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Foundations and Trends® inEntrepreneurship

3:1 (2007)

New Firm Creation

in the United States:A PSED I Overview

Paul D. Reynolds

now



New Firm Creation in

the United States



New Firm Creation inthe United States

Paul D. Reynolds

Professor and Director, Entrepreneurship ResearchInstitute

Florida International University, Miami, FL 33199

[email protected]

Boston – Delft



Foundations and Trends R inEntrepreneurship

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Foundations and Trends R in

EntrepreneurshipVolume 3 Issue 1, 2007

Editorial Board

Editors-in-Chief:

Zoltan J. Acs

George Mason University

[email protected]

David B. Audretsch

Max Planck Institut

[email protected]

Indiana University

[email protected]

EditorsHoward Aldrich, University of North Carolina

Sharon Alvarez, Ohio State University

Mark Casson, University of Reading

Per Davidsson, Queensland University of Technology

William B. Gartner, Clemson University

Sharon Gifford, Rutgers University

Magnus Henrekson, The Research Institute of Industrial EconomicsMichael A. Hitt, Texas A&M University

Joshua Lerner, Harvard University

Simon Parker, University of Durham

Paul Reynolds, Florida International University

Kelly G. Shaver, College of William and Mary

David Storey, University of Warwick

Patricia Thornton, Duke University

Roy Thurik, Erasmus University

Gregory Udell, Indiana University

Sankaran Venkataraman, Batten Institute

Paul Westhead, Nottingham University Business School

Shaker Zahra, University of Minnesota



Editorial Scope

Foundations and Trends R in Entrepreneurship will publish sur-

vey and tutorial articles in the following topics:

• Nascent and start-up

entrepreneurs

• Opportunity recognition

• New venture creation process• Business formation

• Firm ownership

• Market value and firm growth

• Franchising

• Managerial characteristics and

behavior of entrepreneurs

• Strategic alliances and networks

• Government programs and public

policy

• Gender and ethnicity

• New business financing:

• Business angels

• Bank financing, debt, and trade

credit

• Venture capital and private equitycapital

• Public equity and IPOs

• Family-owned firms

• Management structure, governance

and performance

• Corporate entrepreneurship

• High technology• Technology-based new firms

• High-tech clusters

• Small business and economic

growth

Information for LibrariansFoundations and Trends R in Entrepreneurship, 2007, Volume 3, 4 issues. ISSN

paper version 1551-3114. ISSN online version 1551-3122. Also available as a

combined paper and online subscription.



Foundations and Trends R inEntrepreneurshipVol. 3, No 1 (2007) 1–150

c 2007 P. D. ReynoldsDOI: 10.1561/0300000010

New Firm Creation in the United States

A PSED I Overview

Paul D. Reynolds

Professor and Director, Entrepreneurship Research Institute, Florida International University, Miami, FL 33199, [email protected]

Abstract

The first US Panel Study of Entrepreneurial Dynamics [PSED I] is the

most comprehensive assessment of the firm creation process yet com-

pleted. Based on a representative sample of those actively involved in

business creation, analysis begins with the consideration of 75 factors

that may affect the decision of adults to get involved in the creation of

a new business, followed by a detailed exploration of over 130 factors

that may be associated with completing the start-up process with anew firm. The results indicate, first, that over ten million persons are

involved in the firm start-up phase as nascent entrepreneurs. Second,

the major factors associated with entry into the start-up process have

little impact on completion of the process with an operating business.

Third, activities pursued in the start-up process – not the characteris-

tics of the entrepreneur, the start-up, or the location – have a major

impacts on the transition from start-up to a successful new firm. Thereis little impact associated with being male; being White, Black or His-

panic; having more education; being wealthy; having experience with

other start-ups; having an “entrepreneurial personality”; or being in a



supportive environment. This project demonstrates the value of track-

ing a representative sample of nascent entrepreneurs with a longitudinal

study. Implications for future research, entrepreneurs, and public policyare substantial.



Contents

1. Introduction 1

1.1. How Do New Businesses Come About? 1

1.2. An Author’s Personal View 2

2. New Firm Creation: Importance and Need

for More Details 7

2.1. What Does the Start-Up Process Look Like? 9

3. Conceptualization of the Process 13

3.1. Socio-Cultural Characteristics 15

3.2. Stable Personal Traits and Orientations 17

3.3. Immediate Personal, Social Context 21

3.4. Work Related Experiences 23

3.5. Procedures, Strategies, and Resources Associated

with Firm Implementation 253.6. Ambient Social, Cultural Community Context 29

3.7. Industry and Competitive Context 31

3.8. Regional Characteristics and Change 32

3.9. Overview 32

ix

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4. Becoming a Nascent Entrepreneur: Conception to

the Start-Up Process 35

4.1. How Many People are Trying to Start New Firms? 35

4.2. What Kind of People are Trying to Start New Firms? 36

4.3. Life Context and Start-Ups 42

4.4. Comparison Group Data 48

4.5. Overview 53

5. Creating a New Business: Results from

the Start-Up 55

5.1. What Kinds of People Create and Types of Start-Ups

Become New Firms? 58

5.2. Start-Up Activity 68

5.3. Interactions: Who They are and What They are Doing? 76

5.4. Overview 84

6. Overview and Implications 87

6.1. Implications: Research 90

6.2. Implications: Entry Into the Start-Up Process 92

6.3. Implications: New Firm Creation 93

6.4. Implications: Public Policy 93

References 97

PSED I Scholarly Works 99

Acknowledgements 109

A. Methodlogical Appendices 111

Appendix.4Ax.1. Notes on Assessment of the Screening Data 111

Appendix.4Ax.2. Comparison of Nascent Entrepreneurs and

Typical Adults 112

Appendix.5Ax.1. Constructing Start-Up Time Lines Data Set 118

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Appendix.5Ax.2. Disposition of All Cases and 72 Month

Outcome Status 122

Appendix.5Ax.3. Detailed Comparison of Start-UpsOutcomes: New Firms and Others 134

Appendix.5Ax.4. Constructing Start-Up Activity Indices 153

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1Introduction

1.1 How Do New Businesses Come About?

The most comprehensive and detailed assessment of this question is

the first US Panel Study of Entrepreneurial Dynamics [PSED I]. This

project started with the screening of 64,000 US adults followed by four

extensive two-phase interviews spread over a five year period. Analysis

began with the consideration of 75 factors that may affect the decision

of adults to get involved in the creation of a new business – to become

nascent entrepreneurs. General comparisons were made of those active

in start-ups with others interviewed in the screening and detailed com-

parisons were possible with a small comparison group. The assessment

continued with a detailed exploration of over 130 factors that may be

associated with completing the start-up process. This study focuses on

understanding how the 200 nascent entrepreneurs that reported a new

firm within seven years of entering the start-up process were different

from the 468 who quit or continued to work on the start-up.There are a number of significant findings from this research pro-

gram. First is the large number of individuals involved as nascent

1



2 Introduction

entrepreneurs – 10 million in 1998–1999 when the PSED research

project began; as many as 16 million in 2005.

Second is the finding that the major factors associated with enteringthe start-up process and becoming a nascent entrepreneur, such as age,

gender, educational attainment, household income or net worth, and

residence in a community with recent population growth are unrelated

to completion of the start-up process with a successful new firm.

The third major finding is that the activities pursued in the start-up

process – not the characteristics of the entrepreneur, the start-up, or the

location – have an impact on the transition from start-up to a successfulnew firm. Actions associated with implementing a productive process,

developing a presence for the new firm, creating an organizational and

financial structure for the firm, during an intense investment of time

and money – facilitated by same industry work experience – seems to

be particularly important in the birth of a new firm.

Most important – and encouraging – anybody can do this. There

is no magic associated with being male; being White, Black or His-

panic; having more education; being wealthy; having experience with

other start-ups; having an “entrepreneurial personality”; or being in a

supportive environment. None of these individual attributes, percep-

tions or attitudes seem to make much difference once an individual

is involved in the start-up process. Any person with the knowledge,

skill, ideas, drive, and the ability to mobilize resources and organize a

business can create a new firm.

This project, though expensive, very labor intensive, and requiringconsiderable patience, has demonstrated the value of tracking a rep-

resentative sample of nascent entrepreneurs with a longitudinal study.

Implications for public policy are substantial. Efforts to increase the

firm birth rate to improve economic growth may not have the same

focus as those designed to help disadvantaged groups develop a role in

the economy through participation in entrepreneurship.

1.2 An Author’s Personal View

This brief text – brief in terms of the scope and importance of the topic –

has been written for two reasons. The first is to provide an overview of




the nature of the business creation process as it existed in the United

States at the end of the 20th century. The second is to make clear

the nature and significance of the contribution of the EntrepreneurialResearch Consortium, the organization responsible for the implementa-

tion of the first Panel Study of Entrepreneurial Dynamics.

The Panel Study of Entrepreneurial Dynamics [PSED], as it is now

called, was the result of the collective efforts of the Entrepreneurial

Research Consortium, led by Nancy Carter, Bill Gartner and me, Paul

Reynolds. It eventually involved over 120 individuals and 34 mem-

ber units and raised $620,000 to implement this research program.These funds were supplemented by two NSF grants, one provided to

Nancy Carter (NSF Grant SBR-9809841) for an over-sample of women

nascent entrepreneurs and the other to Patricia Green (NSF grant SBR-

9905255) for an over-sample of minority nascent entrepreneurs. The

design was an initial screening to locate nascent entrepreneurs followed

by a detailed initial and three follow-up interviews. The project was

completed with substantial support from the Ewing Marion Kauffman

Foundation after data collection responsibilities were shifted from the

University of Wisconsin Survey Research Laboratory, following its clo-

sure, to the University of Michigan Institute for Social Research. The

final versions of all data sets and descriptions on the public domain

website [psed.isr.umich.edu] have been well developed and maintained

by Richard Curtin.1 A replication, PSED II, was initiated in 2005 with

primary support from the Ewing Marion Kauffman Foundation and

supplement funding from the US Small Business Administration.2

There are now dozens of peer reviewed journal articles, working

papers, dissertations, scholarly monographs and the like that describe

the rationale, research procedures, and analysis of data from PSED I.3

These documents make clear the relevance of the data to a wide range

of theories, hypotheses, and hunches regarding various aspects of the

1

A comprehensive overview of the project design is provided by Gartner et al. (2004).2 This is in the form of two grants, one to University of Michigan Institute for Social Research(Richard Curtin, Principal Investigator) to collect data and the other to Florida Interna-tional University (Paul Reynolds, Principal Investigator) to assist in the design of theproject and assessment of results, and to supervise an Advisory Committee.

3 A recent overview of scholarly work reflecting this research paradigm is provided byDavidsson (2006).

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4 Introduction

entrepreneurial or firm creation process. There has not, however, yet

been a summary of the major focus of the project, a description of what

happens when one or more individuals develop and implement a newfirm. That is the focus of this book.

It is of some interest why no overview has been completed. There

are two procedural reasons and one, which predominates, related to the

dysfunctional nature of the scholarly reward system that has developed

in the social science research community. The first procedural reason

is straightforward, reflecting the complexity of the full PSED I data

set. Collecting the data involved screening 64,000 US adults, detailedphone interviews and questionnaires collected four times following the

screening interview. The final data file has over 5,000 variables on 1,281

individuals. While many researchers are familiar with parts of the data

set, very few are comfortable with the entire mass of items, variables,

skip patterns and the like. My role, as the coordinating principal inves-

tigator throughout the entire project, has given me a unique perspec-

tive and understanding of all major – and many minor – aspects of the

project design. It seems useful to provide this description – and a review

of the solutions to the many technical issues – before this knowledge

is lost.

The second procedural reason is time; it took over six years from

the inception of the screening interview to the completion of the fourth

round of data collection and creation of the final data sets for analy-

sis. As the ERC was organized two years before the screening began,

the gap from initial commitment to the capacity for complete analysiswas almost a full decade. Many of the original ERC participants have

been pursing other research options since the program began and many

of the most recent analyses and publications have been completed by

scholars who had hardly entered higher education when the project was

initially proposed. There has been no effort to provide an overview of

the entire project; some of the technical problems that required solu-

tion, described in the appendices, indicate why this is a complicatedchallenge.

The third problem is perhaps the most significant. The current

scholarly reward system places an almost pathological emphasis on

peer reviewed journal publications, and these collective products place




great emphasis on “theory testing.” In most cases, this is generally in

the form of testing isolated hypotheses, hunches, or informed guesses,

rather than theorems or propositions derived from an explicit, formal-ized theory.4 It encourages researchers to pretend they are contributing

to a research agenda that has emerged within the scholarly commu-

nity – reflected in extensive literature reviews – and explicate specific

research objectives that can be “tested” with data. This leads to, as in

the case of the PSED I data, to a number of unrelated analyses, each

dealing with one or more specific processes or hypotheses: Does eth-

nic status affect entry into the start-up process? Does household wealthaffect success at completing the process with a new firm? Does a strong

internal locus of control influence firm growth aspirations? The result

is a great deal of detail regarding a large number of pieces of the puzzle,

but no effort to describe the overall puzzle itself.

In the philosophy of science this is referred to as “normal science,”

the process of adding bricks to a wall that composes “scientific con-

sensus.” It tends to distract individuals from the larger, more critical,

issue of just what the wall is for and why it is being built in a particular

location. This is, of course, the underlying issue in the development of

new paradigms, as so eloquently explicated by Kuhn.5 PSED I, as the

test bed for the Global Entrepreneurship Monitor research program,6

has clearly lead to a new paradigm for the study and understanding

of firm creation and the entrepreneurial processes; it would not have

occurred were the principals solely focused on “normal science.”

This text is designed to provide an overview of the business cre-ation process. This summary has required the resolution of a number

of technical and substantive issues in order to provide a comprehen-

sive description of the process itself. The details are provided in the

footnotes, endnotes, and appendices. As all of the interview schedules,

research procedures and data are in the public domain and available

at no charge, other scholars who would like to suggest other solutions

4 An introduction to forms of theories and basic issues in the creation of scientific knowledgeis provided in Reynolds (1971b).

5 Kuhn (1962).6 The data collection procedures are summarized in Reynolds et al. (2005). Major findings in

the first five years are presented in annual reports, available at ‘www.gemconsortium.org’:Reynolds et al. (1999, 2000, 2001, 2002, 2004a).

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6 Introduction

to these issues are welcome to plunge into the pool, but it may take a

while to learn how to swim in this data set.

While the total number of individuals that have contributed to thecreation of the PSED I project and the final version of the data set is

close to two hundred, the author takes full responsibility for the presen-

tation that follows. There are, as in most significant human endeavors,

many mistakes and oversights, but the design developed collectively by

the ERC in implementing PSED I seems to have avoided any mistakes

that would undermine the value of the basic contribution – provision

of the first empirically based description of the creation of a repre-sentative sample of new firms. The results can be extrapolated to all

new firms begun in the United States in 1998–2000. The impact and

repercussions of this project have been enormous and, in most cases,

positive.



2New Firm Creation: Importance and Need

for More Details

Every day another 5,000 new firms are created in the United States;another 2 million each year. About a third have employees-called

“employer firms” by the Small Business Administration. Most of these

new business activities are new sources of traditional goods and ser-

vices; very few provide unique or innovative goods and services. Some

are growth oriented; most are not. New firms are, by and large, con-

sidered a good thing, and, in most parts of the world, both people and

their leaders celebrate when more new firms emerge.While new firm creation has been underway for thousands of years,

very little is actually known about just how the basic elements are

assembled to create a new source of goods and services.

