nascent entrepreneurship and the process of new venture creation
TRANSCRIPT
Nascent Entrepreneurship and the Process of New Venture Creation
Michael Stützer*
* Friedrich-Schiller-Universität Jena
Korrespondenzanschrift:
Dipl.-Volksw. Michael Stützer
Friedrich-Schiller-Universität Jena
Fakultät für Wirtschaftswissenschaften
Lehrstuhl für Mikroökonomik
Carl-Zeiss-Straße 3, 07743 Jena
Tel.: ++49 / 3641 / 9 – 43 207
Content
1. Introduction ............................................................................................................................ 2
2. Entrepreneurship, Nascent Entrepreneurship and the Process of New Venture Creation ..... 3
3. The Characteristics of the Venture Creation Process – Theory, Empirics and Research
Directions ............................................................................................................................... 6
3.1 The Importance of Specific Activities in the Venture Creation Process.......................... 7
3.2 The Venture Creation Process as a Linear Model............................................................ 8
3.3 The Venture Creation Process as a Complex System ...................................................... 9
3.4 Research directions ........................................................................................................ 12
4. Characteristics of the Nascent Entrepreneur – Theory and Empirics, and Research
Directions ............................................................................................................................. 12
4.1 Human Capital and Competencies Specific to Entrepreneurship .................................. 13
4.2 Social Capital and Social Competencies ........................................................................ 16
5. Methodological Issues and the Design of the Study ............................................................ 18
6. Conclusion............................................................................................................................ 20
Literature .................................................................................................................................. 22
2
1. Introduction
During the last 15 years the research community has developed a growing interest in
entrepreneurship. The reason for this is that new ventures seem to have an important effect on
economic development. They are credited for creating regional employment (Fritsch and
Mueller, 2004) and transferring innovations into the market (Schumpeter 1934 and Audretsch,
2002). However, up to now there is no general theory of entrepreneurship. The study of
Entrepreneurship consists of different approaches including economics, sociology and
psychology. Accordingly, the research is concerned with a wide of range of questions. Who is
the entrepreneur? Are entrepreneurs different from other people? Why do so many attempts to
start a business fail? What distinguishes successful from non-successful entrepreneurs? Where
are the new ventures created and which effect do they have on economic development?
In my PhD thesis, which is embedded in a project of economists and psychologists called
“Success and Failure of Innovative Start-ups”, I want to make contribute to the specific area
of nascent entrepreneurship. This term refers to the effort of founding a new venture
(Reynolds and Miller, 1992). The people who are actively trying to create a business are
therefore called nascent entrepreneurs (Reynolds and White, 1992).
It is often argued that entrepreneurship is a process. Baron (2007), for instance,
distinguishes between 1) the pre-launch, 2) the launch, and 3) the post-launch phase, where
launch refers to the starting point of the venture. The same holds true for nascent
entrepreneurship. This process starts with a commitment of the individual to pursue a
particular business opportunity and ends with the creation of the venture (Bhave, 1994).
During the nascent phase the entrepreneur performs different activities, e.g. the writing of a
business plan, or the development of the product in order to start his business.
We know that not every nascent entrepreneur succeeds in creating the new venture.
Reynolds and White (1997) report that only half of the nascent entrepreneurs get their
companies up and running. However, our theoretical and empirical knowledge about the
reasons for this result is very limited. Therefore my PhD project will be concerned with three
different aspects of nascent entrepreneurship. First, I want to take a look into the
characteristics of the venture creation process of high-technology firms; second, I am
interested in the characteristics of the nascent entrepreneur; and third, I want to examine how
teams contribute to the success or failure of venture creation. This paper deals with the first
two topics.
3
The remainder of the paper is organized as follows. In section 2 I will define
entrepreneurship as well as nascent entrepreneurship and will give a short introduction
into the venture creation process. Thereafter I will provide a literature review of theories
and empirical results concerning the characteristics of the venture creation process
(section 3) and the characteristics of the nascent entrepreneur (section 4) and formulate
research directions. The paper concludes with an overview about methodological aspects
as well as the data (section 5), and a short summary (section 6).
2. Entrepreneurship, Nascent Entrepreneurship and the Process of New Venture Creation
Shane and Venkataraman (2000) define entrepreneurship as
a field of business that seeks to understand how opportunities to create something new
(e.g., new products or services, new markets, new production processes or raw
materials, new ways of organizing existing technologies) arise and are discovered or
created by specific persons, who then use various means to exploit or develop them,
thus producing a wide range of effects (p. 218).
