MacMillan and Katz 1992). Intentional behavior helps explain and model why many entrepreneurs decide to start a business long before they scan for opportunities.Understanding intentions helps researchers and theoreticians to understand related phenomena. These include: what triggers opportunity scanning, the sources of ideas for a business venture, and how the venture ultimately becomes a reality. Intention models can describe how entrepreneurial training molds intentions in subsequent venture creation (for example, how does training in business plan writing change attitudes and intentions?). Past research has extensively explored aspects of new venture plans once written. Intentionality argues instead that we study the planning process itself for determinants of venturing behavior. We can apply intentions models to other strategic decisions such as the decision to grow or exit a business. Researchers can model the intentions of critical stakeholders in the venture, such as venture capitalists' intentions toward investing in a given company. Finally, management researchers can explore the overlaps between venture formation intentions and venture opportunity identification.Entrepreneurs themselves (and those who teach and train them) should benefit from a better understanding of their own motives. The lens provided by intentions affords them the opportunity to understand why they made certain choices in their vision of the new venture.Intentions-based models provide practical insight to any planned behavior. This allows us to better encourage the identification of personally-viable, personally-credible opportunities. Teachers, consultants, advisors, and entrepreneurs should benefit from a better general understanding of how intentions are formed, as well as a specific understanding of how founders' beliefs, perceptions, and motives coalesce into the intent to start a business. This understanding offers sizable diagnostic power, thus entrepreneurship educators can use this model to better understand the motivations and intentions of students and trainees and to help students and trainees understand their own motivations and intentions.Carefully targeted training becomes possible. For example, ethnic and gender differences in career choice are largely explained by self-efficacy differences. Applied work in psychology and sociology tells us that we already know how to remediate self-efficacy differences. Raising entrepreneurial efficacies will raise perceptions of venture feasibility, thus increasing the perception of opportunity.Economic and community development hinges not on chasing smokestacks, but on growing new businesses. To encourage economic development in the form of new enterprises we must first increase perceptions of feasibility and desirability. Policy initiatives will increase business formations if those initiatives positively influence attitudes and thus influence intentions. The growing trends of downsizing and outsourcing make this more than a sterile academic exercise. Even if we successfully increase the quantity and quality of potential entrepreneurs, we must also promote such perceptions among critical stakeholders including suppliers, financiers, neighbors, government officials, and the larger community.The findings of this study argue that promoting entrepreneurial intentions by promoting public perceptions of feasibility and desirability is not just desirable; promoting entrepreneurial intentions is also thoroughly feasible.     

Does money matter?: Wealth attainment as the motive for initiating growth-oriented technology ventures