There are a lot of questions about new firm creation:

• Are only special people – with “entrepreneurial personali-

ties” – genetically equipped to start new firms? Do they dothis by themselves or is a collective effort – a start-up team –

required?• Do some situations, locations or communities provide a more

fertile context for new firms?

7



8 New Firm Creation: Importance and Need for More Details

• Are some people in a social context – perhaps a family sit-

uation that emphasizes small businesses – that encourages

them to create new firms?• How critical is money in the firm creation process?• Is there some special sequence of activities that should be

followed to create a new business?• If the business idea is the critical feature of firm creation,

how does it come about – is it a spontaneous flash of insight

or is it the product of detailed data collection and careful

assessment?• How long does the process take, from conception to the birth

of a new firm?• What proportion of start-up efforts actually become new

firms?• What is the impact of government policy and procedures on

firm creation? Can and do government programs help?

These are just some of the many questions that receive attention from

practitioners, policy analysts, and scholars.

The lack of answers to these questions is not due to a shortage

of speculation – or theory – about why people start new firms; the

amount of writing is substantial – and grows every day. While scientific

understanding can be advanced when theories are developed and tested,

there are many phenomena where the absence of precise descriptions of

the phenomena itself can hamper the development of useful “theories”or “explanations.” It is hard to create a theory that makes precise

predictions when “what is to be explained” is vague or amorphous.

Regarding firm creation, there has been a lack of reliable informa-

tion on:

(1) Who becomes involved in the business creation process?

(2) What they do?(3) Which of them complete the process with a going concern?

Ideally this information would be available from a sample that rep-

resents the adult population and provides the potential for making




estimates about all nascent entrepreneurs and all new firms in the

United States.

A big step in filling this lacuna was the development and imple-mentation of the first US Panel Study of Entrepreneurial Dynamics

[PSED I]. This project was the first large scale attempt to develop a

representative sample of the US business creation process. Individuals

were identified in the start-up phase and tracked – with follow-up inter-

views – as they pursued business creation and their efforts resulted in

a new firm, disengagement from the start-up process, or a continued

effort to create a new firm. This report provides an overview of themajor results from this project; it focuses on providing a description of

how new firms are created.

2.1 What Does the Start-Up Process Look Like?

The simplest formulation presents firm creation as part of the business

life course, which can be considered to have a series of stages, presented

in Figure 2.1: conception, start-up process, new firm, established firm,

and termination. These stages are separated by various transitions,

some of which are less precise than others. For example, the shifting

from conception to active efforts to start a firm may be gradual, as may

be the transition from a new firm to an established firm. In such cases,

it may be difficult to identify with clarity those events or activities that

would reflect a precise “phase change.”

The most precise transition may be from the start-up process toa new firm, the “firm birth transition.” This shift, however, lacks any

Fig. 2.1 Business life course

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10 New Firm Creation: Importance and Need for More Details

single event that clearly defines the phase change. Many businesses

will keep and frame the first dollar of income, reflecting what might be

considered the “birth event.” There are, however, a variety of differentindicators that a start-up has become an operating new firm – the

first hire, the first month profits occurred, first tax filing, and the like.

Equally amorphous is the transition out of the start-up process by

those who are no longer interested in creating a new firm. Nascent

entrepreneurs may be slow to recognize that their start-up initiative has

dissolved. This is similar to the diffuse nature of a business termination;

it may take years for all traces of an established firm to disappear.A large number of research projects have attempted to determine

the unique features of growth businesses; some have compared oper-

ating businesses that differ in age – often using imprecise indicators

of a firm birth: “When was your business established?” Analysis pro-

ceeded by comparing firms of different ages – or size – and the absence

of data on those that have not survived – or not grown – complicated

inferences about causal processes. There were also a number of longitu-

dinal studies where the same firms provided data at different points in

time. Some of these projects tried to capture new firms and follow them

through the early stages of the business life course. The “birth event” in

such studies can be very imprecise, often reflected as the initial listing

in a business registry or a credit rating file. The value of information

about activities prior to the “birth event” is limited by the absence of

comparisons with active start-ups that failed to become operating new

firms.What was distinctive about the PSED I project was the effort to

capture the process from conception and to develop descriptions of

the activities during the start-up process. This allowed comparisons of

those who entered the process – nascent entrepreneurs – and launched

a new firm with those who quit midway through the start-up effort.

The US PSED I, and the comparable efforts in other countries, were

the first attempts to systematically capture the firm creation processfrom the very beginning.

The results are striking, for they reveal a substantially greater

scope of activity than expected; the diversity in the process is over-

whelming. About one-third of the nascent entrepreneurs succeeded in




implementing new firms and this assessment will summarize their dis-

tinctive features.

A conceptualization of the process, and a summary of many factorsand processes expected to have an impact on the firm creation transi-

tions is provided in Chapter 3. The firm creation process itself is divided

into two parts, entry into a start-up effort and completion of the start-

up effort with a new firm. Entry into the process, from conception to

being an active nascent entrepreneur, is the focus of Chapter 4. Com-

pletion of the process – with a new firm or disengagement – is reviewed

in Chapter 5. An overview of the major features and a commentary onthe implications is provided in Chapter 6. Following the references is

a list of published works based on PSED I. Methodological appendices

describe some of the more esoteric manipulations required to clarify the

patterns in the data. For those that wish to complete their own analysis

of the PSED I data set regarding these issues, a complete listing of all

cases in the nascent cohort, identified by ID number, and their status

at the end of six years is provided in the Appendix.

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3Conceptualization of the Process

Creation of a new firm is a two-step process; entry into the start-upprocess is followed by the actual creation of a new business. Most of

the assessments, theories, conceptualizations, models, or perspectives

on new firm creation make no attempt to separate these two transitions.

As a result, there is considerable ambiguity about how different factors

may affect the actual creation of a new firm. Some may have more

influence on the decision to participate in the start-up process; others

may have more impact on the completion of the start-up process.It is useful to place the business life course, presented in Figure 2.1,

into a slightly broader context. Assuming that the key element in the

firm creation process is the individuals who enter into the start-up

process, the question becomes, where do they come from? Two possible

sources are shown in Figure 3.1.

One major source of start-up participants, individuals making the

first transition, are those who emerge from the adult population

and begin, on their own, to create a new firm – labeled as nascent

entrepreneurs. The other source is individuals working for existing firms

who are expected, as part of their regular jobs, to work on the creation

of a new business – labeled nascent intrapreneurs. As a substantial

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14 Conceptualization of the Process

Fig. 3.1 Business life course and context

proportion of start-ups are team efforts, a given initiative could involveboth nascent entrepreneurs and nascent intrapreneurs.

One unresolved issue is the criteria for determining if a start-up

has completed the transition to a new firm. Established firms can be

characterized by a number of properties. When there is evidence of an

intention to engage in business activity, the consolidation and coordi-

nation of productive resources, economic exchanges with others (sup-

pliers, customers, employees) and social recognition as a business entity

there is no question about its existence (Carter, Gartner, and Reynolds,

Chapter 28).1 On the other hand, it may take a while for the transi-

tion from start-up to new firm to be completed and there is substantial

merit to the use of a single criterion to provide a uniform “birth date.”

Reports that the start-up has become an operating business are one

possible indication of a firm birth and will be utilized in the assess-

ments that follow.

The entire process can be considered to take place within a givensocial, political, economic, or historical context. This may vary across

1 In this chapter the major sources, identified by author and chapter number, are fromGartner et al. (2004).

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3.1. Socio-Cultural Characteristics 15

communities or regions or cultural groups within a country or across

nations.

Major factors that might affect the two transitions can be consideredin broad categories.

• Socio-cultural characteristics.• Stable personal traits and orientations.• Immediate personal, social context.• Work career related experiences.

• Procedures, strategies, and resources associated with firmimplementation.

• Ambient social, cultural community context.• General and specific features of industry sector and compet-

itive situation.• Regional characteristics.

Many of the processes linking these factors to the emergence of a newfirm are summarized in the Handbook of Entrepreneurial Dynamics

(Gartner et al., 2004); this extensive overview is the primary basis for

the summary that follows. This work reflects the substantial contribu-

tions of the Entrepreneurial Research Consortium teams to the content

of the PSED I interview schedules.

3.1 Socio-Cultural CharacteristicsAge, gender, and ethnic identity are the most basic socio-cultural

characteristics. It is a major intellectual challenge to disentangle per-

sonal characteristics uniquely associated with these socially defined

attributes from other important capacities, traits, values, and expecta-

tions related to these features. For example, age can provide an indica-

tion of physical, intellectual, and emotional maturity as well as reflect

capacities associated with educational and work experiences. Gender,in a similar fashion, can reflect biological differences as well as dif-

ferences in life experiences and social expectations. Ethnic background

may reflect a diverse set of biological features, a different set of life expe-

riences that can create distinctive personal aspirations and obligations,

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and responses to expectations from those outside the ethnic group that

can affect life course opportunities.

It is, therefore, complex to develop arguments, hypotheses or theo-ries related to these basic individual characteristics and their relation-

ship to participation in firm creation without incorporating secondary

attributes indirectly associated with age, gender, and ethnicity. Sec-

ondary features related to age, gender, and ethnicity for which other

direct measures may be superior indicators.

For example, young adults may have the interest and energy to enter

into the start-up process, but older adults may have the experience andmaturity to complete the process. There are clearly better measures of

experience, maturity, energy or interest than date of birth. It is reason-

able to speculate that younger adults have energy, optimism and, per-

haps, limited career options. Limited career options would suggest that

they have little to lose if the start-up is not successful; with fewer work

options they may be more likely to participate in a business start-up.

On the other hand, the absence of work experience, career stability, and

social maturity, all of which may increase with age, may reduce the suc-

cessful completion of a start-up with a new firm among younger adults.

These complex relationships are more common with arguments asso-

ciated with gender (Carter and Brush, Chapter 2). If women are more

risk averse, have less business experience – particularly as managers,

fewer role models for business creation, and more family responsibilities

as young and mid-career adults, they may be less likely to participate in

the start-up process. Further, it is suggested that the lack of well devel-oped networks in the business community and more difficult access to

financing may reduce the potential of women to finishing the start-up

process with a new firm.

Nothing is more complex than trying to separate ethnicity from

ancillary attributes (Green and Owen, Chapter 3). For example, it is

widely assumed that Blacks and American Indians may have completed

less schooling and have fewer years of work experience, as well as beingdependent on households and families with less income and wealth.

Most are assumed to be “native born,” i.e., they and their parents were

born in the United States. On the other hand, Hispanics and Asians

may be more likely to be immigrants. In that case, ethnic attributes

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Table 3.1 Socio-cultural characteristics and firm creation transitions

Entry into the start-up process

Completion of the start-up pro-

cess with a new firmAge Highest when energy and

optimize peak and risk of loss isminimized

Increases with maturity andwork experience

Gender Conservative, few role models,mid life family obligations, andreduced work options

Lack of business networks, prob-lems in obtaining financing

Race and ethnicity Reduced work options, supportfrom ethnic group, high levels of motivation

Reduced experienced with USbusiness practices, lack of tradi-tional business networks, prob-lems in obtaining financing

may be co-mingled with attributes found among all recent immigrants –

whether from Asia, Latin America, or Europe.

In general, non-majority ethnic status is assumed to reduce options

in traditional work activity and to increase participation in start-up

processes. Those tendencies are enhanced among recent immigrants

and often encouraged by a distinctive ethnic group that has developedexpertise with business creation in a specialized sector (such as Korean

grocers in Los Angeles). At the same time, the lack of experience with

US business practices and reduced access to financing and traditional

business networks suggests that ethnic minorities may have trouble in

implementing new firms or, if established, the firms may be constrained

regarding growth.

Selected descriptions relating the socio-cultural characteristics to

the two stages of the start-up process are summarized in Table 3.1.

3.2 Stable Personal Traits and Orientations

It is widely assumed that those who implement and manage their own

businesses have unique or distinctive orientations, capacities, or per-

sonal traits, often summarized as an “entrepreneurial personality.” Such

an entrepreneurial personality may include unique sets of motivations,career objectives, entrepreneurial expectations and intensity, perceived

locus of control, a variety of social skills, economic sophistication, and,

perhaps, decision making styles and strategies for individual problem

solving. While these personal traits may change over the human life

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course, they are generally assumed to be stable over the short or

medium term – years or decades.

Perhaps most basic is the notion that those with distinctivecareer orientations will gravitate to the firm creation process (Carter,

Gartner, and Shaver, Chapter 12). It is assumed that those with a

stronger interest in self-realization, financial success, social recognition,

meeting distinctive role expectations, implementing innovation, and

being independent and autonomous may be more likely to enter into

the start-up process. There is much less discussion of how a given set

of career goals may facilitate the actual creation of a new firm. It is rea-sonable to assume distinctive career objectives – if the new firm appears

to provide a way to achieve these outcomes – may enhance tenacity in

the start-up process or decrease the attractiveness of traditional work

options. This orientation, however, emphasizes the perceived attrac-

tiveness of an entrepreneurial career option compared with other labor

force activities. It does not consider the motives of those with no

other way of participating in the economy – necessity entrepreneurs

(Reynolds et al., 2002).

Two closely related attributes have been proposed as describing dis-

tinctive motives for entering the entrepreneurial process. Expectancy –

a belief concerning the likelihood that a particular act will be followed

by a particular outcome – can be measured in terms of entrepreneurial

career choices (Gatewood, Chapter 13). Measures of entrepreneurial

expectancy tend to emphasize the perceived consistency, or fit, between

the work role of an entrepreneur and the individual’s capacity to satisfytheir career goals. Hence, this feature is expected to have a major impact

on entry into the start-up process, whereas the impact on completing the

process with a new firm is primarily related to motivation. If a person

thinks that the work role of an entrepreneur will help them achieve per-

sonal goals they may be more tenacious about new firm creation.

Closely related to entrepreneurial expectancy – which empha-

sizes career direction toward entrepreneurship – is the concept of entrepreneurial intensity, defined as the level of commitment and

focus of an entrepreneur in leading a new start-up (Liao and Welsch,

Chapter 17). The focus of this measure is a determination of the

commitment and drive of the person to complete the start-up process

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with a new firm. It would appear to be less related to predicting entry

into the start-up process itself.

Associated with the level of motivation would be confidence in thecapacity to create a new firm. If new firm creation is considered to

be an activity requiring a great deal of individual, autonomous effort,

then an “internal” locus of control – the extent to which people believe

they can influence the rewards they received from the external world –

may be stronger among those who enter the start-up process (Shaver,

Chapter 19). Its role in facilitating completion of a new firm is more

amorphous.Creating a new firm is very much a social activity, as success requires

a great deal of personal contact and the capacity to convince others to

contribute to an initiative with unproven potential. It is reasonable to

assume that those who are comfortable in social settings and have emo-

tional control and considerable self-confidence would be more effective

in completing the start-up process with a new firm (Baron, Chapter 21).

It is not clear, however, if this would have a major effect on entry into

the start-up process itself.

New firms are also basically new participants in an economic mar-

ket, and decisions must be made about the acquisition and allocation

of economic resources in changing situations. Those who have a bet-

ter grasp of the “economic value” of resources – their current market

value rather than their original cost – or the significance of sunk costs –

expenditures that cannot be recovered and are irrelevant to immedi-

ate decisions, should be more successful in implementing a new firm(Morgan, 2004, Chapter 20). It is not clear how this would be related

to entry into the start-up process.