Shane and Venkataraman’s view of entrepreneurship contains a set of important
dimensions of entrepreneurship research: the entrepreneur as the agent of the whole process
and who may have special characteristics, the opportunity to act upon, the innovative nature
of a product and the time dimension (process). I want to adopt this view besides the inclusion
of entrepreneurial efforts undertaken by employees who are paid for their creation of a new
business. These intrapreneurs will presumably have a different set of goals and motives
compared with the entrepreneurs from the general population. Moreover, they may also
receive a considerable amount of expertise and assistance from their company in order to
discover and exploit the business opportunity (Antoncic and Hisrich, 2001). Summing up,
intrapreneurial efforts may be totally different from original entrepreneurial efforts and will
therefore not be considered in the study.
Independent of the pecuniary and nonpecuniary goals of their goals the entrepreneur needs
this new organisation to fully achieve them (Hamilton, 2000). However, this new organisation
first has come into existence.
4
Gartner (1985) reviewed the existing literature and offered a classification of the relevant
dimensions in entrepreneurship research: the environment, the individual, the organisation
and the process. His article was the starting point of a more systematic research in
entrepreneurship in general and for the process dimension in particular. Therefore, my PhD
project turns to the aspect of nascent entrepreneurship, which is defined according to a set of
specific activities related to the emergence of a venture (Carter et al., 1996). Nascent
entrepreneurship is a process consuming a considerable amount of time (Van de Ven et al
(1989). As noted in the introduction, the starting point of the process is a personal
commitment of the individual to create the business and ends with the creation of the venture
(figure 1) (Bhave, 1994).
Nascent phase
t
Adult population
Commitment to pursuean opportunity
Nascententrepreneur
Abandon of the start-up
process
Business formation
Activities related to organizational
emergence:business plan,
first sale,hiring employees,
etc.
Nascent phase
t
Adult population
Commitment to pursuean opportunity
Nascententrepreneur
Abandon of the start-up
process
Business formation
Activities related to organizational
emergence:business plan,
first sale,hiring employees,
etc.
Figure 1: The process of venture creation
From a number of empirical studies we know that not every nascent entrepreneur
accomplishes the transition to mature entrepreneurship (Kolvereid and Rotefoss, 2005;
Delmar and Davidsson, 2000; Diochon et al., 2003; Reynolds, 2007; van Gelderen et al. 2005,
5
Vivarelli, 2004)1. For instance Reynolds (2007) reports that even seven years after the initial
commitment only one third of the nascent entrepreneurs actually gets their company up and
running, while on third abandons the start-up process, and one third remains in the nascent
phase. Those who successfully started their company required on average two years.
Two important dimensions of the venture creation process are according to Gartner
(1985), the individual and the process of venture creation itself. The third dimension – the
environment – will serve as a control. Therefore I propose the following two questions to
explain this finding:
1. Do differences in the venture creation process itself, e.g. the order of the activities and
the pace of the process, account for the variation of the outcome of the venture
creation process?
2. Are the personal attributes of the nascent entrepreneur, e.g. the traits and the
endowment with human or social capital important determinants of the venture
creation process?
Why is research in this area important? Due to a lack of reliable datasets in the past the
research in the area of nascent entrepreneurship rose only during the last ten years. Thus, our
knowledge about the venture creation process is still limited (if we take the fistful of peer
reviewed journal articles as an indicator).
According to the Global Entrepreneurship Monitor (GEM) 5.4 per cent of the adult
population in Germany (in absolute numbers: approximately 2.7 Mio people) are actively
working on a venture start-up (Sternberg et al., 2005). In these start-up efforts a lot financial
and human resources are at risk. It is an easy position to say, if half of the nascent
entrepreneur will fail, let them fail, their failure increases economic efficiency. In my opinion
it is for two reasons important to know why some succeed to create a business and others do
not. Firstly, it may help nascent entrepreneurs in their start-up process. Secondly, it may help
to evaluate and adjust entrepreneurship policy programs.
1 The nucleus of these studies is the PSED project initiated by Nancy Carter, Kelly Shaver, William Gartner and Paul Reynolds, which is a combined effort of 30+ institutions and 100+ researchers. During this study more than 64,000 people from the adult population was contacted by phone to end up with a dataset of 668 nascent entrepreneurs, who were then interviewed four times in a five year period (Gartner et al. 2004). The data of this study are publicly available. The PSED design was adopted for a number of similar studies in Sweden, Norway and Canada.
6
3. The Characteristics of the Venture Creation Process – Theory, Empirics and Research Directions
The most important task of a nascent entrepreneur is in my opinion the transformation of a
business opportunity into a product. At the beginning there often exists not much more than a
vague idea of the product. The nature of the business opportunity may change during the
process and sometimes a similar or totally different opportunity will be exploited (Hills and
Singh, 2004). Ronstadt (1988) termed this effect “corridor principle” – the creation of a
venture is a journey down a (maybe branched) corridor and during that journey windows of
opportunities open up around the nascent entrepreneur.