The desire to attain personal wealth has long been regarded as the foremost motive for entrepreneurship. Other goals and values, however, may also contribute to entrepreneurial motivation. Thus, the extent to which money matters relative to other motives is an empirical question. In this study we examine the role of wealth as the motive for the decision to found new ventures. Three focal questions guide our research: 1) does money matter more relative to other decision dimensions in deciding to start a new high-technology venture? 2) does money matter more to entrepreneurs compared to non-entrepreneurs? and 3) does money matter in absolute terms, that is, does a decision model that focuses solely on the motive of wealth attainment parsimoniously predict entrepreneurs' start-up decisions?We conducted in-depth interviews with 51 entrepreneurs and a control group of 28 senior managers who decided not to start ventures (non-entrepreneurs) in the high-technology industry in British Columbia to address our research questions. The motives we examined are wealth attainment and an aggregate of other dimensions identified by entrepreneurs and managers. We considered three components of values: participants' ratings of the importance of various decision dimensions, their rating of the salience of these dimensions, and their satisfaction with prior levels of attainment on those decision dimensions. We assessed beliefs as participants' perceived probability of attaining their desired level of a particular decision dimension in each of three alternatives: the position held at the time the venture decision was made, the venture itself, and the next best career alternative at that time. The data were analyzed to compare entrepreneurs' values and beliefs regarding wealth with an aggregate of other decision dimensions (our relative hypotheses), and with those of non-entrepreneurs (our comparative hypotheses).Our findings do not support the common perception that money is the only, or even the most important, motive for entrepreneurs' decisions to start new ventures. Wealth attainment was significantly less important to entrepreneurs relative to an aggregate of 10 other decision dimensions, and entrepreneurs did not rate wealth as any more important than did non-entrepreneurs. Non-entrepreneurs rated wealth as no more important than other motives. Wealth attainment was also significantly less salient to entrepreneurs' decisions to venture than were other motives. Non-entrepreneurs reported that wealth was significantly more salient to their decision against founding a venture than other dimensions. In fact, non-entrepreneurs rated wealth attainment as significantly more salient to their decision against founding than entrepreneurs rated it for their decision to proceed with starting a high-technology business. A significant number of entrepreneurs started businesses even when they believed that doing so offered them a lower probability of obtaining their most desired level of wealth than did one of their other alternatives.Satisfaction ratings and stated beliefs also dispute classical predictions. Just prior to making the decision to venture, the entrepreneurs in our study were as satisfied with wealth as they were with other decision dimensions. The non-entrepreneurs were actually more satisfied with wealth attainment than with other dimensions. A comparison of the groups revealed no difference in satisfaction with wealth attainment levels. Entrepreneurs did believe that their chances of attaining their desired level of wealth were much greater through founding a new high-technology venture than through their other alternatives. This difference in beliefs, however, was not significantly greater than their optimistic beliefs about chances of attaining desired levels of other dimensions. It was significantly higher compared to the non-entrepreneurs' belief difference measures for wealth. In fact, the entrepreneurs' stated beliefs regarding the chances of attaining their desired levels of all dimensions were higher than those of the non-entrepreneurs, suggesting that entrepreneurs were simply more optimistic at the time of their decision than non-entrepreneurs.Salience findings suggest that these optimistic beliefs about wealth did not motivate the founding decision alone.We can distinguish those people who successfully started ventures by their regard for wealth as a less salient factor, and their beliefs in higher chances of a venture producing monetary and other returns. Other motives, such as innovation, vision, independence, and challenge were more important and much more salient to this sample of entrepreneurs.Our findings have implications for practice, teaching, and research. Venture capitalists who partially base their assessment of entrepreneurs on the extent to which they are motivated to make a great deal of money may benefit from reconsideration of this criterion. We have evidence of one group of high-technology entrepreneurs who achieved success without placing much decision weight on attainment of personal wealth. Nascent entrepreneurs and those who teach entrepreneurship can use this empirical finding to argue two main points: 1) not all entrepreneurs found a business for personal wealth reasons, and 2) one need not be motivated by personal wealth attainment to be a successful entrepreneur. Similarly, theoretical models that assume money is the primary motive for entrepreneurial activity require re-examination. Future research in entrepreneurship should focus less on wealth attainment and more on other motives for the venturing decision. A multiple-attribute decision model may be able to more fully explain venturing decisions.     

Uncovering the value of planning in new venture creation: A process and contingency perspective

Researchers are engaged in a major debate on the value of business planning in new venture creation. This study suggests a potential resolution by applying a process and contingency perspective. The results indicate that planning is beneficial, yet planning processes need to be governed by different planning regimes depending on the type of founding environment. In highly dynamic environments, entrepreneurs will get most value from planning when they focus on select planning activities, and speed up the planning task. In less dynamic environments, they are better of pursuing a munificent approach to planning. The analysis thus reveals a major component of theorization on business planning that has been neglected in previous discussions. As for entrepreneurship teaching and practice, the findings suggest the importance of an adaptive, “toolkit” approach to business planning. Hypotheses were developed based on information-processing and decision-making theory and were tested with an ordered probit analysis on a sample of 100 start-ups backed by venture capital.     

Social ties and venture creation by returnee entrepreneurs

Recent years have witnessed the return of individuals of Indian or Chinese origin from developed markets to their home countries to start new ventures. Returnee Entrepreneurs (REs) facilitate both direct technology transfer and indirect technology spillovers to local firms, thus contributing to the technological development of emerging economies. Much previous work is based on the integration of ethnic entrepreneurs in their host countries or business activities of transnational entrepreneurs that traverse their host and home countries. This study explores the role of social ties in venture creation by REs. Based on twenty case studies in India, the findings show that (1) local ties are indispensable for venture creation, and (2) the heterogeneity in the way REs leverage social ties across the host and home countries is contingent on the location of their intention to start up and generation of idea for their venture. The implications of these findings are discussed.     