Cognitive style refers to “consistent individual differences in pre-

ferred ways of organizing and processing information and experi-

ence” (Johnson, Danis, and Dollinger, 2004, Chapter 15). The Kir-

ton Adaptation–Innovation Inventory, one way to measure cognitive

style, assumes one’s style develops in childhood and remains the pre-ferred mode of problem solving throughout life, particularly in times of

stress. One application separates individuals as preferring – in response

to unsatisfactory outcomes – to focus on doing something different ver-

sus improving on the current strategy. If entrepreneurs are seen as




independent, then those preferring adaptive responses may be more

likely to enter the start-up process. Whether a new firm is established

may reflect whether the start-up is developing a new product or ser-vice – which may be facilitated by an adaptive style – or serving a well

established, traditional market – which may be facilitated by “doing

things better.” The impact of cognitive style, therefore, on new firm

success may be contingent on other aspects of the situation.

Based on a rational model, individual problem solving can be con-

sidered to have two steps – problem identification and problem solution.

As with other human activities, there may be substantial variation withhow individuals identify problems, the mechanisms they use to develop

solutions, and to what extent the individual experiences stress in the

process (Ford and Matthews, 2004, Chapter 18). It is appropriate to

assume that individuals who are more effective and comfortable with

identifying and solving problems may more successful at launching a

new firm from the start-up process. It is not clear if they are more likely

to enter the start-up process.

As can be seen in the summary provided in Table 3.2, the impact

of these individual traits or perspectives is quite varied, with some

more likely to affect entry into the start-up process, others success at

creating a firm, and others both stages. Further, the impact on the

start-up outcomes may depend on other factors – such as the type of

business being created.

Table 3.2 Stable personal traits, orientations and firm creation transitions

Entry into thestart-upprocess

Completion of the start-up processwith a new firm

Career reasons Ma jor effect Conditional on perceived success of new firm characteristics

Entrepreneurial expectations Major effect May affect motivationEntrepreneurial intensity Major impactInternal locus of control Major effect

Social skills Less influence Major impactEconomic sophistication Major impactDecision-making style Adaptors more

likely to enterImpact conditional on industry sector

Individual problem solving More effective individuals more likelyto launch a firm

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3.3. Immediate Personal, Social Context 21

3.3 Immediate Personal, Social Context

There are a number of features of an individual’s immediate personaland social context that might affect the firm creation transitions. These

may include their current household structure – the presence of wage-

earners, children or other dependents, access to economic resources con-

trolled within the household, family background and expectations, as

well as access to role models and potential social support. The immedi-

ate context can affect how individuals allocate their time and perceive

satisfaction.

Household structure covers many different aspects of one’s living

and family arrangements (Brush and Manalova, Chapter 4). Aside from

the individual’s marital status, the most basic may be household size.

Beyond that is the character of the dwelling population; number of

young children, adolescents, other dependants – such as the elderly,

and how many are making financial contributions to the upkeep of

the household. Unequivocal predictions of the effect of the household

structure on the firm creation transitions are difficult to develop, as theyseem to be related to other external factors. Married people may have

more access to networks and financial support to start a business, but

they may also have more family responsibilities. Larger household may

contain more wage earners and provide more economic resources; they

may also reflect more responsibilities and financial demands, reducing

the tendency to pursue a firm start-up. All these may vary by the gender

of the individual, as women may have more household responsibilitiesand less time to pursue a start-up; men feel more committed to support

a larger household and pursue start-ups to increase income.

No topic seems to get more attention regarding firm creation than

money; support at the beginning of the start-up process seems par-

ticularly important. There is a widespread assumption that access to

funds will facilitate new firm creation, and that both household income

and net worth are indicators of the availability of funds (Kim, Aldrich,

and Keister, Chapter 5). The nature and the strength of the impact

may vary for the two transitions. It is clear that most expect higher

household income and net worth to facilitate the firm birth transition –

the “liquidity effect,” but entry into the process is less obvious. On one

hand, households with more income and wealth can subsidize a member

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as they are engaged in the start-up process, which can be a major fac-

tor in the decision to invest time and energy into an initiative with

an uncertain future. On the other hand, those in households with lessincome and wealth may be more motivated to purse a new firm as a

way of improving the household financial situation, particularly if they

feel responsible for the household economic well-being.

Aside from the impact of access to money, the tendency to create

a new firm may be affected by family influences; it is widely assumed

that the sons and daughters of the self-employed, small business per-

sons or entrepreneurs will themselves start new businesses (Matthewsand Human, Chapter 8). Such individuals may have the interest and

motivation to enter the start-up process – they are comfortable with

this career option – as well as the skills to be successful in implement-

ing a new firm – lessons learned at the dinner table. This perspective

can be expanded to include not just parents but other relatives, neigh-

bors, friends and other mechanisms of impact as well (Davidsson, 2004,

Chapter 16). These could include a positive impression gained from

observing others implement and manage their own businesses as well

as encouragement from personal social networks on entry into the start-

up process. This could encourage people to enter the start-up process

and motivate them to complete the process with a new firm.

Perhaps the most precise descriptions of how people are living

their daily lives come from time-use diaries, where people provide a

detailed account of activities engaged in during the day (Owen and

Greene, Chapter 9). These are typically sorted into “normal work days”and “typical days off” and activities may be timed down to 5 min

blocks, although 15 min segments provide reasonable levels of accu-

racy. As everyone is allocated the same amount of daily time – 24 h

or 1,440 min – there are no obvious predictions associated with this

descriptive data. It is reasonable to assume that those emphasizing

household and child care activities may be less likely to pursue start-

ups. Perhaps those spending more time on a start-up are more likelyto complete the process with a new firm.

Satisfaction with life and satisfaction with a current job are of con-

tinuing interest in advanced economies; they have a modest positive

correlation (Johnson, Arthaud-Day, Rode, and Near, Chapter 14). It

is reasonable to assume that those who find that their current job



3.4. Work Related Experiences 23

Table 3.3 Immediate personal, social context and firm creation transitions

Entry into the start-up

process

Completion of the start-up process

with a new firmHousehold structure Mixed MixedHousehold income,

net worthConditional Major facilitation

Family background Parents own businessexperience a majorimpact

Knowledge gained from parents amajor advantage

Role models,perceived socialsupport

Social networks encourageentry into process

Positive influence on completingthe process

Time use Time on family socialobligations reduces entryinto start-up process

More time on start-up improvespotential for new firm

Life/job satisfaction Reduced job satisfactionmay increase start-upparticipation

No clear impact

satisfaction is low and unsatisfactory may be more likely to pursue

other options, such as create a new firm. As low job satisfaction maylead to a reduced satisfaction with life overall, a change in career direc-

tions may be initiated to increase satisfaction on both dimensions. It

is not clear if or how job and life satisfaction might affect a successful

completion of the start-up process.

The effects of these personal and social contextual factors on firm

creation are summarized in Table 3.3; they have diverse and heteroge-

neous effects on the two major transitions.

3.4 Work Related Experiences

A number of personal, educational, and work experiences can provide

perspectives and orientations that may affect involvement and success

with firm creation. Current and past participation and experience in the

labor force, either working or self-employed, general level of education,

or specialized education in business or experience in business can facil-itate entry into and completion of the process with a new firm.

Traditional educational attainment can be considered in terms of

five ordinal categories: not completing high school, high school degree,

post high school but no four-year college degree – which may include

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3.5. Procedures, Strategies, and Resources Associated with Firm Implementation 25

Table 3.4 Work career experiences and firm creation transitions


Completion of the start-up

process with a new firmEducationalattainment

General education may improve skilland confidence increasing participa-tion or increase work options andreduce participation

Education should improveskills and increase potentialfor firm creation

Diverse businessexperiences

More administrative and managementexperience may increase confidence

More administrative andmanagement experience mayincrease skills and success

Financialsophistication

May contribute to confidence to takeaction

Should increase success

Labor forceparticipation

Those employed may be in positionsto develop good business ideas andbusiness contacts, increasingparticipation.

Those unemployed may need workand be more likely to be involved

Business experience mayimprove potential for success

Workparticipationhistory

A history of work experience, self-employment and small business man-agement may increase involvement

More work, self-employmentand management experiencemay increase success

work or self-employment may further increase the tendency to become

engaged in a start-up. Previous work experience – either as an employee

or in self-employment – would be also expected to increase work-related

skills and confidence that would contribute to firm creation.

Table 3.4 provides an overview of selected work and career effects on

the process; the most critical impact would seem to be on the successful

completion of the process with a new firm, rather than a decision to

become involved with a start-up.

3.5 Procedures, Strategies, and Resources Associatedwith Firm Implementation

Once the start-up process is initiated, there is a wide range of activ-

ities or procedures that must be pursued to assemble the resources –financial and human – to develop procedures for providing goods or

a service. Many are interrelated or interdependent and may occur in

almost any sequence. Included are the development or discovery of

opportunities, a range of specific start-up activities, the development

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of a team – present for about half of all start-ups, the use of social

networks as an informal source of guidance and support, the location

and use of formal programs to help new firms, development of fundingfor the new firm, identification and resolution of start-up problems, a

range of specific new firm characteristics (legal form, location, owner-

ship structure); expectations associated with the new firm as well as the

competitive strategy and utilization of new technology. The potential

impacts on the firm creation transitions are quite diverse.

Many suggest that opportunity recognition is a critical feature of

the entrepreneurial process, particularly when a unique or distinc-tive product or service is developed to serve new markets (Shane and

Venkataraman, 2000). Just exactly how the process actually works is

more complex, but opportunity recognition is a central feature of many

efforts to describe new firm creation (Hills and Singh, Chapter 24). As

a critical feature of the process, it is reasonable to assume that recogni-

tion of an opportunity perceived as “promising” is likely to encourage

individuals to enter into the start-up process. On the other hand, it

has been proposed that people often decide they want to create a busi-

ness, enter the process, and then – as a critical feature of the start-up

process – locate and define the business opportunity. It is reasonable

to assume that “better opportunities” will facilitate the attraction of

resources required to implement a new firm.

Start-up activities are those actions pursued to organize and imple-

ment a new firm (Gartner, Carter, and Reynolds, Chapter 26). There

are dozens of options, the exact mix depends on the nature of thefirm, market, and how the start-up evolves. They all have one feature

in common – occurrence after a decision has been made to enter the

business creation process. As a result, they have little impact on the

actual decision to enter the process itself. There is, however, consider-

able speculation – but little consensus – regarding the most appropriate

activities or the optimal sequence for facilitating the implementation

of a new firm. This will get considerable attention in Chapter 5.About half of all start-ups are team efforts; the development of

a start-up team can be a critical feature for the firm creation process

(Aldrich, Carter, and Ruef, Chapter 27). A team effort can provide both

a range of expertise – often critical for complex undertakings – and the

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3.5. Procedures, Strategies, and Resources Associated with Firm Implementation 27

presence of like-minded colleagues can reduce uncertainty and anxiety

associated with business creation. While the potential for a team effort

may encourage individuals to enter the start-up process, the majorfocus of research has been on how the structure and characteristics of

the team may facilitate a successful firm birth.

Closely related to working with a team is the help and assistance

that may be provided by others in one’s family, personal or work-

related networks; those persons who may provide guidance and support

that can facilitate completion of the firm creation process (Aldrich and

Carter, Chapter 29). These measures of a social network go somewhatbeyond asking if the nascent entrepreneur had received encouragement

and support sometime in the past – such as exposure to parents or

friends who managed small businesses – to development of detailed

measures about the current support and assistance. While expecta-

tions of a supportive social network may encourage a person to enter

the start-up process, most of the attention has been on the nature and

extent of a social network on facilitation of a new firm birth.

A complementary effort reflects attention to formal assistance, pro-

vided by programs sponsored by governments, educational institutions,

or other groups (Dennis and Reynolds, Chapter 30). It is generally

assumed, at least by politicians, that the existence of such programs

will encourage more people to enter the start-up process and, per-

haps, that the assistance provided will increase the chances of new firm

success.

Implementing a new firm requires financial support, and consider-able attention has been given to how new firms develop and utilize

financial sponsors (Stouder and Kirchhoff, Chapter 31). There is con-

siderable concern that anxiety about securing financial support may

discourage individuals from entering the start-up process. At the same

time the ability to assemble adequate resources is assumed to facilitate

the actual implementation of a new firm. Few topics associated with

new firm creation have received more attention than financial support.There are a number of features associated with any business that

may be related to the completion of the firm transition process, includ-

ing the type of economic activity (Standard Industrial Classification or

SIC code), the legal form, the nature of the ownership structure, as well




as the nature of the physical location (Reynolds, Chapter 23). There

are no, a priori , assumptions about the role of these features in enter-

ing the start-up process. In fact, there are few proposals regarding howthese basic characteristics might affect the creation of a new business.

In general, establishing these features – choosing a legal form, selecting

a site for the initial operation – are considered a necessary part of the

start-up but having no major impact on the entry into the process or

the final outcomes.

Those entering the start-up process may have diverse expectations

about the future development of the firm, once it is a going concern(Human and Matthews, Chapter 33). Some may prepare for a stable,

low risk operation that will be comfortable to manage and others may

plan and hope for a high growth trajectory that will have a major

impact on the market and, perhaps, generate significant wealth. Vari-

ations in expectations may affect the decision to participate in the

start-up process, but there may be a greater effect on the way in which

the start-up effort is pursued. For example, those planning for a high

growth, major impact new firm may devote more energy to developing

financial support and a complex ownership structure compared with

a person planning a new business that would be an extension of self-

employment or lifestyle firm. It is not clear which expectation is more

likely to lead to an operational new firm.

Closely related to growth expectations are the nature and scope

of problems encountered in the start-up phase (Brush and Manolova,

Chapter 25). The creation of a new firm always involves resolving prob-lems – or overcoming challenges – and these can involve both personal

challenges in learning how to be an effective entrepreneur-resource coor-

dinator as well as social challenges in establishing the new firm as a

credible business entity. It is clear that high growth aspirations will

increase the number and severity of these problems/challenges. Aware-

ness of the problems to be overcome may discourage entry into the

business creation process; the severity and number of such problemsmay reduce the capacity to launch a new firm.

One central issue associated with the launch of a new firm is the

strategy to be used to enter into and compete in the marketplace

(Stearns and Carter, Chapter 37). A great deal has been written about



3.6. Ambient Social, Cultural Community Context 29

competitive strategies, usually associated with existing firms. Previ-

ous research on new firms has identified a range of emphases including

a focus on lower prices; better service; market responsiveness; tech-nological expertise; superior facilities and customer convenience; more

attractive, contemporary products; as well as new or advanced product

or process technology. The optimum mix of strategies may depend on

the specific business activity and the nature of the competition; there

are no unequivocal predictions about the effect on new firm creation.

Competitive strategies are not expected to have much impact on enter-

ing the start-up process.Closely related to competitive strategy is the emphasis on high tech-

nology as the primary focus of a new business (Allen and Stearns,

Chapter 38). Though rare, the capacity to use new and sophisticated

technology in innovative ways may encourage some to enter the start-

up process. The skill in commercializing the new technology may have

a substantial impact on the potential for implementing a new firm.

There are a range of expected impacts, mostly on completion of the

start-up process with a new firm, reflected in these different dimensions.

The effects are summarized in Table 3.5.

3.6 Ambient Social, Cultural Community Context

Both experience in and perceptions about the local community or

region can affect the firm creation transition. Many aspects of the expe-

riences in the region can be summarized by residential tenure – howlong the person has lived in the region. Judgments about the host com-

munity as a supportive context for entrepreneurship are summarized

with the conception of the “entrepreneurial climate.”

Discussion of residential tenure is complicated by an enduring focus

on international in-migration (Reynolds et al., 2004a, Chapter 6). It is

often assumed that new immigrants are often the most talented from

their home countries and wish to pursue new firm creation in theirnew homeland. Correlations between high rates of immigration and

new firm births often lead to the conclusion that the new immigrants

are creating new firms. While new immigrants may need work to sup-

port themselves and their families, it may be faster for them to create

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Table 3.5 Resources, procedures, and strategies associated with firm implementation andfirm creation transitions.