A second aspect of the venture creation process is stated by Aldrich and Martinez (2001):
“… the transformation of an idea into an organization requires that the entrepreneur acquire
resources” (p. 45). That is because at the beginning of the nascent phase hardly any nascent
entrepreneur possesses all the necessary resources for an operating company. Furthermore,
they need to alter and recombine the physical capital, human capital, and organizational
capital resources (using the classification of Barney, 1991) to achieve a competitive advantage
over incumbent firms to capture future economic rents (Brush et al. 2001; Newbert, 2005).
The third aspect of the venture creation process is the development of routines (Aldrich
and Ruef, 2006). In the beginning the organisation in gestation lacks most of the routines an
incumbent already possesses: How to produce the product, how to ensure the flow of inputs,
or how to market the product, etc. The degree of difficulty in creating those routines might
vary according to the extent by which one tries to copy routines of incumbents. Nevertheless,
all of the above mentioned questions have to be answered and the adequate routines have to
be developed.
There is only very little theory about the process of venture creation, because most of the
literature focuses on the evolution of organizations which already have a particular size (Katz
and Gartner, 1988). In the next three subsections three different lines of thought are presented:
They explore how the characteristics of the process can influence the success of the new
venture creation effort. Section 3.1 briefly discusses the importance of specific activities.
Section 3.2 deals with the idea that the sequence of the activities influences the outcome of
the venture creation process. Section 3.3 provides an overview of the impact of the timing of
the activities (when they occur). Conclusively section 3.4 provides research directions.
7
3.1 The Importance of Specific Activities in the Venture Creation Process
There is only limited consensus from an empirical and theoretical point of view which
activities in the process are important. Because this topic belongs to my colleagues Sarah
Kösters and Maximilian Göthner I will present only the main ideas, but will not state any
research questions.
In a series of paper Delmar and Shane argue that business planning activities increase the
probability for starting-up the venture (Delmar and Shane, 2003; Shane and Delmar, 2004).
From a theoretic point of view business planning may help the nascent entrepreneur to
structure the venture creation process by reflecting all stages and all necessary activities.
Furthermore the business plan is useful in dealing with external individuals like investors.
This point to another disadvantage of nascent ventures compared to incumbents. They
lack legitimacy (Hannan and Freeman, 1984), because they don’t posses a history which may
make them look reliable. Therefore legitimizing activities like establishing a legal entity and
enrolment in official registers should increase the probability to start-up (Delmar and Shane,
2004). Empirical evidence for the importance of these two activities is mixed (Davidsson,
2006). Especially for business planning other empirical studies have found weak or none
effects (Newbert, 2005; Parker and Belghitar, 2006). Honig und Karlsson (2001) reason that
business planning has no effect, because most business plans are written only external
institutions demand it. For them business plans are only a symbolic activity.
To obtain external finance is also regarded as an important activity in the venture creation
process (Carter et al. 1996). Small and new companies fall back on very different sources of
funding. They use (in descending order) personal loans to the business, debt financing from
the bank, loans from other members of the start-up team, and equity from friends and the
family (Stouder and Kirchhoff, 2004). However, there is no well developed theory of the
financing of nascent or young firms. It is argued, that small and consequently even more
nascent high-tech ventures suffer from funding gaps due to imperfect capital markets
(Carpenter and Petersen, 2002). Funding decisions are typically based on the risk-reward
profile of the firm. However, for firms in gestation these risk-reward profiles are hard to
determine, and the nascent entrepreneur must be willing and able to share information with
banks. Furthermore collaterals are often missing (Berger and Udell, 1998; Carpenter and
Petersen, 2002). Since the focus of our project are high-technology nascent entrepreneurs, we
expect that the availability of external finance to be a critical factor because their start-up
projects will be more capital-intensive.
8
3.2 The Venture Creation Process as a Linear Model
One of the first simple models of venture creation was proposed by Birley (1984, 1985).
He argues that the venture creation process is linear, beginning with the generation of an idea,
and continuing with the setting up of the firm, the hiring of employees, and finally selling the
products. More elaborated models of venture creation are looking at specific stages of the
process in order to classify the distinctive activities. For example, Galbraith (1982) offers a
linear four stage model for high-tech ventures consisting of 1) a proof-of-principle stage in
which the basic technology of the product is developed, 2) a prototype stage, in which the
technology is transformed into a workable prototype, 3) a model-shop phase, in which
production and marketing phase take place and 4) a start-up phase, in which the volume
production begins. After interviewing 27 entrepreneurs Bhave (1994) proposed a three staged
model allowing for feedbacks between the stages. However, an empirical test of the sequence
of the three key events in the Bhave-Model – commitment to physical creation, development
of production technology plus product development, and first sale – failed. Instead of a
common pattern of activities empirical studies show that there is a tremendous variation in the
start-up process 1) what activities occur, 2) in which order they are undertaken, and 3) the
amount of time between the activities (Hannan and Freman, 1984; Liao and Welsch, 2002,
2003; Reynolds and Miller, 1992; Reynolds, 2007). For example, Carter et al. (1996) report
that 40 % of all founders begin the venture creation process with a first sale, which is usually
used as an indicator for the end of the venture creation process.