The board and strategy: Venture capital and high technology

In the area of strategy formulation, the part played by the board of directors in high technology firms operating with funds provided by venture capital organizations has not been investigated before. This exploratory study, although based on a limited sample, looks at some of the fundamental issues and contrasts the involvement of the board in firms of this kind with very limited involvement of the board in small conventional firms and in large publicly-held corporations. The relative power of management and the board of directors is of great importance. In contrast with the small conventional firm and the large corporation, in both of which the Chief Executive Officer is usually in firm control of the board and generally does not look to the board for active involvement in strategy formulation, the high-technology firms funded by venture capital organizations are characterized by a board of directors that has high power relative to management. This power can be understood not only in terms of the “power of the purse” (high concentration of the ownership in hands external to management), but also in terms of the expertise of the venture capitalists and their access to important networks.The business plan which is a key element in obtaining initial funding is in effect a statement of strategy that is carefully scrutinized by the venture capitalists, some of whom will assume positions on the board of directors. The board is similarly involved in the revisions of business plans in conjunction with later rounds of funding.The study found that the board is typically small, with outsiders rather than management in control; further, at least some of the outside members were found to have a high degree of expertise and a close working relationship with management. Board meetings are frequent and deal actively with key issues and with the review of how the strategy is working and what changes in strategy may be required. Reviews of the business plan when a new round of funding is required or when major new product or marketing decisions are needed are examples of likely occasions for involvement of the board in strategy revisions.Further research should center on identifying the conditions under which board involvement can play a constructive role in the strategy process of these high technology companies. Some pertinent variables are suggested. The next step in research should be more structured and quantitative and should use a geographically dispersed sample, but field interviews will be of continuing value as a complement.For firms funded by venture capital organizations, the board of directors is a significant interface between the venture capitalists and the internal management group. The working relationship between inside and outside directors in this arena, in strategy formulation and in other major business decisions, is a matter of considerable practical importance.     

Measuring the performance of emerging businesses: A validation study

To identify and substantiate the correlates and antecedents of new venture performance, it is requisite to identify the most relevant performance dimensions and move toward the use of common measures of performance. Relevant, reliable, and valid measures of new venture performance are essential to explore vital relationships between independent variables and venture success and develop sound venture performance theory.In this paper we discuss three of the most common measurement approaches used in new venture performance research when only self-report data are available, and present a comparison of these approaches: (1) measuring firm performance in broadly defined categories, (2) the use of subjective measures of executive or owner satisfaction with firm performance, and (3) the use of subjective measures of firm performance relative to competitors. After discussing the relevance and potential benefits and drawbacks of each approach we use empirical data to examine and compare the availability, reliability, and relative validity of measures developed using these approaches.The sample consisted of manufacturing businesses (SIC codes 20–39) started or reorganized in the corporate form between 1980 and 1991 in nine counties in northwestern Pennsylvania's identified by a major marketing research service. Questionnaires were returned by primary respondents in 120 companies; complete matching firm performance data from a second respondent were returned for 45 of the firms.The pattern of results favors the use of two dimensions of venture performance: growth and business volume. The growth and business volume measures operationalized in this research have good availability and internal consistency and are superior to the satisfaction with performance and performance relative to competitors' scales in terms of content validity. Evidence of the external validity of the measures is provided by regression analysis showing independent variables identified and substantiated by previous research to be related to performance in the hypothesized manner.The satisfaction with performance index had a high disclosure rate, strong internal consistency, and relatively strong inter-rater reliability. There is little evidence supporting its external validity. With the exception of its negative relationship with the level of competition, none of the predicted relationships are substantiated.The performance relative to competitors' disclosure rate was somewhat lower as was the inter-rater reliability; however, it emerged as a strong independent construct with a high level of internal consistency. There was evidence for the external validity of this measure. The independent variables related to the performance relative to competitors' index are similar to those related to both the growth and business volume dimensions as predicted from previous theoretical work and research findings.In summary, this research makes several contributions to the new venture performance literature. First, when researchers are required to use self-reported measures of venture performance, growth and business volume are the dimensions of performance most familiar to and most commonly referenced by the founders. Second, it provides additional evidence for the accuracy and reliability of founder reported performance data. Third, it provides examples of specific measures with evidence that supports their relevance, availability, reliability, and validity. We believe this research can provide a base for future venture performance research. We hope that these findings will be used to help better our understanding of the dynamics impacting new venture performance and lead to improved managerial practice in emerging firms.     