Entry into the start-up process Completion of the start-upprocess with a new firm

Opportunityrecognition

Considered a precondition bymany

More promising opportunitiesshould increase probability of success

Start-up activities Appropriate mix of activitiesshould increase potential forfirm birth

Teams Creation of more complex andsophisticated firm may be facil-

itated by multi-skilled team

Social networks Informal help may providesupport to encourage enter intoprocess

Informal support may helpguide to firm birth

Knowledge and useof assistance

Knowing help is available mayencourage enter into start-up

Formal programs may provideexpertise and assistance thatwill promote firm birth

Funding the firstyear of business

Potential for funding mayencourage entry into start-up

Financial support may becritical

Nature of businessstart-up

Some legal and organizationalfeatures may be more helpfulthan others

Future expectationsfor the new firm

High aspirations mayencourage enter into process

Nature of expectations mayaffect how and when the firmis established

Start-up problems Prospect of multiple problemsmay discourage entry intoprocess

Problems may be unavoidable,but resolution necessary to cre-ate a new firm

Competitive strategy May be critical for successful

birth

Technologicalentrepreneurs

Entry may reflect desire topursue innovative technology

Skill at technology may affectpotential firm birth

income by taking a job. Some time is required for individuals to become

familiar with the local community and develop business networks that

can facilitate new firm creation; hence, immediate arrivals may not be

likely to immediately enter into the start-up process. Those with someexperience in the community may be more successful in completing the

start-up with a new firm.

An accepted view of the most appropriate work career path

may have developed in many communities, such as company towns



3.7. Industry and Competitive Context 31

Table 3.6 Ambient social, cultural community context and firm creation transitions


Completion of the start-up

process with a new firmResidential tenure Immediate arrivals may be less likely

to enter processSome years required to develop

knowledge, contacts, and financialresources to enter start-up process

Longer residence facilitatesknowledge of local markets,competition, and businessnetworks

Perceptions of entrepreneurialclimate

Positive climate increasesparticipation

where everyone expects to work in an assembly plant, just like their

parents and grandparents. It is possible that communities vary in

terms of encouragement and support for entrepreneurial initiatives

(Carter et al., 2004, Chapter 35). The perception of the community

entrepreneurial climate can be considered to have three dimensions,

presence of community support, successful entrepreneurial models

among friends and family, and successful entrepreneurial models in the

community itself. All would be expected to increase participation in the

start-up process; the effect on successful completion with a new firm is

less certain.

A summary of the impact is provided in Table 3.6; major impact

would seem to be associated with entry into the process itself.

3.7 Industry and Competitive Context

New firms are implemented in specific communities in specific markets –

or industries, which can be considered the context for the new firm

birth (Matthews and Human, Chapter 36). These communities and

economic sectors may vary in terms of complexity and predictability,

which may have an impact on the strategy for implementing a new

firm or the success of the initiative. These variations may be relatedto perceptions of uncertainty regarding financial support, competitive

issues, or the capacity to develop effective operational procedures to

deliver the goods or services. Successful responses to these sources of

uncertainty can affect the success at creating a new venture (Table 3.7).

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Table 3.7 Industry and competitive context and firm creation transitions

Entry into the

start-up process

Completion of the start-up process with a

new firmEconomic and communitycontext for entrepreneur-ship: perceived environ-mental uncertainty

Capacity for dealing with financial, com-petitive, and operational uncertainty canaffect potential for a successful firm birth

3.8 Regional Characteristics and Change

Several projects have considered the role of the economic context onnew firm births, focusing on US labor market areas as the unit of analy-

sis. In general, the findings are that greater population growth and more

indicators of urbanization appear to facilitate higher new firm birth

rates, measured as the number of new firms per 100 existing firms or

1,000 adults in the population (Reynolds et al., 1995, Armington and

Acs, 2002). These are reflected in tracking the nature of the county

in which a person may begin and complete the start-up process. Thegreater the population growth, the more there will be demand for goods

and services and the more opportunities for creating new firms to meet

this demand, often by those well established in the region. Established

residents are more likely to recognize a shortage of suppliers. There

is also evidence that more urbanized areas have both higher levels of

birth rates and more new firms; this seems to reflect a greater propor-

tion of young adults, those with higher levels of education, as well as

greater economic and cultural diversity and higher proportions of high

income households. The higher levels of new firm creation, however,

may increase the competitive pressures and reduce the potential for a

new firm launch (Table 3.8).

3.9 Overview

A very wide range of conceptual frameworks, theories, or hypothesesare related to speculation or predictions about the completion of the

firm creation process. The variety and scope is considerable but all

share several common features. First is a lack of precision about the

nature of the role in the new firm creation process, impact on entry

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3.9. Overview 33

Table 3.8 Regional characteristics and firm creation transitions

Entry into the start-up

process

Completion of the start-up process

with a new firmPopulation growth Reflects unmet demand and

perception of businessopportunities

Greater demand reduces price pres-sures and increased probability of afirm birth

Urbanization Greater cultural,technological, and productivediversity increases the rangeand uniqueness of demand,both scope and nicheopportunities, wide range of

other start-ups provide rolemodels for potentialentrepreneurs

Increase access to resources requiredas inputs – human, technical, finan-cial – facilitates organizing the newfirm productive processes; increasedcompetition may reduce successfulfirm creation.

into the start-up process or the completion of the process with a new

firm. This reflects, in part, the lack of attention to these details of the

process prior to the development of the first PSED project. Second,

each orientation or set of variables is considered in isolation, with little

attempt to specify their impact under different conditions or in relationto the impact of other processes or variables. Each is presented with

a tacit understanding that all other factors are held constant. Third,

there is little systematic discussion of the potential interaction between

different processes, such as how the presence of a start-up team may

ameliorate problems associated with obtaining enough funding for the

start-up.

As will be seen in the following chapters, the nature and directionof impact can vary substantially, as well as the relative importance

of different factors and their interaction. While the propositions and

proposals reflected in this brief review represent a useful first effort,

enhanced understanding of new firm creation requires a more complete

and nuanced multi-process assessment.



4Becoming a Nascent Entrepreneur: Conception

to the Start-Up Process

4.1 How Many People are Trying to Start New Firms?

When the initial screening for PSED I was completed in 1998–2000

about 6% of those 18–74 years of age or about 10 million individuals

were involved in start-ups. Both patterns are presented for the 1998 to

2005 period in Figure 4.1; the prevalence rate, number per 100 indi-

viduals is on the right scale and represented by the line and the total

number of individuals is presented on the left scale and represented by

the bars. By 2005 participation had grown to about 8% of the pop-

ulation, and reflecting some growth in the population itself, this was

about 16 million adults. There has been an abrupt increase immedi-

ately following the 1998–1999 period, which may reflect an increase in

attention during the “dot com” craze, but the pattern has shown some

growth since the 2000–2001 period.

These estimates make clear that there are a lot of US citizens

involved in the start-up process; which leads to the next question.

35

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36 Becoming a Nascent Entrepreneur: Conception to the Start-Up Process

Fig. 4.1 US activity in business start-ups: 1998–20051

4.2 What Kind of People are Trying to Start New Firms?

No variables have more impact on participating in the start up process

than age and gender.2 The lines and diamonds in Figure 4.2 indicate

the participation rate, number per 100 as shown on the right scale, and

the estimated total numbers of individuals involved are represented by

1 Data for 2000 to 2003 is based on samples developed as part of the GEM research programwith samples of 5,018 for 2000 and 2001; 7,059 in 2002; 9,1997 in 2003; see references inChapter 1, footnote 6. Because of small sample sizes, data for 2000 and 2001 are combinedto reduce the sampling error. Data for 2004 is based on a special assessment with anational sample of 12,907 discussed in Reynolds (2007). Data for 2005 is based on theinitial screening for PSED II and sample of 26,759. Screening items used for all surveysare used to predict the level of “four-criteria” nascent entrepreneurs based on patterns

found in the post-1999 samples. These samples are used to estimate the proportion of PSED I screening respondents meeting four criteria as nascent entrepreneurs: (1) theyconsider themselves as working on a business start-up, (2) they report some activity inthe past 12 months, (3) they expect to own part of the business, and (4) the initiative isnot yet a going concern.

2 Variables chosen from the PSED I screening data set are listed in Appendix.4Ax.1. A morecomplete and detailed discussion of these issues is available in Reynolds et al. (2004b).

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Fig. 4.2 Participation in business start-ups, by age and gender [1998–2000]

the bars, using the scale to the left.3 The general pattern in United

States is that men are about twice as likely to be involved as women

and there are twice as many men as women trying to start new firm.

Those 25 to 44 years in age are a major proportion of the nascent

entrepreneur population. Both patterns are remarkably stable acrosstime in the United States – the 2005 estimates have the same structure

as those for 1998–1999 – and across countries. The peak of the age

distribution is slightly older in Europe. There is more cross-national

variation by gender, with poorer countries approaching equal partici-

pation by men and women and richer countries have less participation

3 Table 4.6, pg. 507, of Reynolds, Paul and Richard Curtin, Appendix 4Ax, of Gartneret al. (2004). The patterns are based on three criteria measures of entrepreneurship, thosewith active businesses have not been removed from the data sets, so prevalence rates andestimates of participation will be slightly higher than associated with the four criteriaestimates.

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by women, particularly in Northern Europe.4 This reflects, in part, the

larger proportion of necessity entrepreneurs in poorer countries.

It is clear that there is no age or gender group where there is NOparticipation in business creation; although participation in start-ups

is relatively rare among those over 65 years of age, particularly for

women. On the other hand, business creation is clearly concentrated

among young and mid-career adults, those under 55 years of age. Those

nascent entrepreneurs 25–54 years old are 78% of all those involved in

business creation.

The impact of ethnic background on participation in business cre-ation is illustrated in Figure 4.3, for men, and Figure 4.4, for women.

The effect of ethnicity on participation is dramatic, with both Black and

Hispanic men more involved than White men. Because of small sample

sizes, differences among those over 64 years old are not statistically

Fig. 4.3 Participation in business start-ups: men by age and ethnicity [1998–2000]

4 Table 14, page 37, of Reynolds et al. (2004a).

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Fig. 4.4 Participation in business start-ups: women by age and ethnicity [1998–2000]

significant. Black women are generally more involved than White

women, again the post 65 years old differences are not statistically

significant. Hispanic women, however, have an unusual pattern, those

18–24 are more active than White women, those 24–44 years of age are

about equal to White women, and those 45 and older are less activethan white women. It is not clear if this interaction effect between age

and participation among Hispanic women is a reflection of a major

cultural difference – older Hispanic women focusing on home and fam-

ily rather than work outside the home – or a cohort effect – Hispanic

women born before 1950 are less likely to pursue business start-ups as

a career option.

The effect of higher levels of participation by Blacks andHispanics on the numbers involved in entrepreneurship, as presented

in Figures 4.3 and 4.4, is less dramatic. As the majority of the

US population is white, they are the largest proportion – over

70% – of those in the start-up process. Black and Hispanic adults,

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Fig. 4.5 Participating in business start-ups, by gender, educational attainment, and ethnic-ity [18–54 Years old only, 1998–2000]

however, are clearly an important segment of the nascent entrepreneur

population.

The impact of educational attainment on participation in business

start-ups is dramatically affected by ethnic background, as shown in

Figure 4.5. As many older Blacks and Hispanics may not have beenable to pursue education, this presentation is restricted to those 18–54

years of age in 1998–2000, so most were born after 1945. Nonetheless,

there is a dramatic difference between Whites, Blacks, and Hispanics,

with an interaction associated with gender.

There is very little difference among White men with different lev-

els of education; those who did not complete high school participate at

the rate of 9 per 100, those with graduate experience at the rate of 11per 100. Among White women, there is generally a greater participa-

tion among those with more education, there is a slight jump among

those with graduate experience. Among Black and Hispanic men and

women there are much higher levels of participation in start-ups as

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they complete more education. This is most dramatic among those with

graduate experience, where Blacks and Hispanics – men and women –

are twice as likely to be involved in a start-up as Whites with graduateexperience.

There has been much discussion about the impact of graduate expe-

rience on White women, and Black and Hispanic men and women

regarding start-up participation. The most common interpretation is

that this may reflect a restriction in career opportunities in existing

work organizations. This “glass ceiling effect” – or reduced opportu-

nities for promotion – may be a major motivation for creating a newbusiness.

Data from this large scale screening allows attention to a range of

other factors that may be considered associated with participation in

start-ups. These include findings that:5

• Minorities with higher household income seem to be more

likely to be involved in start-ups; the effect is more modest

among Whites.• Dwelling ownership seems to increase start-up activity only

for Black men.• Those with full-time or part-time jobs are much more likely

to be involved in start-ups than those not working – students,

housewives, retirees, the unemployed.• Marital status has little impact, but those married are gen-

erally more likely to be involved.• There is little impact of household size.• Those in households with young children are more likely to

be involved in start-ups.• Those living in more highly urbanized counties – with higher

per capita income, more young adults, more college gradu-

ates, and greater income disparity – are more likely to report

participation in a start-up; the overall effect is, however, notdramatic. The most urbanized counties are in the Northeast

and the South, least prevalent in the Midwest.

5 More details provided at Reynolds et al. (2004b).

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In general, then, a range of general socio-economic factors have been

explored using the full screening data set and the most significant indi-

vidual factors appear to be age, gender, ethnic background, and edu-cational attainment, with some distinctive and powerful interactions.

4.3 Life Context and Start-Ups

It is possible that a unique combination of factors can have a major

impact on whether or not a person becomes involved in a start-up. It is

clear that age, gender, and ethnic background are important, but whattypes of combinations have the greatest impact. These combinations

can be determined by organizing the data around a series of questions.

For example, What single factor would have the biggest impact on

predicting participation in a start-up?

In other words, if one could bet on who would be involved in a

business start-up and could get one piece of information before the

bet, what would be the best choice? The answer, it turns out, is the

age of the person. Knowing if they are more or less than 55 years of

age will be the biggest help in making the prediction.

What would be the second most useful item of information for pre-

dicting participation in a new firm start-up? Would it be gender, ethnic

background, amount of education, current participation in the labor

force? It turns out that this depends on the age of the individual. For

those under 55 years old, gender is the next most useful piece of infor-

mation to predict participation in start-ups, and men are more likelyto be involved than women. If they are over 55 years old, whether or

not they are engaged in full-time work is the most useful, as those still

engaged in full-time work are more likely to be involved in a start-up

initiative than those involved in part-time work or who are not in the

labor force because they are retired, homemakers, disabled, students,

and the like.

Such an analysis can be continued, with the number of groups mul-tiplying along with a greater level of detail about each of the subcate-

gories of persons. Two major results are provided by the analysis. First

is an estimate of the relative importance of the different factors included

in the analysis. Second is the identification of unique combinations of




Table 4.1 Factors selected as important in predicting participation in start-ups

Overall importance [Ranked] Not important

Age Martial statusGender Household sizeCurrent labor force status [working] Regional population densityEthnic background Urbanization indexEducational attainmentAverage annual population growthHousehold income

factors that have a major impact on the target variable, in this case the

proportion of individuals who have entered into the start-up process.

The most important factors associated with predicting those who

would be involved in the start-up process are indicated in Table 4.1.

Seven of the eleven considered to have a significant impact are rank

ordered in the left column; four not considered to have a major impact

are indicated in the right column. See Appendix.4Ax.1 for details of

the source of the variables from the PSED I screening data set.