Delmar and Shane (2003) admit that there may be no common sequence for all start-up
efforts but argue that there is a best one (figure 2). Their argumentation starts in the field of
cognitive psychology. People have according to Simon (1997) only limited cognitive
capacity. Therefore they can not perform all relevant activities at once. In addition, is the
venture creation process is stepped from a theoretical point. The completion of one step
defines the boundaries from which the next step can be approached. For example, the
existence of a written business plan is a necessary condition to obtain external financial
capital from a bank or the development of the production technology precedes the start of the
volume production. Delmar and Shane test their theory by comparing the sequence of
activities undertaken by the nascent entrepreneurs with a recommended sequence by expert
entrepreneurs (serial founders). They show that a deviation from this best sequence lowers the
probability for getting started and reduces the later success of the established business.
9
t
Business plan
Contact to customers
Establish a legal entity
Acquisition of capital
Start marketing
Acquisitions of inputs
Commitment to pursue an opportunity
First sale t
Business plan
Contact to customers
Establish a legal entity
Acquisition of capital
Start marketing
Acquisitions of inputs
Commitment to pursue an opportunity
First sale tt
Business planBusiness plan
Contact to customersContact to customers
Establish a legal entityEstablish a legal entity
Acquisition of capitalAcquisition of capital
Start marketingStart marketing
Acquisitions of inputsAcquisitions of inputs
Commitment to pursue an opportunity
First saleFirst sale
Figure 2: Parts of the recommended best sequence (Delmar and Shane, 2003)
Delmar and Shane receive little empirical support from others (Carter et al., 1996; van
Gelderen et al. 2005; Gartner and Carter, 2003) who believe in a greater flexibility of the
start-up process. Some researchers suggest that the start-up sequence is different for different
groups of nascent entrepreneurs, but could not solve the basic problem. For example, the start-
up process may differ between 1) tech-based start-ups and non-tech startups (Samuelsson,
2001; Newbert, 2005) or not (Liao and Welsch, 2003), 2) different industry sectors (Kim,
2006), or 3) different experienced entrepreneurs (Alsos and Kolvereid, 1998).
3.3 The Venture Creation Process as a Complex System
Recall Bhaves (1994) three staged model of venture creation. He describes the process as
nonlinear and iterative and allows for feedbacks between the stages. If, for instance, the
potential customer rejects the product at first sight, alterations of product or in the whole
business concept might be necessary. After a considerable amount of time a modified version
10
of the product will be presented to the customer, who again might ask for changes. This
implies that the venture creation process is nonlinear, because some activities are performed
more than once. Lichtenstein, Dooley and their collaborators are going a step further by
arguing the whole venture creation process can be seen as a complex system (Lichtenstein et
al. 2004, 2006, 2007). The specific activities can not be interpreted separately; they are rather
nodes in a network with mutual causality and iterative loops (figure 3). Consequently,
Lichtenstein et al. (2004, 2006, 2007) are not interested 1) whether some activities occur
(section 3.1) or 2) in what sequence they take place (section 3.2). They are more interested in
the temporal dynamics – in other words – when the activities occur. Drawing on complexity-
sciences they examine the dynamics of the venture creation process focussing on the pace of
the overall process, the temporal concentration of activities and the timing of the activities
early or late in the process.
ttt
Figure 3: The venture creation process as a complex system
The pace of the process is defined as the number of performed activities during the
venture creation process and therefore equals the average rate of activities during the process
(Lichtenstein et al. 2004). It is argued that a fast process (an early entry into the market) is
correlated with time-to-market-advantages (Barkema et al. 2002). A higher pace of the
11
venture creation is also associated with the internal drive (commitment) of the nascent
entrepreneur successfully creating the venture.
The concentration measure takes into account whether most activities are performed in a
certain period (often months) of time. From organization sciences we know that a more rapid
change of organizational structures is often superior to incremental changes (Slevin and
Covin, 1997; Hoskisson and Galbraith, 1985). Moreover, in case of an emerging organization
the start of one activity enables the enactment of other activities. This can lead to an
acceleration of the process and the completion of different activities in a short period of time
(Lichtenstein et al. 2004). The process culminates in a so called ‘punctuation point’ which is
not only characterized by a high quantity of performed activities, but also by a qualitative
change in the process. Metaphorically speaking, the process is like a puzzle in which suddenly
all the pieces form a coherent whole; the nascent entrepreneur gains confidence and
momentum with the progress of the development (Jansen, 2004; Lichtenstein et al. 2006). The
idea of a concentrated process collides with the concept of a linear process of venture
creation, which was introduced in section 3.2.