Speed to Legal Registration and Nascent Venture Performance: A Temporal Dilemma for Nascent Entrepreneurs in an Emerging Economy

In this paper, we examine the effect of a nascent venture's speed to legal registration during its formation on the initial venture performance in an emerging economy. Quickly obtaining legitimacy via legal registration in the early stages of a new venture's formation accelerates its resources acquisition and transition to other start‐up activities, facilitating the venture to seize dynamic entrepreneurial opportunities; however, in an emerging economy, quick legal registration also incurs substantial costs and compliance activities that may inhibit the venture's engagement in other start‐up activities. A nascent venture in an emerging economy suffers from being either too fast (early) or too slow (late) in registering its business during the formation process, and the relationship between the speed to registration and nascent venture performance is best reflected by an inverse U‐shape. Moreover, the inverse U‐relationship becomes more pronounced when the entrepreneurial opportunity is more innovative. Based on analyzing 145 nascent entrepreneurs from the event history data set of the China Panel Study of Entrepreneurial Dynamics (CPSED), we found strong support for our arguments.     

New venture strategy and profitability: A venture capitalist's assessment

This study uses theoretically justified criteria from the industrial organization (IO) strategy literature and applies it to a new domain, namely, venture capitalists' decision making. Specifically, the study investigates the types of information venture capitalists utilize when evaluating new ventures and how venture capitalists use this information to assess likely new venture profitability. In the interest of advancing our understanding of the decision making policies of venture capitalists, this study addresses many of the limitations of previous research.A review of IO research suggests important relationships between a number of strategy variables and new venture profitability. Some of the relationships proposed by IO strategy research are contingent in nature. The strategy variables and their relationships with profitability are investigated in the domain of venture capitalists' decision making. Individual and aggregate decision making analyses identified those strategy variables (criteria) venture capitalists utilize in assessing likely new venture profitability, namely, timing, key success factor stability, lead time, competitive rivalry, educational capability, industry-related competence, timing × key success factor stability interaction, timing × lead time interaction, and timing × educational capability interaction.On average, the most important criterion for venture capitalists in their assessment of profitability is industry-related competence. The second tier of importance is competitive rivalry, timing, and educational capability. The third tier of importance is lead time, key success factor stability, and timing × lead time interaction. Other interactions are less important. Therefore, while venture capitalists use contingent decision policies, main effects dominate. If venture capitalists use a reported 8 to 12 minutes on average to evaluate a business plan (Sandberg 1986), then this study's findings may help the inexperienced venture capitalist allocate time towards assessing those attributes of primary importance. Although more complex relationships exist between the attributes, the inexperienced venture capitalist can take comfort from this study's findings that main effects dominant amongst senior venture capitalists. Senior venture capitalists may take less comfort from their importance placed on main effects in light of research from IO, which suggests the importance of contingent relationships. The results may also have practical application towards training.How should venture capital firms train their new employees? Should venture capital firms rely solely on experienced venture capitalists lecturing the inexperienced on the criteria they use in assessing a new venture proposal? Like most decision makers, venture capitalists have limited insight into their assessments and venture capital firms need to be aware of the gap between “espoused” policies and policies “in use.” The information being taught needs to be supplemented with venture capitalists' decision-making research that investigates decision policies “in use”, such as this study. Venture capitalist training could also involve experiential learning, in conjunction with cognitive feedback about the decision policies used, to accelerate the learning process. Experiential learning using cognitive feedback maximizes industry related learning while minimizing the cost of inexperienced decisions. For the entrepreneur seeking capital, this increased understanding of venture capitalists' decision making may help them better target their business plans and presentations at those criteria venture capitalists' find most critical to the profitability of a new venture.     

Active labor market programs’ effects on entrepreneurship and unemployment

Many countries are turning to active labor market programs (ALMP) to increase individuals’ incentive to start a business and to reduce unemployment, but research on the effectiveness of such programs has produced mixed results and is still inconclusive at the macroeconomic level. This article examines the importance of ALMP targeted at entrepreneurship to explain cross-country differences in aggregate entrepreneurship rate. By using GEM data over the period 2002–2013 on OECD countries, our results show a positive impact of ALMP on the rate of necessity entrepreneurship but no significant effect on the rate of opportunity entrepreneurship. We further established that generous unemployment benefits reduce the positive outcome of ALMP on the aggregate rate of necessity entrepreneurship. Moreover, because most businesses started out of necessity do not create new jobs, we find that the economic spin-off of such programs in terms of unemployment reduction is very limited.     