As expected, age and gender are seen as most significant, with laborforce activity, ethnic background, and educational attainment having

an impact. The influence of annual population growth in the county of

residence and household income were relatively minor.

The impact of the combinations of these factors on the tendency to

be involved in the start-ups is summarized in Table 4.2.6 The results

were sixteen unique combinations, rank ordered in terms of the level of

participation in business start-ups. While this averages 6.3 per 100 for6 This analysis utilized a new version of Automatic Interaction Detection [AID] pro-

vided as DTREG Decision Tree Software, developed by Phillip H. Sherrod (2005)“www.ctreg.com.” The procedure is most effective if there are no missing values on anyvariables. The major source of missing variables was on annual household income, wheredata was available on 76.2% of the 64,622 cases. A stepwise regression analysis on thosecases with household income data was able to account for 23% of the variations with gen-der, educational attainment, home ownership, workforce participation (working full-timeversus not working full-time), and ethnic background (white versus non-white). This lin-

ear model was used to estimate household income for those cases with missing data. Thisincreased the number of cases with household income to 96.75%. Only cases with dataon all independent variables were included in the analysis, a total of 59,443, with weightsre-centered such that the average weight was equal to 1.00. Independent variables includedgender, age, ethnic background, labor force participation, martial status, household size,educational attainment, household income, population density in 1992, population growthfrom 1980 to 1992, and a four item index of urbanization (Chronbach’s Alpha = 0.87).

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T a b l e 4 . 2 P a r t i c i p a t i o n i n s t a r t - u p s : c h a r a c t e r i z a t i o n b y g r o u p f e a t u r e s

L a b e l

F i r s t l e v e l

S e c o n d l e v e l

T h i r d l e v e l

F o u r t h l e v e l

P r o p A c t i v e N

E s ( % )

A

1 8 – 5 4

y r s o l d

M e n

B l a c k

F u l l - t i m e , p a r t - t i m e w o r k

1 5 . 8

B

1 8 – 5 4

y r s o l d

W o m e n

B l a c k

B e y o n d H S d e g r e e

1 2 . 3

C

1 8 – 5 4

y r s o l d

M e n

W h i t e , H i s p a n i c , O t h e r

F u l l - t i m e , p a r t - t i m e w o r k

9 . 8

D

5 5 – 9 8

y r s o l d

F u l l - t i m e w o r k

B e y o n d H S D e g r e e

M e n

7 . 6

E

1 8 – 5 4

y r s o l d

M e n

B l a c k

N o t w o r k i n g

7 . 4

F

1 8 – 5 4

y r s o l d

W o m e n


T o p 2 5 % i n p o p

g r o w t h

6 . 8

G

1 8 – 5 4

y r s o l d

M e n


N o t w o r k i n g

5 . 7

H

1 8 – 5 4

y r s o l d

W o m e n


B o t t o m 7 5 % i n p

o p g r o w t h

5 . 1

I

5 5 – 9 8

y r s o l d


U p t o H S d e g r e e

H H I n c a b o v e $ 5

0 k / y r

5 . 0

J

1 8 – 5 4

y r s o l d

W o m e n

B l a c k


4 . 7

K

5 5 – 9 8

y r s o l d



W o m e n

3 . 9

L

5 5 – 9 8

y r s o l d

P a r t - t i m e w o r k , n o t w o r k i n g

5 5 – 6 4 y r s o l d


3 . 7

M

5 5 – 9 8

y r s o l d



H H I n c b e l o w $ 5

0 k / y r

1 . 8

N

5 5 – 9 8

y r s o l d


5 5 – 6 4 y r s o l d


1 . 5

O

5 5 – 9 8

y r s o l d


6 5 – 9 8 y r s o l d

M e n

0 . 9

P

5 5 – 9 8

y r s o l d


6 5 – 9 8 y r s o l d

W o m e n

0 . 3

A v e r a g e v a l u e s / t o t a l s

6 . 3




the entire sample, it is from 16 per 100 (15.8%) to virtually zero – 0.3%

or 3 per 1,000 – for these different groups. Table 4.3 presents selected

characteristics of the groups, such as their proportion of all nascententrepreneurs and the proportion of the total sample, which represents

the US adult population.

A second result of some importance is when different factors become

involved in the analysis. Age clearly has the most impact, but the

next two factors with significant impact are gender and whether or

not the person is engaged in full-time work. It is not until the third

round that ethnic background become important, and then only amongthose that are under 55 years of age. For those over 55 years, the most

important factors are either educational attainment or if they are over

65 years of age, withdrawal from the labor market, usually the retire-

ment transition.

By the fourth round of the assessment, a variety of factors become

involved for different subgroups, labor force activity, educational attain-

ment, household income, gender, and even population growth patterns

in the community – higher growth would provide for more business

opportunities.

It is useful to consider each of the groups separately. Consider, for

example, the most active group, A. These are Black men, 18–54 years

of age engaged in full or part-time work, where 15.8% – or one in six –

is involved in starting a new firm. This is closely followed by Black

women, group B. These women are 18–54 years old, have education

beyond high school, and 12.3% – or one in eight – report working on astart-up. While this is a high level of participation, these two groups,

A and B combined, are – as shown in Table 4.2 – 11% of those trying

to start new firms.

The largest single group of nascent entrepreneurs is in group C,

composed of White, Hispanic, and Other men, 18–54 years of age, and

engaged in full-time work. While 9.8% of this group – one in ten –

is active in a start-up, they consist of 46% of all those identified asnascent entrepreneurs.

This is somewhat higher than the next group, D, also men who are

over 55 years in age, engaged in full-time work, and have education

beyond high school. For this group, 7.6% are involved in start-ups, but

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T a b l e 4 . 3 P a r t i c i p a t i o n i n s t a r t - u p s b y s o c i o - d e m o g r a p h i c e m p h a s i s

L a b e l

P r o p

a c t i v e

N E s ( % )

P r o p o f

a l l N E s

( % )

C u

m

p r o p

N E

s ( % )

P r o p

t o t a l

p o p u l a t

( % )

C u m p r o p

p o p u l a t ( % )

P r o p

m e n ( % )

P r o p

w o m e n

( % )

P

r o p

w

h i t e ( % )

P r o p

b l a c k ( % )

P r o p

h i s p a n

i c

( % )

A

1 5 . 8

7 . 1

7 . 1

2 . 8

2 . 8

5 . 8

3 0 . 7

B

1 2 . 3

4 . 3

1 1 . 4

2 . 2

5 . 0

4 . 3

2 4 . 0

C

9 . 8

4 6 . 2

5 7 . 6

2 9 . 6

3 4 . 6

6 1 . 2

3 1 . 7

3 9 . 0

D

7 . 6

2 . 6

6 0 . 3

2 . 2

3 6 . 8

4 . 5

2 . 4

1 . 0

1 . 1

E

7 . 4

0 . 6

6 0 . 9

0 . 5

3 7 . 3

1 . 1

5 . 6

F

6 . 8

9 . 7

7 0 . 6

8 . 9

4 6 . 2

1 7 . 3

9 . 2

1 7 . 8

G

5 . 7

2 . 9

7 3 . 5

3 . 2

4 9 . 5

6 . 7

3 . 2

5 . 1

H

5 . 1

1 9 . 2

9 2 . 7

2 3 . 5

7 3 . 0

4 5 . 6

2 5 . 9

2 6 . 7

I

5 . 0

0 . 4

9 3 . 2

0 . 6

7 3 . 6

0 . 7

0 . 5

0 . 6

0 . 5

0 . 1

J

4 . 7

1 . 4

9 4 . 6

1 . 9

7 5 . 4

3 . 6

2 0 . 2

K

3 . 9

0 . 9

9 5 . 5

1 . 5

7 6 . 9

2 . 9

1 . 6

1 . 0

0 . 7

L

3 . 7

1 . 8

9 7 . 3

3 . 1

8 0 . 0

2 . 8

3 . 3

3 . 4

1 . 7

1 . 4

M

1 . 8

0 . 5

9 7 . 8

1 . 9

8 1 . 8

1 . 9

1 . 8

1 . 9

2 . 1

1 . 4

N

1 . 5

0 . 9

9 8 . 7

3 . 5

8 5 . 3

2 . 7

4 . 2

3 . 7

3 . 6

1 . 7

O

0 . 9

0 . 9

9 9 . 6

6 . 1

9 1 . 4

1 2 . 6

6 . 8

4 . 0

1 . 7

P

0 . 3

0 . 3

9 9 . 9

8 . 6

1 0 0 . 0

1 6 . 6

9 . 5

5 . 7

3 . 3

A v g

6 . 3

T o t a l s

1 0 0 . 0

1 0 0 . 1

9 9 . 9

1 0 0 . 1

1 0 0 . 0




these late career individuals are only 2.6% of all those in the start-up

process.

Groups F and H are significant, for they are the non-Black women,18–54 years of age, who provide 38% of all nascent entrepreneurs. The

only difference is that women in Group F are in the top quartile (high-

est 25%) of the counties with the highest recent population growth,

and 6.8% are involved in start-ups; Group H women are in the other

three-quarters of the countries with lower population growth; 5.1% are

involved in start-ups.

The lowest participation, less than 2%, is found among groups M,N, O, and P. These groups are composed of those over 55 years of

age, some over 65 years of age, with little education or low household

income. These four groups are less than 2.5% of all those involved in

the start-up process, but are 20% of the US adult population.

This assessment clarifies a major issue associated with selecting

career options – that it is both an individual’s background and situa-

tion that have an impact on the decision to become involved in the cre-

ation of a new firm. Many of these individual characteristics, however,

can reflect a range of attributes. Consider age. Older adults are less

likely to become involved in a start-up, but they are also more likely to

have completed a satisfying career or accumulated personal wealth that

reduces the incentive to enter into a new venture; they are also more

likely to have reduced energy and more health concerns that reduce the

drive to implement a demanding new initiative. Women are less likely to

be involved in a start-up, but this may reflect less work experience andother life responsibilities – such as raising a family when they are 25–40

years old, the age at which business creation is the most prevalent.

The analysis makes clear the unique situation of Black men and

women, who seem to be predisposed toward involvement in start-ups,

regardless of other factors. This may reflect a general dissatisfaction

with career options available through typical work organizations.

While the capacity to analyze a representative sample of 60,000 todetermine which individuals are involved in the start-up process has

many advantages, the small number of variables – most of which are

traditional socio-demographic characteristics – is a major limitation.

The results are able to account for 2.3% of the variance, which suggests




that a number of other factors may have a role in affecting the decision

to become involved in a business start-up. It is useful, therefore, to

have the capacity to compare nascent entrepreneurs and representativesample of those not involved in business creation using a wider range

of measures.

4.4 Comparison Group Data

There is a great deal of speculation regarding the unique features or sit-

uations of those who chose to work on business creation. As summarized

in Chapter 3, they cover a range of topics, such as the individual socio-

demographic background, current social and work life setting, personal

traits and orientations, as well as the business and economic context. To

explore the potential impact of such factors, the PSED I design involved

a selection of two types of individuals. First, those active in the creation

of a new firm – the nascent entrepreneurs discussed above. Second, a

sample of those not involved in new firm creation, a group considered to

represent typical US adults. For individuals in both groups specializedinformation was obtained related to a wide range of attributes.

This information is useful in determining the unique and distinc-

tive features of those involved in the firm creation process. The results

can be summarized as a series of comparisons, such as that related to

current social and work life context in Table 4.4.7

These comparisons are based on a simple comparison of distribu-

tions between these two types of individuals and with a relative smallsample size, so some differences found to be statistically significant in

the large screening sample of over 60,000 are not significant in this

assessment. A good example is household size and household income;

both had statistically significant impacts with the large sample but not

with this specialized comparison. This is an indicator of the modest

level of impact of these factors.

It should be noted that the comparison of household net worth

involved six categories, and the difference was due to the larger

proportion of those with negative or very low household net worth

7 For this and the remaining tables in Chapter 4, the details of the sources and results areprovided in Appendix.4Ax.2.

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Table 4.4 Nascent entrepreneurs and current social, work life context

Statistically significant differences [0.05] Not statistically significant

Household net worth Household income

Married Household structure:

• Household size: all ages• Household size: adults only• Kids, dependents in household• Adults earning money

Time spend on work during last day off Time spend on work on last regular workday

More satisfied with most recent job More satisfied with life overall

Career mentors in social networks

• Smaller proportion reportany social network

• Smaller number of helpers

Less time living in the county Born outside the United States

Unless otherwise indicated, the statistical significance is at 0.05, using Chi Square ormean comparisons tests

(below $100,000) or a very high net worth (above $1,000,000) among

nascent entrepreneurs; a curvilinear relationship.Those active in start-ups were also more likely to report they worked

more hours on their last “day off” – but not on their last work day.

They also reported greater satisfaction with their most recent job but

were not more or less satisfied with life overall.

Perhaps surprising, when asked about those available to help them

with their careers – either in established roles or in starting a new firm,

those involved in a firm start-up were less likely to report there were

any mentors; those that did tended to report a small number.

The emphasis on immigration and entrepreneurship would suggest

that without immigration there would be little firm creation in the

United States. Yet there is no difference between nascent entrepreneurs

and the comparison group in the proportion born in the United States,

it is about 95% for both groups. While those starting a business report a

shorter residential tenure in the county compared with the comparison

group, 70% have lived in the county for more than five years and 53%for more than 10 years. Clearly, starting a business is not something

that people do as soon as they arrive in a new community.

The business background and contextual differences are presented

in Table 4.5. Judgments about community support were measured with

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Table 4.5 Nascent entrepreneurs and business background, experience


Entrepreneurial climate:• Perceived less community

support

Entrepreneurial climate:• Family, friends as models• Role models in the community

Government, private helping programs:

• Knowledge of programs• Reports of contacts• Number of programs contacted

Family and friends encouraged a start-up Parents owned a business

Positive impression of business ownership

from family and friends

Worked for parents

Friends and neighbors owned businesses

More classes in general management More classes on human relations, financialmanagement

More classes in operational management

More years of general management workexperience

More years of operational managementwork experience

Prior 12 years before interview, years:• Full-time self-employment• Less time unemployed, not

seeking work• Less time unpaid volunteer

work• Less time homemaker• Less time retired• Fewer number of different

activities

Prior 12 years before interview, years:• Full-time employment• Part-time employment• Part-time self-employed• Full-time student• Part-time student• Unemployed, seeking work• Disabled, unable to work


reliable multi-item indices, and while there was no difference associated

with considering family and friends as role models or presence of role

models in the community, those starting businesses considered there

was less community support – helpful bankers or government agencies –

than those not creating new businesses. Perhaps their recent personalexperience in the start-up process affected these judgments.

Surprisingly, adults not involved in start-ups or new firms were just

as likely to know about public and private programs to help start-

ups and just as likely to have made contact; there was no significant




difference in the number of programs contacted. This probably reflects

a lack of information among the nascent entrepreneurs and previous

behavior of adults who were at one time interested in starting a busi-ness, but not pursing this at the time of the interview.

The effect of perceptions and experiences as they grew up seemed

to have a mixed effect. Those starting new businesses were no more

likely to report their parents owned and operated a business, to have

worked for their parents’ business(es) or to report their friends and

neighbors had businesses. On the other hand, nascent entrepreneurs

report more encouragement from friends and family and developed apositive impression of small business ownership from observing friends

and family with their own businesses.

There is substantial evidence that those starting businesses have

both more formal classes and more years of work experience in gen-

eral management and operational supervision. In providing an overview

of their labor force activity in the 12 years prior to the interview,

nascent entrepreneurs report more years of full-time self-employment,

less time unemployed and not seeking work, less time as unpaid volun-

teers, homemakers, or retired, and fewer number of different activities –

suggesting that they were in stable work roles in this period prior to

implementing a start-up.