Timing refers to the question whether the activities are performed late or in the beginning
of the process (Lichtenstein et al. 2004). In organizational sciences it is argued that a positive
feedback-process is one driver of organizational emergence (Jansen, 2004). From a theoretic
point of view the business plan is the starting point of such a self-accelerating system
(Chesbrough and Rosenbloom, 2001). After the business plan has been completed other
activities like product development, acquiring additional finance and enrolment in official
registers are more likely to be enacted. Therefore, one would expect that the punctuation point
is located and the majority of the activities will be performed at latter stages of the process.
Lichtenstein and his collaborators verify the influence of the characteristics of the process
in a case study (Lichtenstein et al. 2006) and with data from the PSED study (Lichtenstein et
al. 2007). They show that the nascent entrepreneurs have a higher probability to start-up if the
timing of the process is higher and the activities takes place late in the start-up process.
Contrary to their expectations they find that a slower concentration in the process is beneficial
for the nascent entrepreneur.
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3.4 Research directions
From the above review of the literature a set of hypotheses can be developed.
H1.1: A higher pace of the venture creation process is associated with a higher probability
to start-up.
H1.2: A higher concentration of start-up activities is associated with a higher probability to
start-up.
H1.3: A later timing of the activities is associated with a higher probability to start-up.
In my opinion especially hypothesis H1.2 is crucial, because the notion of the non-
linearity of the process draws heavily on this. Furthermore H1.3 refers directly to H1.2. If, for
example, the activities are not concentrated in the process it automatically decreases the
possibility that many activities are performed late in the process. This is because one would
expect in such a non-punctuated process a more equal distribution of the activities over time.
In that case the process is more linear – supporting the view of Delmar and Shane (2003), that
there might be sequences of activities superior to others.
H2.1: Deviations from a supposed best sequence lowers the probability to start-up.
Support for hypothesis H2.1 would have direct practical implications for the practice of
nascent entrepreneurship, offering a best sequence for nascent entrepreneurs which they could
follow.
4. Characteristics of the Nascent Entrepreneur – Theory and Empirics, and Research Directions
The literature concerned with the determinants of entrepreneurship fills whole libraries.
Research in this area started with the examination of the entrepreneurs’ characteristics. For
example, Sombart (1909) states that the entrepreneur is endowed with robustness, a passion
for work and power, and vitality. With his own words:
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„Es sind Männer [...] ausgerüstet vor allem mit einer außergewöhnlichen Vitalität, aus
der ein übernormaler Betätigungsdrang, eine leidenschaftliche Freude an der Arbeit,
eine unbändige Lust zur Macht hervorquellen [...], Männer mit prononciert
intellektual-volontaristischer Begabung, mit gering entwickeltem Gefühls- und
Gemütsleben. Robuste Naturen in dem Doppelsinne: robust zur Bewältigung großer
Arbeitspensa und Niederwerfung von Hindernissen; robust aber auch in der
Lebensbetrachtung und Lebenserwartung. Menschen - mit dem Beile zugehauen.
Smarte Männer“ (pp. 747-748).
The personality approach with its focus on the traits of the entrepreneur is, despite harsh
criticism (Gartner, 1989), still an important field in entrepreneurship research (see for an
overview Rauch and Frese, 2007). However, most traits are temporally not stable and difficult
to grasp in studies with a retrospective design. Therefore, the psychological part of our project
will research the effects of temporally stable traits, e.g. the Big Five, and the career paths of
(nascent) entrepreneurs (Schmitt-Rodermund, 2004). Another tendenes in the literature is to
investigate the entrepreneur’s endowment with human and social capital. Therefore, section
4.1 provides an overview about the importance of human capital and competencies and gives
research directions. Section 4.2 deals with the idea that social capital and social competencies
influence the outcome of the venture creation process, and also gives according research
directions.
4.1 Human Capital and Competencies Specific to Entrepreneurship
Human capital results from investments in knowledge which increases the abilities and
skills of people. The theory states that higher human capital leads to a more productive and
efficient use of work, combined with higher income streams for the individual (Becker, 1964;
Schultz, 1980). It is argued that individuals with high human capital develop skills which
enable them to perform better in discovering business opportunities (Baron, 2006; Shane,
2000), that they have a higher probability to engage in entrepreneurship (Bates, 1995; Evans
and Leighton, 1989), and are more successful if the company is running (Brüderl et al. 1996).