The Effects of Pre-venture Plan Timing and Perceived Environmental Uncertainty on the Persistence of Emerging Firms

This paper explores the effects of when pre-venture planning occurs (early or late) in the sequence of activities accomplished during the process of new business emergence, and the moderating effects of environmental context (the degree of perceived financial, competitive and operational uncertainty), on the persistence of emerging business startup efforts. Using data from the U.S. Panel Study of Entrepreneurial Dynamics (PSED), our analyses found a strong main effect for business planning: Nascent entrepreneurs who completed a business plan were 2.6 times more likely to persist in the process of business emergence than those who did not complete a plan. In addition, the likelihood of venture persistence increased when nascent entrepreneurs engaged in planning early in the sequence of start-up activities in perceived uncertain financial and competitive environments, while venture persistence increased when nascent entrepreneurs engaged in planning late in a sequence of activities in perceived certain financial and competitive environments.     

Potential Lending Discrimination? Insights from Small Business Financing and New Venture Survival

Previous literature provides potential lending discrimination evidence of disadvantaged women and minority entrepreneurs' high rate of business loan application denial and their unequal access to external and commercial credits in comparison with white business owners. This paper aims to expand the literature and discussions on small business loan discrimination from a new research direction, besides those on loan applications/denials and on loan terms, focusing on the consequences of small business loans in terms of new venture survivability. The proposed new research direction is consistent with similar research approaches in mortgage lending literature examining loan default rates and potential discrimination. The Kauffman Firm Survey data are used with appropriate hazards model for the analysis. Extensive creditworthiness and business survival determinants are applied for controlling for their influences across racial and ethnic groups. The main empirical finding is that after controlling for a wide variety of borrower, establishment, and regional characteristics, business closure rates for minority entrepreneurs are not higher than those for white business owners. This finding does not support the prediction of the model for lender bias against minority entrepreneurs.     

Angels and non-angels: Are there differences?

The market for informal venture capital is an elusive and nearly invisible source of financing for entrepreneurial ventures. This market consists of a diverse set of high net worth individuals (business angels) who invest a portion of their assets in high-risk, high-return entrepreneurial ventures. The emerging consensus of the characteristics of the individual investor is that of a well-educated,middle-aged individual with considerable business experience and a substantial net worth. These informal investors appear to prefer investing in the early start-up stage of the venture and, if given a choice, prefer that their investments be located close to home. One consequence of this consensus is the tendency to assume that the traits of these business angels are as tightly clustered around the norm as are the traits of venture capital funds. They are not. In terms of their competence in the many areas of venture investing, these Individual investors range from the successful, cashed-out entrepreneur on the one hand to individuals with little or no experience with venture investing on the other. At the same time, little is known about the characteristics of high net worth individuals who never ventured where angels dare to tread, or about these non-angels' propensity to join the fold. Thus, this study seeks to fill the void by examining the characteristics of high net worth individuals regardless of their investment history or their interest in venture investing.An analysis of the data reveals three groups of high net worth Individuals: business angels with experience investing in entrepreneurial ventures, interested potential investors with no venture investment history but who express a desire to enter the venture investment market, and uninterested potential investors who under no circumstances would consider investing in entrepreneurial ventures as part of their investment strategy. Business angels and potential investors (both the interested and non-interested segment) share similar views about the economic significance of the entrepreneur and the difficulty in securing the equity capital for development of the venture. As the issues move from the general to the specific, divergence in investment attitudes takes place among the two groups, but this divergence is in terms of magnitude or intensity, rather than in contrasting or opposing views of the process. The potential investor tends to view investing in entrepreneurial ventures on a smaller scale than the active investor, especially in terms of the dollar amount committed to any one investment. While the business angel is more interested than the potential investor across all stages of financing, the interest for both groups increases as the type of financing progresses from the seed stage to expansion financing. In contrast, the potential investor is more likely to seek diversification as a motivation for venture investing than their angel counterparts.The potential investor pool is segmented into those potential investors who appear willing to take on the role of business angels and those individuals who have no desire to participate in the venture market. For the interested group to increase their interest in providing venture capital, these potential investors want assistance in monitoring the performance of the venture investment, followed by assistance in pricing and structuring. Both of these resources relate more to the technical aspects of venture investing and Indicate that these are the areas where the potential investor is least likely to have expertise. Other resources, such as finding and evaluating the investment opportunity, appear to represent less of a stimulus for the potential investor. In many respects, interested potential investors act like business angels across several dimensions. Both consider the later stages of the development of the venture as the preferred stage to invest. The business angel and interested potential investor prefer investments to be located relatively close to their primary residence and share similar views on the amount of the investment portfolio to allocate to venture investing. Where the interested potential investor and business angel clearly differ is on the scale of the commitment and the motivation for investing. The potential investor will commit a smaller dollar amount to any one venture, is more inclined to participate with other investors, and is more apt to see venture investing as a diversification strategy than is the seasoned business angel.     

