Inductive Modelling of an Entrepreneurial System

Dr Mike Yearworth

Reader in Systems, Systems Centre, Faculty of Engineering26th July 2010

Research Question

• What are the characteristic behaviors of the equity funded start-up environment and how might inductive modelling contribute to a better understanding of it and to theory development in entrepreneurial research generally?• Entrepreneurial profit (Schumpeter 1934, Chapter 4).

• Monopoly profit that can be earned by capital that has been invested into an entrepreneur’s innovative, creative, actions in a particular, or new, market for as long as the entrepreneur’s advantage can be sustained over competitors

• Current state of entrepreneurial research reveals much complexity, arising from trying to understand how to generate practical, actionable (normative) theories

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Grounded Theory• Glaser & Strauss (1967)

Inductive approach to generating theories about “what is going on”

• Mostly qualitative research data e.g. semi-structured interviews

• Analysis proceeds through a process of coding

• Continues until we have theoretical saturation

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Coding – The development of categories from the data

• “in vivo” concepts: – name of concept is a word or words taken directly from respondents

• open coding: breaking data into parts that could be “compared for similarities and differences”, and then grouped together into “more abstract concepts termed categories”

• axial coding: which relates categories to their sub categories, the process to “Systematically develop and relate categories”

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Data

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Coding in CAQDAS

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Axial Coding

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• 110 Categories

• Purpose• Initiation, first steps

• Attitudes and motivations

• Financing

• Ensuring success

• Environment

• Sense making and perceptions

The Matrix Query in NVivo

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Before Application of Heuristics

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Heuristics• Significance

• number words simultaneously coding both concepts

• Direction of Causality• coded text corresponding to significant correlations extracted from

Nvivo and re-analysed to confirm significance and direction

• Elimination of Variables • chains of category links were shortened where the intermediate

categories would have led to an overabundance of intermediate variables

• Selection of Text• originating text which illustrates important influences for inclusion

in report

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Results

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SolutionOpportunityTesting &Validation (SOTV) Loop

Results

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RealisticEquity Position(REP) Loop

Results

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Scale Up& Exit(SUE) Loop

Towards a normative theory

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Dynamic theories

1. The SOTV loop suggests a causal, time ordered relationship between concepts that together have a positive impact on the rate of crossing Gap 2. This suggests that a survey of entrepreneurial experience on attempting to cross Gap 2 will reveal a significant positive correlation between the success rate and both the execution and causal dependency of the variables in the SOTV loop.

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Dynamic theories

2. As entrepreneurial drive increases ceteris paribus the initial impact on Equity Funding Success Rate will be that the number of companies crossing Gap 2 will increase. However, this increase in drive will also mean that entrepreneurs will seek even higher equity stakes in their companies. At some point the balancing feedback on Equity Funding Success Rate will exceed the reinforcing feedback and the rate of companies achieving equity funding will go down

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Discussion• combining an inductive theory generating approach with

system dynamics raises a number of questions about contribution to methodology development• Adding “dynamic coherence” (Lane & Oliva 1998) i.e. absence of

structural means to account for dynamics in GT

• Aligns with model-based theory building (Schwaninger & Grösser 2008)

• Grounded theory adds “enrichment” and “formality” to SD model formulation process (Luna-Reyes & Andersen 2003)

• Similarities in mathematical, matrix-based methods (Warfield 1973)

• Contradictory to ‘normal’ system dynamics use (Sterman 2000 etc), purely inductive approach to generating dynamic hypotheses

• Makes a contribution to “thick analysis”. Not shown in paper but closest example is “Start and Fizzle…” PhD thesis (Morrison 2003)

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Conclusions• A step towards meeting the expressed need for

normative theory in studying entrepreneurial research

• Dynamic hypotheses expressed that can be tested through appropriately designed longitudinal studies

• Examples of this combination exist, but dynamic coherence to grounded theory is perhaps the most pressing?

• Important step in the use of binary matrices. What is the relationship to ISM?

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Thank you

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