Nascent entrepreneurs have to perform very different tasks and work in an environment
with high uncertainty. Human capital enables nascent entrepreneurs to solve tasks better then
others with less human capital (Laezar, 2002). It also enhances their ability to learn by adding
new knowledge to the existing stock and therefore augment the adapting to new situations
14
(Polanyi, 1967). Education, work-, management-, industry- and prior start-up experience are
the most likely sources of human capital (Aldrich and Martinez, 2001) and are often tested in
empirical studies. However, surprisingly few studies (table 1) find positive effects of
education and no study could confirm the influence of work experience and industry
experience. The only human capital variables with consistent positive effects on a successful
venture start-up are prior business and management experience.
Table 1: Human capital variables across different studies
Human capital variables across different studies2
Davidsson and Honig
(2003)
Diochon et al.
(2003)
Delmar and
Gunnarson (2000)
Parker and
Belghitar (2006)
Rotefoss and
Kolvereid (2005)
Van Gelderen
et al. (2005)
Vivarelli (2004)
Datasource or Country Sweden Canada Sweden PSED Norway Dutch Italy
Education x + + x x x
Work experience x x x x Management experience + x +
Industry experience x + Business or Start-up experience + x x +
In my opinion this weak results is due to two reasons. First, the above mentioned human
capital variables (excluding business and management experience) ignore what nascent
entrepreneurs do during the venture creation process. The nascent entrepreneur has to perform
very different activities requiring knowledge in different areas. Accordingly, Lazear (2004)
argues that the entrepreneur has to be a generalist – in other words – a jack-of-all-trades.3
Therefore, instead of asking for work experience one might ask for work experience in
different areas, or for work experience in small and young companies (Wagner, 2003a).
Second, human capital can be used productively within but also outside a new venture
(Gimeno et al., 1997; Parker and Belghitar, 2006). Focussing on what (nascent) entrepreneurs
do (Gartner and Starr, 1992), we have to consider competencies which enable them to
perform the activities of the start-up process. There is a number of competencies which have
already successfully been used to explain the success of new ventures:
2 Significant positive effect on the probability to start-up or further engage in the start-up process or marked with a plus sign, insignificant effects are marked with x-sign, significant negatives effect are marked with a minus-sign. Empty cells denote that the specific variable was not included in the study. 3 This view was supported by Wagner (2003b).
15
1) Entrepreneurial competencies (Chandler and Hanks, 1994): Competencies that are
related to perceive entrepreneurial opportunities and transform them into products.
2) Resource acquiring competencies (Baum and Locke, 2004): Competencies related
to acquisitions of financial resources.
3) Managerial competencies (Chandler and Hanks, 1994): Competencies related to
organization and motivation of people, to planning, making resource allocation
decisions and keep the company running.
4) Technical competencies (Chandler and Jansen, 1992): Competencies which are
related to the use and the developing of tools, procedures, and techniques in a
special field.
From the discussion of the start-up activities in section 3, I conclude that these competencies
are also important for the creation of the new venture. Furthermore there is a high degree of
congruence to the set of competencies for entrepreneurs, developed by Spencer and Spencer
(1993). In addition to that, our project focuses on technology-based entrepreneurs, whose
business opportunities and start-up projects we expect to be non-trivial and capital-intensive.
We expect that most nascent entrepreneurs hold a university degree and therefore have a
high level of education and work experience at the university and in research institutions.
Along this career path, other variables will be a good indicator for human capital, for example
the scientific reputation in terms of published articles (Shane and Khurana, 2003). Prior to the
venture start-up they may have also used other forms of commercialising, namely patents and
licensing. We will test if such commercialisation experiences will enhance the probability to
successfully start a new company.
From the above discussion I conclude with three hypotheses:
H3.1: Higher levels of education, prior business experience, start-up experience,
experience in commercialisation and management experience are associated with a
higher probability to start-up.
H3.2: Higher levels of prior work experience and industry experience are not associated
with a higher probability to start-up.
H3.3: Higher levels of competencies specific to entrepreneurship (entrepreneurial, resource
acquiring, managerial and technical competencies) are associated with a higher
probability to start-up.
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4.2 Social Capital and Social Competencies
At the individual level, social capital is defined “as the sum of the actual and potential
resources embedded within, available through, and derived from the network of relationships
possessed by an individual or social unit” (Nahapiet and Goshal, 1998). According to this
definition social capital refers to the people the nascent entrepreneurs know and their potential
to support the entrepreneurs. As this notion is very general a more precise link between social
capital and entrepreneurship is necessary in order to make this concept usable.
Davidsson and Honig (2003) use the concept of social exchange (Emerson, 1972) and
state that exchange takes place via ties between the entrepreneur and other individuals and
institutions. In the literature there is often a distinction between strong ties with family
members and close relatives and weak ties with acquaintances, work colleagues, and business
networks (Granovetter, 1973). The weak ties are seen as more important for entrepreneurship
than the strong ties (Ruef, 2002).