Those starting new businesses are considered to have a wide range of

personal attributes, capacities, or orientations; comparisons on a wide

range of factors are provided in Table 4.6.

On a number of these factors nascent entrepreneurs may be unique.Their cognitive style is to improve on situations by doing things differ-

ently – rather than with more care. Nascent entrepreneurs rank higher

on two related measures, entrepreneurial intensity – a commitment and

focus toward entrepreneurial options – and entrepreneurial expecta-

tions – a belief that they have the capacity and drive to implement a

new firm. Career motivations show no differences related to an empha-

sis on self-realization, financial security, and independence, and less of a focus on achieving recognition, meeting role expectations, and an

interest in innovation.

Nascent entrepreneurs report greater personal confidence in social

settings, but no difference related to emotional control or shyness. They

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Table 4.6 Nascent entrepreneurs and traits, orientations, and attitudes


Cognitive style• Prefers doing things differently

Greater entrepreneurial intensity

Higher entrepreneurial expectations

Career motivations, less focus on:

• Achieving recognition• Meeting role expectations• Innovation [0.07]

Career motivations, focus on:

• Self-realization• Financial security• Independence

Personal confidence in social settings Emotional control shyness

Prefers group, collective work activities Prefers high risk/high payoff firms

Prefers challenging, task focus problems Emphasis on high personal impact

In choosing an appropriate firm:

• Examines financial issues• Examines operational issues

Locus of control

Economic sophisticationFrequency of unpredictable situations atwork

Feeling overloaded at work

Strategies for difficult work problems:

• Problem identification versussolution development

Business problem solving

• Calculating versus intuitive


tend to prefer group, collective work activities and challenging, task

focused problems. There is no difference from other adults in terms

of a preference for high risk, high payoff firms or a strong personal

impact. In making a choice between two firms as a potential owner,

nascent entrepreneurs tend to focus more on financial and operational

issues than other adults.There is, however, a long list of traits on which there are no dif-

ferences between the nascent entrepreneurs and other adults, includ-

ing locus of control, economic sophistication, frequency of confronting

unpredictable situations at work, feeling overloaded at work, and



4.5. Overview 53

strategies for difficult work problems or strategies for business prob-

lem solving.

Except that they are trying to create a new business, on manycharacteristics nascent entrepreneurs are a great deal like other US

adults.

4.5 Overview

There is no question that millions of US adults make the decision to

become involved in a business creation activity. Both the tendency to

become involved and the number of individuals seems to have increased

in the past eight years; there may be 16 million or more involved in the

start-up process in 2006.

Who makes the decision to become involved is another issue. It

is clear that a number of factors have a major impact on becoming

involved in a business start-up, including:

• Age• Gender• Current work activity• Ethnic background• Educational attainment

A range of other factors seem to have an influence, depending on the

unique situation, context, or alternatives of the individual.These moderating factors would include:

• Household income• Household net worth• Recent population growth in the local community• Extend and intensity of management and administrative

training and experience• Positive impressions and encouragement from family and

friends• Strong expectations and a commitment to entrepreneurial

career options




There is, however, no clear or simple set of factors that are associated

with every decision to become involved in business creation.

Many are predisposed – by virtue of their unique background, lifestage, or current situation – to pursue a new start-up, but there are

unique features associated with every nascent entrepreneur that enters

the start-up process. What happens in the process and which actually

create new firms is the next part of the story.



5Creating a New Business: Results from

the Start-Up

What happens as people start new businesses? What is the final out-come? How long does it take? What types of people complete the start-

up process to create a new firm? What do they do? Precise answers to

such questions require a careful selection of nascent entrepreneurs and

systematic follow-ups to determine their activities and the results of

their efforts. This was, of course, the major justification for the PSED I

project. The data from this representative sample of US start-ups can

be used to explore these issues.The outcomes – new firm, disengagement, or continuing with the

start-up– for nascent entrepreneurs entering the start-up process is pre-

sented in Figure 5.1.1

This exhibit presents the status of these start-up efforts over the first

ten years following conception. The initial bar indicates that 100% are

active in the start-up process and that after one month 1% have quit

and 2% report a going business. All 24 periods up to the end of year

six cover 3 month intervals, the last three periods 12 month intervals.

1 Development of the customized data set for the following analysis is described inAppendix.5Ax.1. The outcome status for every case in the data set is provided inAppendix.5Ax.2.

55

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56 Creating a New Business: Results from the Start-Up

Fig. 5.1 Start-up transitions, by time since conception

At the end of nine years and 12 months – or ten years – 37% report

they have left the process, 34% report a going business, 28% are still

active in the start up effort and 1% are not currently active in the start-

up process but will not admit that they have completely given up–the

undead, as it were.

2

As the actual data collection took place over afive year period, the status reported at the end of six years – or the

beginning of the seventh year – will be used for subsequent analysis.

The major finding, then, is that seven years after entering the firm

creation process, about one-third have quit, one-third report a going

business, and about one-third are still working on the start-up. Some

of the “still working on the start-up” group report that they have been

trying for 15 or more years. It would appear that for these nascent

entrepreneurs the start-up effort is an interesting hobby, not a serious

option for a work career.

2 There is little change in the pattern out to 20 years.

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57

How long does the start-up process last? It is clear that for some it

can take decades, as one in five of these nascent entrepreneurs seem to

be involved forever. It is possible, however, to track the time involvedin the process by those that leave, either by starting a new firm or

disengaging from the process. The time from the first start-up activity,

conception, to the date when a person reported that they have started

a business or disengaged from the effort is presented in Figure 5.2. Time

is presented in six month intervals and the total proportion of cases in

each category is presented at each time period. As the status at the

end of the sixth year is used to classify the start-up efforts, 100% of thenew firms and quits are accounted for at the end of the six year period.

That small proportion that took longer than six years for a resolution

are not included in this analysis.

There is a clear difference in the two processes. In the first six

months, for example, 18% of the new firms are created but only 2% of

those that disengage have quit. The median time for a new firm birth

Fig. 5.2 Time from conception to transition: new firm birth or disengagement

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is 19–24 months, but it is 25–30 months for disengagement – about six

months longer. By 36 months, 75% of the new firms are created, but it

takes 42 months for 75% of those who quit to disengage. By 48 monthsafter entry into the start-up the percentages are similar; 10% of the

start-ups and 10% of the disengagements take over four years.

That there are differences in the time to leave the process is not a

surprise, as it may take a while to determine that a given initiative is

not economically viable. It is useful, however, to have this more precise

information on the typical time required to exit the start-up process.

5.1 What Kinds of People Create and Types of Start-UpsBecome New Firms?

The critical issue, of course, is who finishes the process with a going

business. To explore this topic, those 200 that reported a going business

will be compared with the other 448; 222 that disengaged and 226 still

active in the start-up process after seven years. Information for the

comparison can be considered in seven categories:3

• Socio-demographic background• Current social, work life context• Personal traits, orientations, and attitudes• Business background, experience• Business, economic context• Business activity, investments• Ambient community

As before, those statistically significant factors can be compared with

those that indicate no statistically significant relationships. Details are

provided in the Appendix.5Ax.3.

The basic socio-demographic characteristics affecting entry into the

start-up process are presented in Table 5.1.

Remarkably, almost none have a statistically significant effect oncompletion of the process with a new firm. In fact, the two most

3 Data is taken either from the phone interview and mail questionnaires administered aspart of the PSED I initial interviews or, for ambient community measures, from federaldata on the counties in which the respondent was located.

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5.1. What Kinds of People Create and Types of Start-Ups Become New Firms? 59

Table 5.1 Firm creation and socio-demographic factors

Statistically significant

differences [0.05] Not statistically significantEthnicity Gender

Age at entry into the start-upAge, gender interaction (subgroups)Educational attainmentParents owned a businessWorked for parents businessFriends, neighbors owned businessEncouraged by friends, familyImpression of business ownership from friends, relatives

Years lived in countyYears lived in stateBorn outside the United States


powerful attributes related to participation in the start-up process –

age and gender – have NO statistical significance in reports by nascents

that a new firm is in place. In this case, age has been computed at the

time when entry into the start-up process – or conception – occurred.

This may be up to ten years before the initial interview.

Given the significance of age and gender on entry into the start-up

process, their joint impact is illustrated in Figure 5.3. Almost twice as

many young women, 18–24 years of age, report a successful firm birth

as their male age peers; more than twice as many older men, 55 years

and up, report a successful firm birth as their female age peers. Becauseof the small number of cases of very young or old nascent entrepreneurs,

these differences are not statistically significant. This is, of course, in

dramatic contrast to the impact of age and gender on entry into the

start-up process, as illustrated in Figure 4.2 in the previous chapter.

One background factor with a statistically significant association

with the outcome is ethnic identification. The results are dramatically

different from those related to entry into the start-up process, and thesedifferences are emphasized in Figure 5.4. While Blacks are almost twice

as likely (9.5/100 versus 5.7/100) to report participation in start-ups

than Whites, they are much less likely to report completion of the pro-

cess with a going business. Hispanics are more likely to report start-up

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Fig. 5.3 New firm prevalence by gender and age at start-up conception

participation than Whites, and are just as likely as Whites to report

completion of the process with a new firm. Blacks, on the other hand,

are no more likely to have quit than Whites or Hispanics, but are much

more likely to report they are still active in the start-up process – they

are more tenacious than others. A more precise discussion of differencesin ethnic start-up activities is provided later in the chapter.

Perhaps, equally significant is the range of background character-

istics that do not seem to have any statistically significant impact on

which start-ups become new firms: educational attainment, parental

ownership of a small business, work experience in the parent’s busi-

ness, friends and neighbors with businesses, encouragement by friends

and family members, a positive impression from observing friends andrelatives businesses, years lived in the county or state and whether or

not the person was born in the United States.

A review of thirteen factors reflecting the current social and work

context is provided in Table 5.2. Those who report a new firm birth

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Fig. 5.4 Entry into start-ups and outcomes: by ethnic identity

are more satisfied with life overall and report LESS time devoted to

the start-up on their day off; none of the other factors are statisti-

cally significant. These factors include satisfaction with the most recent

job, household income, household net worth, martial status, household

structure, i.e., size of the household measured three ways, time at work

on the last workday or day off and time working on the start-up on thelast day off.

The relationship of personal traits, orientations, and attitudes to

reports of a new firm are summarized in Table 5.3. Six factors reflect

a statistically significant association with reporting a new firm birth;

internalized locus of control, more confidence in social settings, a cog-

nitive style that emphasizes doing things better rather than a new

approach, some level of economic sophistication about the current valueof assets, a preference to avoid working in collaboration with a group,

and expectations about firm survival for five years.

More than twenty-five other factors show no statistical signifi-

cance, including emotional control, shyness, business problem solving

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Table 5.2 Firm creation and current social, work life context


Satisfied with life overall Satisfied with recent jobHousehold incomeHousehold net worthMartial statusHousehold structureHousehold size

• All persons• Adults only• Persons with income

Time use reports, total hours working:

• Last workday• Last day off

Time use reports, hours on start-up:

• Last day off (fewer hours)

Time use reports, hours on start-up:

• Last workday

Unless otherwise indicated, the statistical significance is at 0.05, using Chi Squareor mean comparisons tests

strategies, defining problem complexity, economic sophistication about

sunk costs, a preference for challenging task focused problems compared

with a social focus, emphasis on high payoff/high risk choices or high

personal impact choices, criteria used to assess choices between firms,

six aspects of career motivations (self realization, financial security,

recognition, meeting role expectations, innovation, and independence),

entrepreneurial expectations and intensity, expectations about firm size

in the first and fifth years, preference for firm growth, expectations

firm proceeds will be a major source of household income, perceptionof work demand pressures, the sequence in which the business idea and

motivation were activated, beliefs about the sources of good business

ideas.

The impact of business background and experience is summarized

in Table 5.4. There is strong evidence of the benefit of work experience,

reflected in more years of full-time paid work experience and work in

administrative, supervisory or managerial positions, more experiencein the same industry as the start-up, less experience in unpaid volun-

teer work or unemployed seeking a job, more general management and

operational management work experience, and more human relations

and finance classes.

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Table 5.3 Firm creation and personal traits, orientations, and attitudes


Locus of controlConfidence in social settings Emotional control

ShynessCognitive style

• Doing better, not differentthings

Business problem solving

Defining problem complexityEconomic sophistication

• Focus on current value in deci-sions, not cost to acquire

Economic sophistication

• Ignore sunk costs in currentdecisions

Prefers individual work activities Prefers challenge/task focus versus socialfocus

Emphasis on high payoff/high risk choicesEmphasis on high personal impact choicesIn choosing between firms, emphasizes:

• Financial issues• Operational issues

Career motivations

• Six dimensions

Entrepreneurial expectations

Entrepreneurial IntensityExpect firm to be operating in five years Sales in first or fifth year of operation

Jobs in first or fifth year of operationPrefer firm to grow as much as possibleExpect firm to major source of HH incomeExpected equity ownership in five yearsPerception of work demands

• Three measures

Motivation/Business idea sequenceBelief in systematic search for good ideas

Belief good ideas just occurUnless otherwise indicated, the statistical significance is at 0.05, using Chi Square ormean comparisons tests

There is no evidence that the number of labor force events over

12 years in nine other areas, prior start-up experience, or general

and operational management classroom experience is associated with

reports of a new firm.Two aspects of the business and economic context, as reviewed

in Table 5.5 seem to have an association with completing the start-

up process; the presence of social challenges among start-up problems

and a perception that operational aspects are more challenging in the

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Table 5.4 Firm creation and business background, experience


Years of full-time paid work experienceYears of administrative, supervisory, or managerial

experienceLabor force activity in prior 12 years, less activity

as one who is:

• Unemployed seeking work• Unpaid volunteer work

Labor force activity in prior 12 years

• Overall activity counts• Nine specific activities

Same industry experience Prior start-up experienceGeneral management work experience General management classesOperations management work experience Operational management classes

Human relations, finance classes [0.07]Unless otherwise indicated, the statistical significance is at 0.05, using Chi Square ormean comparisons tests

Table 5.5 Firm creation and perceived business, economic context


Start-up problem index

Start-up problems: social challenges Start-up problems: personal challengesEntrepreneurial climate

• Three dimensions

Economic, community contextualuncertainty:

• Operational aspects morechallenging

Economic, community contextualuncertainty:

• Overall• Financial• Competition


immediate community. A number have no relationship, including a gen-

eral start-up problem index, start-up problems associated with personal

challenges, three aspects of the perceived entrepreneurial climate (pres-

ence of community support groups, friends and family role models, and

role models in the community) , and three aspects (financial, compet-

itive, and operational) of the economic, contextual uncertainty in theimmediate community.

A number of items related to the actual activities or immediate

context associated with the start-up, presented in Table 5.6, have a

statistically significant relationship with a new firm birth.

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Table 5.6 Firm creation and business activity, context, start-up investments


Total start up team hours, conception to firstinterview

Average hours per start-up team member,conception to first interview

Average total hours per month, conception tofirst interview

Average hours per month per team member,conception to first interview

Total funds invested at first interviewAverage funds per month per team member,

conception to first interviewAverage funds per member at first interviewAverage funds per month, conception to first

interviewLegal form

• Partnership less successful

Economic sector

• Five types

Proportion legal new firm ownership

• If over 50% institutionalownership

Type of location

Size of start-up team [0.09]

• Four person team less successfulAny contact with helping programs Number of programs known about

Number of programs contactedNature of helping programsHours spent receiving program assistanceValue of help provided (estimated)

Business plan sophistication Accounting sophisticationCompetitive strategy

• Hi tech

Competitive strategy

• New, quality products• Lower prices•

Superior location,convenience• Niche markets• Superior quality

Low tech emphasis [0.08] Social network

• Presence reported• Average number of persons





Several measures associated with amount and intensity of activity

are related to reports of new firms.4 Measures related to the amount

of time or the amount of funds committed to the start-up are trackedfrom conception to the first detailed interview; this includes total hours

devoted to the start-up by all team members, average hours per team

member, average total hours per month, and average hours per month

per team member. Similar measures are developed regarding funding

provided by the team members, as reported in the first interview. These

include total funds provided by all team members, the average per team

member, the total per month prior to the first interview, and the totalper month per team member. Both the amount and intensity are related

to reports of new firm births.