Market attractiveness,resource-based capabilities,venture strategies,and venture performance

This research seeks to identify variables that should be related to venture performance. It is hypothesized that both market attractiveness and resource-based capabilities are directly related to new venture performance. In addition, specific resource-based capabilities are hypothesized to be directly related to the competitive strategies chosen by a firm. Finally, the “fit” between strategies and resource-based capabilities is hypothesized to be related to venture performance.The sample consisted of all manufacturing businesses (SIC codes 20–39) started or reorganized in the corporate form between 1980 and 1991 in nine counties in northwestern Pennsylvania, as identified by a major marketing research service. Of the 800 companies surveyed, completed questionnaires were returned for 155, representing a 19% response rate. The 155 responding companies had a median age of 5 years with a median of 15 employees. The major products of companies in the sample included flour, lumber, household and office furniture, plastic containers, tools and dies, ready mixed concrete, pipe fittings, measuring devices, paint and varnish, machine tools, electroplate, carbon and graphite composite products, plastic laminated products, circuit boards, electronic components, and parts for internal combustion engines.In general, the results confirm the validity of the measures of environmental and organizational characteristics as we have adapted them for new ventures. As hypothesized, perceived market attractiveness and the overall abundance of resource-based capabilities were significantly related to venture performance. Also, in two of three cases, the evidence suggests that specific resource-based capabilities are related to the firm's stated competitive strategies. Finally, although the relationship between “fit” and performance is not supported in all cases, the performance of the emerging manufacturing ventures included in this sample appears to be enhanced when resource-based capabilities are supportive of a cost leadership strategy and when firms seeking to differentiate based on product and service quality have the resource-based capabilities to support that strategy. The results of this emerging research stream will make an important contribution to our understanding of the factors that impact firm performance. For scholars the results provide additional information needed to develop comprehensive new venture performance models. A clear understanding of the factors that have a strong influence on venture performance will enable practitioners to better identify viable business opportunities and academicians to provide potential business founders with tools to help them recognize opportunity. In addition, the identification of appropriate levels of abstraction will provide building blocks for future research that seeks to integrate environmental and firm-level constructs.     

Entrepreneurship and university-based technology transfer

The success of business incubators and technology parks in university settings is often determined by how well technology is transferred from the labs to their startup firms. University technology transfer offices (UTTOs) function as “technology intermediaries” in fulfilling this role. Yet, entrepreneurship theory and research on the role of the UTTO in business incubation and new venture formation is sparse. To move the research along, we use grounded theory to build a framework to address two questions: (a) Which UTTOs' structures and licensing strategies are most conducive to new venture formation; and (b) how are the various UTTOs' structures and licensing strategies correlated with each other. Our findings reveal a complex set of relationships between UTTO structure and strategies, new venture formation, and business incubation.Based on interviews with 128 UTTO directors, we show that whereas for-profit UTTO structures are positively related to new venture formation, traditional university and nonprofit UTTO structures are more likely to correlate with the presence of university-based business incubators. Licensing-for-equity strategy is positively related to new venture formation while sponsored research licensing strategy is negatively related. Interestingly, the licensing-for-cash strategy, the most prevalent transfer strategy, is least correlated to new venture formation. A content analysis of UTTO mission statements also revealed an overemphasis on royalty income and an underemphasis on entrepreneurship. The paper concludes with a discussion that outlines some of the implications and limitations of our model.