Table 2: Social capital variables across different studies
Social capital variables across different studies4
Davidsson and Honig
(2003)
Diochon et al.
(2003)
Delmar and
Gunnarson (2000)
Parker and
Belghitar (2006)
Rotefoss and
Kolvereid (2005)
Van Gelderen
et al. (2005)
Vivarelli (2004)
Datasource or Country Sweden Canada Sweden PSED Norway Dutch Italy
Parents in business + x x - Friends, family or neighbours in business
+ - x x
Encouragement by friends and family +
Married + x
Business network + Member of start-up team + - x
Contact with assistance program + + +
4 Significant positive effect on the probability to start-up or further engage in the start-up process or marked with a plus sign, insignificant effects are marked with x-sign, significant negatives effect are marked with a minus-sign. Empty cells denote that the specific variable was not included in the study.
17
Via such ties nascent entrepreneurs may receive tangible resources, e.g. a first loan or
intangible resources, information about potential customers, or gain encouragement. As
indicators for social capital of the nascent entrepreneurs the business or start-up experiences
of the family, friends and neighbours are often used. In addition to the studies also name the
membership in a business network, the encouragement by friends and family, being married
and having contact with an assistance program (table 2). Unfortunately, social capital is not
often tested for in nascent entrepreneurship studies although it is recognized as an important
factor (Davidsson, 2006). Consistently positive effects are found for the effect of weak ties,
e.g. contact with an assistance program, or membership in a business network. For the effect
of other variables (mostly strong ties) on the probability to start-up or the further engagement
in the start-up process there is only inconsistent empirical evidence.
One reason for this result may be that social capital is only one part of the story – it
accounts for the mere social contacts the nascent entrepreneurs has, especially which useful
weak ties there are. In my opinion the closely related concept of social competencies is the
second and maybe more important part of the story. Instead of focussing on whom the nascent
entrepreneur knows, social competencies refer to the ability of people to interact effectively
with others (Baron and Markman, 2000) and thus exploit ties. In a review of the literature
Baron and Markman (2000, 2003) summarize and further develop a list of skills to
operationalize the concept:
1) Social perception: competences which are related to the accuracy in perceiving the
intentions and motives of others.
2) Social adaptability: Competency to adapt to a wide range of social situations.
3) Expressiveness: Competency to express one’s emotions clearly to induce
enthusiasm in others.
4) Impression Management: Competency to make a good first impression and generate
positive reactions in one’s counterpart.
In my opinion these competencies are important for nascent entrepreneurs since they often
have to handle with new and uncertain situations during the venture creation process.
Furthermore, they often have to convince potential members of the start-up team, financiers of
their business idea or potential customers of their product. In addition social competencies can
improve the relations between the members of the start-up team (Baron and Markman, 2000).
From the above review of the literature a set of hypotheses is developed.
18
H4.1: A higher quantity and diversity of weak ties is associated with a higher probability
to start-up.
H4.2: A higher quantity of strong ties is not associated with a higher probability to start-
up.
H4.3: Higher levels of social competencies (social perception, social adaptability,
expressiveness and impression management) are associated with a higher probability
to start-up.
5. Methodological Issues and the Design of the Study
Nascent entrepreneurs are hard to find, because only approximately 50 % of them succeed
in the creation of the new venture, which will be enrolled in an official registers (e.g.
‘Handelsregister’), and even less will hire employees to be registered at the ‘IAB’ in
Nuremberg (Brixy and Fritsch, 2002). Therefore, PSED-type research persues the strategy to
contact a few thousand individuals of the adult population in order to identify people who are
actively trying to create a new venture. After this screening the nascent entrepreneur will be
interviewed via telephone. Typically in intervals of 12-24 months the researchers conducts
follow-up interviews to ask additional questions and to evaluate the current status of the
nascent entrepreneur. From the data gained in this way longitudinal datasets are constructed,
which overcome the often criticised bias of hindsight and survival (Davidsson, 2006;
Reynolds, 2000). The longitudinal design of these studies is more likely to produce valid
evidence about causes and effects in the venture creation process.
The identification of the nascent entrepreneur is rather simple: PSED-type research uses
the self-assessed status of the nascent entrepreneur, the absence of income streams from the
nascent firm to the nascent entrepreneur, and sometimes the enactment of two or three start-up
activities. The determination of the end of the nascent phase, on the other hand, is more
difficult. In the case of an abandoned or continued venture creation process the self-assessed
status of the nascent entrepreneur again is used. However, there are different indicators for the
constitution of the company. Often used indicators are the self-assessed status of the
entrepreneur that the company is up and running, the time of the first sale, the enrolment in an
official register, the hiring of at least one employee, the first cash flow covering the costs of
the production (Reynolds, 2000). To further complicate the subject matter, recall figure 1 and
the three outcome classifications of the nascent phase: 1) the business formation, 2) the
19
abandoning of the start-up process, and 3) still being nascent entrepreneur. There is an
ongoing debate if an abandoned start-up process can be considered as a failure (Davidsson,
2006, p. 26). Diochon et al. (2003) state that most of those who give up, do this voluntarily.