Partnerships, as one type of legal form, seem to be less likely to

lead to a firm birth; if over 50% of the start-up is owned by an existing

business or institution a new firm is more likely. Four person start-up

teams seem to be less successful than others.5 Contact with helping

programs – no matter who is providing the help – seems to facilitate

new firm creation. More sophisticated business plans and a competitive

strategy based on high technology seem to be helpful, although another

measure seems to indicate low technology start-ups are more likely to

report a new firm.

A number of other factors have little relationship to a new firm

birth: the actual industry or market sector, type of location where

the firm is “housed,” a number of measures about the sponsorship and

intensity of help provided by a helping program, the level of accountingsophistication, five aspect of competitive strategy, and the presence and

size of helping social networks.

A number of factors related to the county in which the start-up

process was taking place were examined to determine the potential

4 Because of highly skewed distribution of hours and financial commitments, the patterns

were classified into four groups and a cross tabulation assessed; the results, as shown inAppendix.5Ax.3, are highly statistically significant. Comparison of average values, reflect-ing the impact of extreme cases, are less significant.

5 Ironically, substantial research with decision making in discussion groups indicates thatfour person groups have the most egalitarian influence structures, suggesting that theymay have more problems reaching consensus and arriving at a decision. This may haveprevented these groups from developing an effective procedure for making the decisionsrequired in moving forward with the start-up (Reynolds, 1971a).

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Table 5.7 Firm creation and ambient community


Population density, persons/square mile• Low density, more new firms

Per capita total personal income

Urbanization index, four items

• Least urbanized, more newfirm

Percent households with annual incomeof $75,000 or more

Percent population 25–44 years oldPercent population 25 years and older with

college degreesAverage annual population growth


impact of the ambient community using measures based on harmonized

data from federal sources; these are presented in Table 5.7.

Two measures capture an urban–rural dimension. These include

the county population density and a four item county urbanization

index based on per capita income, percent high income households,

percent population 25–44 years of age, and percent adult population

with college degrees. Both urban–rural measures have a statistically

significant relationship to the proportion of new firms that emerge from

start-ups, but only when the sample is sorted into quartiles. The result,

surprisingly enough, is that those in the least urbanized context with

the lowest population densities are more likely to report a new firm

had emerged from the start-up initiative. This may reflect the absence

of competition in these rural areas or the determination of the start-upteam to implement the business to avoid moving out of the area.

Five other measures, found to have a positive to regional compar-

isons of new firm birth rates had no statistically significant relationship

to the proportion of start-ups that became new firms: per capita total

personal income; percent of households with high annual incomes, in

excess of $75,000 per year; percent or young adults (25–44 years of age)

in the population; percent of the population 25 years and older withcollege degrees; and population growth.

The result of this effort to consider the characteristics of the indi-

viduals staring new firms, their situation, and the basic features of

the anticipated new business are rather dramatic. About 100 features,

depending on how they are counted, have little or no relationship to

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the reports that a new firm was established. About 30 seem to have

some statistically significant relationship to the reports of an operating

business. But many of these thirty are reflecting the same features –intensity of involvement measured by time and money as well as past

work experience – as related to the implementation of a new firm.

The large mass of indicators reflecting perceptions, attitudes, socio-

demographic backgrounds, strategic focus and the like seem to have

very little impact on which nascent entrepreneurs are reporting that a

new firm has been created.

This suggests that more attention should be given to what thesestart-up teams are doing, rather than who they are – or think they are.

Fortunately, the PSED I data set provides a description of what has

been done to implement a new firm – and in some detail.

5.2 Start-Up Activity

What do nascent entrepreneurs do as they work to establish a new

business? While the basic task requires the assembly and coordina-

tion of human and financial resources to achieve business objectives,

a large number of discrete activities are involved. It is possible to

ask those active in the firm creation process which types of events

they have pursued; twenty-seven are used in this assessment, dozens

more could have been included. Table 5.8 provides the PSED I list

of activities, indicating those reported in each of the first six years of

the start-up effort. The entries represent the proportion of the start-up efforts that report the initiation of each activity. Some activities

are only done once – such as open a bank account or apply for an

Employer Identification Number [EIN]. Other activities may continue

for some time – such as revisions of a business plan, updates of finan-

cial projections, or hiring individuals as the business is established

and expands.

The start-up activities in Table 5.8 are rank ordered by the pro-portion of start-up efforts that reported initiating the activity by the

sixth year after they began the start-up process – seven years after

the start-up conception. Four are related to filing taxes or listing with

a credit rating bureau and are presented at the bottom, 22 reflect

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T a b l e 5 . 8 B u s i n e s s c r e a t i o n a c t i v i t i e s

A c t i v i t y / E v e n t

F i r s t

m o n t h ( % )

F i r s t

y e a r ( % )

S e c o n d

y e a r ( % )

T h i r d

y e a r ( % )

F o u r t h

y e a r ( % )

F i f t h

y e a r ( % )

S i x t h

y e a

r

( %

)

T i m e t h i n k

i n g a b o u t t h e n e w b u s i n e s s

6 6 . 2

8 9 . 9

9 6 . 2

9 7 . 3

9 8 . 0

9 8 . 9

9 9 . 2

D e fi n e m a r k e t o p p o r t u n i t i e s

2 0 . 2

6 1 . 7

1 8 . 3

8 4 . 3

8 7 . 9

8 9 . 7

9 0 . 6

I n v e s t m e n t

o w n m o n e y

2 3 . 8

6 7 . 1

8 1 . 1

8 6 . 4

8 7 . 6

8 9 . 1

9 0 . 4

P u r c h a s e d r a w m a t e r i a l s , i n v e n t o r y , s u p

p l i e s , c o m p o n e n t s

1 3 . 5

5 2 . 1

6 9 . 5

7 7 . 7

8 0 . 1

8 1 . 3

8 1 . 7

D e v e l o p e d p r o d u c t o r s e r v i c e m o d e l o r

p r o t o t y p e

2 2 . 3

5 9 . 9

7 0 . 7

7 6 . 5

7 8 . 4

7 9 . 2

7 9 . 6

P r o m o t i o n

o f p r o d u c t o r s e r v i c e h a s s t a

r t e d

5 . 0

3 7 . 8

5 7 . 6

6 6 . 1

7 1 . 7

7 3 . 2

7 4 . 5

B e g a n t o s a v e m o n e y t o i n v e s t

2 2 . 8

4 9 . 5

6 1 . 0

6 4 . 1

6 7 . 2

6 8 . 9

6 9 . 8

P u r c h a s e d ,

l e a s e d p l a n t , e q u i p m e n t , p r o p e r t y

8 . 3

3 6 . 7

5 3 . 7

6 2 . 3

6 6 . 4

6 8 . 3

6 9 . 3

O r g a n i z e d a s t a r t - u p t e a m

1 1 . 2

4 3 . 6

5 6 . 8

6 2 . 4

6 5 . 8

6 7 . 3

6 8 . 1

R e c e i v e d a n y m o n e y , i n c o m e , o r f e e s

4 . 4

3 0 . 3

5 0 . 2

5 9 . 7

6 3 . 8

6 6 . 4

6 7 . 5

P r e p a r e d a

b u s i n e s s p l a n

1 5 . 5

4 5 . 0

5 6 . 4

6 0 . 4

6 2 . 6

6 4 . 8

6 6 . 2

D e v e l o p fi n

a n c i a l p r o j e c t i o n s

6 . 1

3 1 . 6

4 6 . 2

5 3 . 7

5 8 . 0

5 9 . 2

6 1 . 0

E s t a b l i s h e d

a n e x c l u s i v e b a n k a c c o u n t

3 . 3

2 9 . 4

4 3 . 1

5 1 . 2

5 5 . 0

5 6 . 8

5 8 . 4

E s t a b l i s h e d

s u p p l i e r c r e d i t

2 . 9

2 3 . 7

3 9 . 3

4 5 . 7

4 9 . 6

5 1 . 6

5 2 . 8

D e v o t e d f u l l - t i m e t o s t a r t - u p e ff o r t , 3 5 +

h r s / w e e k

3 . 9

1 9 . 4

3 3 . 4

4 0 . 1

4 4 . 1

4 6 . 6

4 7 . 8

A r r a n g e d c h i l d c a r e , h o u s e h o l d h e l p

2 . 2

1 9 . 6

2 9 . 8

3 4 . 6

3 7 . 4

3 8 . 9

3 9 . 7

A s k e d fi n a n

c i a l i n s t i t u t i o n s o r o t h e r p e o p l e f o r f u n d s

3 . 8

2 1 . 4

2 8 . 6

3 3 . 6

3 5 . 5

3 7 . 0

3 8 . 3

I n s t a l l e d d e d i c a t e d p h o n e l i n e

2 . 6

1 4 . 8

2 5 . 0

3 0 . 5

3 4 . 3

3 6 . 2

3 7 . 7

T a k e n a n y

c l a s s e s o r w o r k s h o p

1 1 . 7

2 4 . 2

3 0 . 9

3 3 . 3

3 4 . 5

3 5 . 5

3 6 . 2

I n i t i a l p o s i t i v e m o n t h l y c a s h fl o w

0 . 6

8 . 4

1 6 . 7

2 3 . 5

2 9 . 2

3 1 . 3

3 2 . 9

I n i t i a t e d a

p h o n e b o o k o r i n t e r n e t l i s t i n g

1 . 9

1 0 . 9

2 0 . 2

2 5 . 9

2 8 . 3

3 0 . 6

3 1 . 2

H i r e d a n e m

p l o y e e f o r p a y

1 . 3

8 . 1

1 7 . 9

2 3 . 7

2 7 . 2

2 9 . 1

3 0 . 3

P a t e n t , t r a d e m a r k , c o p y r i g h t a p p l i c a t i o

n s u b m i t t e d

1 . 4

1 0 . 1

1 7 . 1

2 0 . 5

2 3 . 0

2 4 . 5

2 4 . 9

F i l e d fi r s t f e d e r a l i n c o m e t a x r e t u r n

7 . 3

2 4 . 5

3 5 . 5

4 3 . 1

4 6 . 4

4 8 . 4

4 8 . 9

P a i d fi r s t f e d e r a l s o c i a l s e c u r i t y t a x p a y

m e n t

2 . 0

1 1 . 5

2 2 . 1

2 7 . 6

3 1 . 1

3 3 . 3

3 4 . 0

P a i d fi r s t s t a t e u n e m p l o y m e n t i n s u r a n c e t a x

1 . 3

6 . 7

1 4 . 3

1 8 . 1

2 0 . 7

2 1 . 3

2 2 . 1

K n o w fi r m

l i s t e d w i t h D u n a n d B r a d s t r e e t

0 . 1

1 . 9

3 . 9

6 . 0

6 . 9

8 . 3

8 . 6




actions taken to implement the new business, and one, giving seri-

ous thought to the new start-up, is related to a personal focus on the

initiative.As the proportion initiating each activity in the first month and

in each successive year is indicated, the cumulative proportions will

either stabilize or increase over time. It should be no surprise that

giving thought to the new business is not only the most widely reported

activity, but two-thirds (66.2%) report serious thought about the start-

up by the end of the first month. On the other hand, one-third have

not reported serious thought by the end of the first month; it is notreported by over 95% of the nascent entrepreneurs – 19 in 20 – until

the third year.

Aside from serious thought, no other activity is reported by more

than one in four of the nascent entrepreneurs as having occurred in

the first month. More than one in five report they have defined market

opportunities, invested their own money in the start-up, developed a

product or service model, or begun to save money to invest. More

than one in ten report they have purchased raw materials, inventory or

supplies; started to organize a start-up team; developed a business plan

or taken a workshop or class on creating a business. Some activities are

reported by less than one in fifty in the first month, including hiring

any employee, initial positive monthly cash flow, or the first listing of

the firm’s phone or internet address.

It is awkward to try to summarize the processes that involve 23 dif-

ferent activities, setting aside the four that involve meeting tax require-ments or registration with a commercial credit rating service. A factor

analysis, summarized in Appendix.5Ax.3, indicated that these 23 activ-

ities could be re-organized into six domains:

(1) Business presence: The emphasis is on formal registration

of the firm, full-time attention by the nascent entrepreneurand the beginning of hiring employees. [five items]

(2) Production implementation: Attention to acquiring

inputs (supplies, inventory, components), use of major assets,

actual sale of the product or service. [six items]

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(3) Organizational, financial structure: Mobilizing individ-

uals, preparing future plans, and acquisition of outside finan-

cial resources. [four items](4) Personal planning: The nascent entrepreneur’s efforts to

prepare for the business and their personal involvement.

[three items]

(5) Personal preparation: The nascent entrepreneur’s organi-

zation of their personal life to become involved, by taking

classes, saving money, or arranging for help with childcare or

housework. [three items](6) Focus on task or the product: Attention to developing

the product or service to be sold and acquiring formal prop-

erty rights to same. [two items]

For each domain and for each time period, an index was created by

computing the average number of activities that had been initiated by

the beginning of the time period. For each index, the range in values

could be from zero to 100%.

The relationships of this index to the three outcomes seven years

after conception are presented for six time periods in Table 5.9. The

earliest time period is based on reports of activities initiated in the

first month, followed by those initiated in the first six months, the first

year, and three following years. The statistical significance is presented

in brackets below the index values for each outcome.