Maybe the really failed start-up efforts are of those people, who consider themselves as
nascent entrepreneurs for many years but never reach the point of business formation or
abandoning of the process.
Due to budget restrictions, we chose a retrospective design for our study and exploit
several databases. Concerning the topic of nascent entrepreneurship we use data from the
Thuringian ‘Exist’-initiative called Get-up / Thüringer Gründernetzwerk (in short Get-up).
Get-up offered assistance for nascent entrepreneurs. Since 1998 616 start-up projects
contacted this institution. 258 of them succeeded in creating the new venture (in terms of
enrolment in the official Handelsregister), 158 abandoned the start-up process, and 200 are
still in the nascent phase. Since we have personal data from these nascent entrepreneurs, we
will contact and then conduct (for a random draw of ca. 150 people) personal interviews with
all team members. Therefore, our dataset of nascent entrepreneurs is not representative. The
nascent entrepreneurs are more likely to have a university degree and have worked for the
university or research institutions for a couple of years. No small number of their projects
tries to commercialize research results. We expect most of the start-up projects to belong to
the high-tech classification of the Zentrum für Europäische Wirtschaftsforschung (ZEW).
This restriction of the sample on high-tech start-up efforts is no disadvantage compared
with the PSED. PSED-samples suffer from a high degree of heterogeneity in several
dimensions, because they include high- and low-tech start-up efforts, nascent entrepreneurs
pushed or pulled to entrepreneurship, nascent entrepreneurs with the will to grow as much as
possible or to stay small, and entrepreneurs of different industries. I would expect that for
different groups of nascent entrepreneurs and start-up efforts there are different determinants
of success. Restricting the sample to high-tech-start efforts minimizes this problem.
To overcome the bias of hindsight and obtain reliable information we will adapt the tool
‘life-history-calendar’ from psychology in order to cover the period of start-up. The life-
history-calendar is a useful tool to reconstruct individual processes and developments (Caspi
et al. 1996). The nascent entrepreneur receives a sheet of paper with the activities at the
vertical and a time axis at the horizontal (table 3). During the interview we go through this list
of different activities and mark the enactment, the duration, the end of the activities and the
effort for this activity.
20
Table 3: The adaptation of the life-history-calendar for the start-up process
Time (year) 2005 2006
Time (months) 10 11 12 1 2 Working effort in
hours/week
Thinking about the business opportunity X X X 25
Commitment to pursue the opportunity X
Business plan X X 15
Additional activities
The aim of this procedure is that the nascent entrepreneur envisions the venture creation
process (even the venture is already running for five years). Afterwards we will ask detailed
questions for some activities and the competencies. The reliability and validity of the obtained
data is very high. Several studies show that for a period of several years there are no
significant differences between the retrospective survey with the life-history-calendar and a
longitudinal study. Furthermore, the life-history-calendar is superior to traditional question-
list surveys because of the more structure retrospective, which helps the nascent entrepreneur
to vividly remember all stages (Caspi et al. 1996; Belli et al. 2004).
6. Conclusion
New ventures seem to be one of the driving forces of regional economic development.
However, we know that not every nascent entrepreneur succeeds in creating the new venture.
On the contrary, Reynolds and White (1997) report that only half of the nascent entrepreneurs
get their companies up and running. That is why the aim of my dissertation project is to shed
light on the venture creation process of high-tech firms. To explore the determinants of new
venture creation is one of the central research fields in entrepreneurship today. Therefore it is
not the question who engages in entrepreneurial behaviour, or what distinguishes successful
from non-successful entrepreneurs. The question to pursue is: what determines the probability
to succeed in the venture creation process? Why do some get up and running, while others
abandon the start-up process or remain nascent entrepreneurs. In this paper two determinants
of the venture creation process are discussed.
First, the key to success might lie in the characteristics of the process itself. One idea
proposes that the venture creation process is linear. In this case there may be a sequence of
activities superior to others. According to another approach it is argued that the process is a
21
complex system. In that case the pace, the concentration and the timing of the different
venture start-up activities are important.
Second, the characteristics of the nascent entrepreneur in terms of his human or social
capital are an important determinant for success. However, the review of the literature
revealed only weak support for these traditional variables. Therefore my idea is to examine
the effects of competencies specific to entrepreneurship. They have not been tested in nascent
entrepreneurship studies, yet.
22
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