Of the six indices, only one, personal preparation – saving money,arranging child care, taking classes or workshop – appears to have no

relationship to the outcome in the seventh year. All other indices have,

for some time periods, a statistically significant relationship to the

seven year outcome. This seems to occur earliest and be the strongest

for indicators of business presence – establishing a bank account, creat-

ing a phone book listing and a dedicated phone line, hiring employees

and full time devotion to the start-up; those reporting these activi-ties in the first month seem to be more likely to have a new firm six

years later. Active engagement in developing a productive mechanism

and creating an organizational and financial structure also seems to

have a strong association with the emergence of a new firm. Two other

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T a b l e 5 . 9 S t a r t - u p i n d i c e s a n d o u t c o m e s i n t

h e s i x t h y e a r , b y t i m e s i n c e

fi r m c o n c e p t i o n

S t a r t - u p

a c t i v i t y i n d e x

F

i r s t m o n t h

S i x t h m o n t h

F i r s t y e a r

S e c o n d y e a r

T h i r d y e a r

F o u r t h y e a r

B u s i n e s s

p r e s e n c e

N e w

fi r m

3 . 4 %

1 2 . 9 %

2 4 . 6 %

4 2 . 5 %

5 3 . 7 %

5 9 . 7 %

D i s e n g a g e m e n t

2 . 2 %

7 . 0 %

1 5 . 1 %

2 3 . 9 %

2 8 . 3 %

3 0 . 5 %

A c t i v e s t a r t - u p

1 . 8 %

9 . 1 %

1 0 . 4 %

1 8 . 3 %

2 2 . 0 %

2 5 . 2 %

S t a t

s i g n

[ 0 . 0 4 ]

[ 0 . 0 0 3 ]

[ . 0 0 0 0 ]

[ 0 . 0 0 0 0 ]

[ 0 . 0 0 0 0 ]

[ 0 . 0 0 0 0 ]

P r o d u c t i o n i m p l e m e n t a t i o n

N e w

fi r m

6 . 4 %

2 3 . 6 %

4 1 . 0 %

6 0 . 7 %

7 4 . 1 %

7 9 . 7 %


5 . 6 %

1 8 . 6 %

2 7 . 9 %

4 4 . 0 %

4 9 . 0 %

5 1 . 8 %


5 . 3 %

1 6 . 2 %

2 6 . 2 %

3 9 . 1 %

4 5 . 7 %

5 0 . 3 %

S t a t

s i g n

[ 0 . 6 1 ]

[ 0 . 0 0 6 ]

[ 0 . 0 0 0 0 ]

[ 0 . 0 0 0 0 ]

[ 0 . 0 0 0 0 ]

[ 0 . 0 0 0 0 ]

O r g a n i z a

t i o n a l , fi n a n c i a l s t r u c t u r e

N e w

fi r m

9 . 8 %

2 7 . 4 %

4 1 . 8 %

5 3 . 8 %

5 9 . 6 %

6 3 . 0 %


8 . 5 %

2 3 . 7 %

3 6 . 7 %

4 9 . 1 %

5 3 . 7 %

5 5 . 6 %


9 . 2 %

1 9 . 0 %

2 8 . 2 %

3 8 . 3 %

4 4 . 6 %

4 8 . 1 %

S t a t

s i g n

[ 0 . 7 2 ]

[ 0 . 0 0 8 ]

[ 0 . 0 0 0 0 ]

[ 0 . 0 0 0 0 ]

[ 0 . 0 0 0 0 ]

[ 0 . 0 0 0 0 ]

P e r s o n a l

p l a n n i n g

N e w

fi r m

3 6 . 5 %

5 7 . 1 %

7 5 . 1 %

8 6 . 5 %

9 1 . 1 %

9 2 . 4 %


3 6 . 8 %

6 1 . 3 %

7 4 . 8 %

8 7 . 6 %

9 1 . 4 %

9 3 . 1 %


3 6 . 9 %

5 3 . 6 %

6 8 . 7 %

8 1 . 3 %

8 5 . 4 %

8 8 . 0 %

S t a t

s i g n

[ 0 . 9 9 ]

[ 0 . 0 5 ]

[ 0 . 0 5 ]

[ 0 . 0 2 ]

[ 0 . 0 0 4 ]

[ 0 . 0 1 ]

P e r s o n a l

p r e p a r a t i o n

N e w

fi r m

1 2 . 3 %

2 1 . 2 %

2 9 . 7 %

3 9 . 6 %

4 5 . 0 %

4 7 . 7 %


1 3 . 6 %

2 5 . 1 %

3 3 . 6 %

4 1 . 5 %

4 2 . 9 %

4 4 . 9 %


1 3 . 7 %

2 1 . 8 %

2 9 . 7 %

4 0 . 5 %

4 4 . 2 %

4 6 . 6 %

S t a t

s i g n

[ 0 . 6 9 ]

[ 0 . 2 1 ]

[ 0 . 2 6 ]

[ 0 . 8 1 ]

[ 0 . 7 9 ]

[ 0 . 6 6 ]

T a s k , p r o

d u c t d e v e l o p m e n t

N e w

fi r m

1 2 . 1 %

2 8 . 0 %

3 8 . 8 %

4 6 . 2 %

5 0 . 3 %

5 8 . 3 %


1 2 . 3 %

2 6 . 5 %

3 6 . 4 %

4 5 . 9 %

4 9 . 5 %

5 1 . 2 %


1 1 . 2 %

2 1 . 8 %

2 9 . 8 %

3 9 . 6 %

4 5 . 7 %

4 8 . 2 %

S t a t

s i g n

[ 0 . 8 6 ]

[ 0 . 0 6 ]

[ 0 . 0 0 7 ]

[ 0 . 0 5 ]

[ 0 . 2 6 ]

[ 0 . 3 1 ]




indices – related to personal planning and task or product development,

also seem to have a significant relationship to the six year outcome,

although it is not as strong as the other three and, in the case of prod-uct development, the association with the outcome after the second

year is no longer statistically significant.

Based on the statistical significance of these domains of activities

with the start-up outcome, it would appear that an emphasis on estab-

lishing a public presence for the business and developing a mechanism

or process for delivering the goods or services, along with creating an

organizational and financial structure, are important in reaching a res-olution to the start-up initiative. Personal planning seems to help facil-

itate a resolution, as does a focus on the product or service itself in

the early period. There is little evidence that personal preparation is

different among those with different outcomes.

Is the level of intensity related to the time required to reach a resolu-

tion? Resolution can only be determined for those who report starting

a business or quitting the initiative during the study. The relationship

of the activity indices to the time between conception and the two

outcomes are presented in Table 5.10.

The results are quite striking, as it is clear that up through the

first year or two more activity in all domains seems to result in a

faster resolution – the new firms are implemented sooner or the nascent

entrepreneur is quicker to disengage from the start-up. Up through the

second year all correlations are negative (more activity reduces the

time lag) and most are highly statistically significant. This patterncontinues through the third and fourth year for the time lag to an

operating business, but is less significant in the later years for the dis-

engagement correlations. Only the level of personal planning has the

same pattern across all years in relation to disengagement; the more

personal planning the quicker the individuals are to disengage from a

start-up.

This may reflect a change in the nature of the individuals who are“slow to quit.” There may be a substantial proportion that put intense

effort into the start-up and disengage when it appears it may not work

out. Another group is less involved and takes much longer to make a

decision to quit, a decision made after they have spent a number of

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T a b l e 5 . 1 0 S t a r t - u p d o m a i n s a n d t i m e t o c o m

p l e t e t r a n s i t i o n s

F i r s t m o n t h

S i x t h m o n t h

F i r s t y e a r

S e c o n d y e a r

T h i r d y e a r

F o u r t h y e

a r

T i m e t o o p

e r a t i n g b u s i n e s s

B u s i n e

s s p r e s e n c e

− 0 . 1 6 ∗

− 0 . 2 9 ∗ ∗ ∗

− 0 . 3 7 ∗ ∗ ∗

− 0 . 4 0 ∗ ∗ ∗

− 0 . 3 9 ∗ ∗ ∗

− 0 . 3 6 ∗ ∗ ∗


− 0 . 0 8

− 0 . 3 4 ∗ ∗ ∗

− 0 . 4 5 ∗ ∗ ∗

− 0 . 4 6 ∗ ∗ ∗

− 0 . 4 9 ∗ ∗ ∗

− 0 . 4 4 ∗ ∗ ∗

O r g a n i z a t i o n a l , fi n a n c i a l s t r u c t u r e

− 0 . 1 7 ∗ ∗

− 0 . 3 2 ∗ ∗ ∗

− 0 . 3 8 ∗ ∗ ∗

− 0 . 3 7 ∗ ∗ ∗

− 0 . 3 8 ∗ ∗ ∗

− 0 . 3 0 ∗ ∗ ∗

P e r s o n

a l p l a n n i n g

− 0 . 2 9 ∗ ∗ ∗

− 0 . 3 7 ∗ ∗ ∗

− 0 . 4 1 ∗ ∗ ∗

− 0 . 4 2 ∗ ∗ ∗

− 0 . 3 8 ∗ ∗ ∗

− 0 . 3 0 ∗ ∗ ∗

P e r s o n

a l p r e p a r a t i o n

− 0 . 0 7

− 0 . 1 5 ∗

− 0 . 1 3 ∗

− 0 . 1 5 ∗

− 0 . 1 1

− 0 . 0 7

T a s k , p r o d u c t d e v e l o p m e n t

0 . 0 2

− 0 . 1 8 ∗ ∗

− 0 . 2 5 ∗ ∗ ∗

− 0 . 2 1 ∗ ∗

− 0 . 1 4 ∗

− 0 . 0 7

T i m e t o d i s e n g a g e m e n t [ Q u i t ]

B u s i n e

s s p r e s e n c e

− 0 . 0 7

− 0 . 1 1

− 0 . 1 5 ∗ ∗

− 0 . 0 4

0 . 0 3

0 . 0 8


− 0 . 0 0

− 0 . 2 2 ∗ ∗ ∗

− 0 . 2 4 ∗ ∗ ∗

− 0 . 1 2 ∗

0 . 0 2

0 . 1 1


− 0 . 0 4

− 0 . 2 3 ∗ ∗ ∗

− 0 . 2 7 ∗ ∗ ∗

− 0 . 1 7 ∗ ∗

− 0 . 1 1

− 0 . 0 4

P e r s o n

a l p l a n n i n g

− 0 . 2 7 ∗ ∗ ∗

− 0 . 4 4 ∗ ∗ ∗

− 0 . 4 7 ∗ ∗ ∗

− 0 . 3 9 ∗ ∗ ∗

− 0 . 2 9 ∗ ∗ ∗

− 0 . 2 1 ∗ ∗

P e r s o n

a l p r e p a r a t i o n

− 0 . 1 1

− 0 . 1 8 ∗ ∗

− 0 . 1 8 ∗ ∗

− 0 . 0 7

− 0 . 0 2

0 . 0 5

T a s k , p r o d u c t d e v e l o p m e n t

− 0 . 1 3 ∗

− 0 . 2 3 ∗ ∗ ∗

− 0 . 2 4 ∗ ∗ ∗

− 0 . 1 6 ∗ ∗ ∗

− 0 . 0 6

− 0 . 0 3

S t a t i s t i c a l s i g n i fi c a n c e :

∗

0 . 0 5 ;

∗ ∗

0 . 0 1 ;

∗ ∗ ∗

0 . 0 0 1 .




Fig. 5.5 Cumulative start-up activities by seven year outcomes

years on the effort and have not made much progress. Hence, after the

initial “early decision” group has made their choice, the “late decision

group” is still making an effort to “get the business organized.”

Complementing this information is a presentation of the number of

activities reported over time in Figure 5.5. Again, the start-up effortsare presented on the basis of their status at the end of the sixth year.

The average number of activities initiated during the first month

is about two, regardless of the outcome six years later. The average

initiated six years later is 14 to 16 for those who report a going busi-

ness or who have withdrawn from the effort. Those who continue to be

involved in a start-up report initiation of 11 different activities. At no

time is there a statistically significant difference between the activitiesinitiated by those with a going business or who quit after seven years.

But after six months those in these two groups report a statistically sig-

nificantly higher level of activity than those still in the start-up process

for every time period until six years after conception.

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In summary, then, the following patterns seem to be present:

•

Some domains of activities appear to be associated withhigher proportions of new firm births, such as establish-

ing a business presence, focusing on production of a good

or service, or attending to the organizational and financial

structure.• Other activities are less associated with reports of a new firm,

such as personal planning or task and product development.• The same domains associated with success at creating a new

firm are associated with a reduced time to either a new firm

or disengagement from the start-up process.• Those that reach a resolution of the start-up success seem to

implement more activities sooner in the process.

It is, of course, quite appropriate to try to determine the relative impor-

tance of the various factors known to have a significant effect on the

emergence of a new firm from the start-up process.

5.3 Interactions: Who They are and What They are Doing?

The preceding assessments have emphasized the relative impact of indi-

vidual variables, considered one at a time; attention was then paid

to groups of related start-up activities. This leads to two obvious

questions:

• What is the relative importance of different individual, team

factors or start-up activities?• Is it possible that the interaction between different individ-

ual, team factors and start-up activities can have a unique

impact on the outcome – implementing a new firm?

Both issues can be addressed with the same analysis utilized in

Chapter 4 to explore the different factors affecting participation in astart-up (Tables 4.2 and 4.3).

The same procedure is followed in this assessment. A set of factors

considered to be related to an outcome – in this case reports of a new

firm seven years after conception – is explored to identify the single

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most important factor. The sample is partitioned into subgroups on

this factor and for each subgroup the procedure is repeated using the

remaining variables. As the sorting and analysis at each stage is com-pleted independently for each subgroup, as the network of subgroups

expands each path can lead to the identification of quite different sets

of independent variables for the final set of subgroups.

The analysis was implemented using 33 independent variables, cho-

sen to maximize the size of the sample. As 25% of the respondents

did not complete the self-administered mail questionnaire, a number of

variables were excluded. Even so, missing data reduced the sample of 648 to 566 for this assessment; weights were, of course, re-centered so

the sample would continue to represent all US nascent entrepreneurs

in the start-up process.

The ten variables selected as important in making predictions, as

well as the 23 that were not, are presented in Table 5.11. The vari-

ables with predictive value are ranked ordered in terms of predictive

Table 5.11 Factors selected as important in predicting new firm presence

Overall importance [ranked] Not important

Production implementation activity Start-up team sizeBusiness presence activity Proportion of legal entity ownershipNascent same industry experience GenderTotal start-up team funds invested Labor force participationFocus on task or product activity Household annual incomeNascent personal preparation activity Household net worth

Start-up team funds invested per month Ethnic backgroundIndustry sector [five categories] Organizational, financial structure activityNascent age at entry into start-up Nascent personal planning activityLength of residence in the state Nascent born in/out of US

Length of residence in the countyEducational attainmentNascent experience with other start-upsCognitive style [different versus better]Total hours devoted to start-upAvg hours/team member on start-upAvg hours/month on start-up

Avg hours month/team member on start-upFunds provided/team memberFunds provided/team member/monthAverage annual population growthPopulation density, persons/square mileUrbanization index, four items

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usefulness. The emphasis is on major activity domains (production

implementation, business presence), industry experience, and funds

invested by the start-up team.The long list of factors that have little predictive value include gen-

der, ethnic background, household income and wealth, time devoted to

the start-up, and any characteristics of the ambient or host county.

The potential interaction and the ability to make distinctions among

groups are presented for the first four levels of analysis in Tables 5.12

and 5.13.6 The result is ten groups, four identified by four factors

and the others identified by three. To minimize idiosyncratic variation,groups with less than 20 cases were not further subdivided. The groups

are rank ordered in terms of the percentage reporting a new firm start-

up in the seventh year in Table 5.12. The results range from 81% of

those in group A to 5.2% of those in Group J; this considerable range –

a factor of 16, suggests these features are quite successful in separating

start-ups that lead to new firms from those that do not. The resulting

“model” explains 21% of the variance in the outcome – firm births.

To capture possible differences associated with gender, ethnic back-

ground, and age, the differences across these groups are provided in

Table 5.13. The cell entries indicate the difference between the actual

value and that expected if the overall prevalence was uniform across all

groups. The result, for example, indicates that the number of women

in Group C (row C) was 28% more than would be expected if there

was no variation across groups. The differences across groups are sta-

tistically significant for all three factors. This suggests that differencesassociated with the primary features of these ten groups are reflected

in comparisons based on age, gender, and ethnicity. But age, gender,

and ethnicity are not – in themselves – the critical source of differ-

ences in start-up success. Age, gender, and ethnicity are related to how

individuals chose to pursue a firm start-up in terms of activity domains,

6 The analysis was completed with the DTREG procedure version 3.5 developed and pro-vided by Phillip H. Sherrod “www.dtreg.com.” This model used a single tree with fivesplitting levels, classification analysis, Gini splitting algorithm, equal priors settings, equalmisclassification costs, equal weights on all variables, with a five fold true pruning and val-idation method with ten folds. All cases with missing values on any independent variableswere removed and the results were weighted with WTW1, after it was re-centered.

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T a b l e 5 . 1 2 S t a r t - u p s g r o u p e d b y s e c o n d y e a r

a c t i v i t y a n d s e v e n y e a r o u t c o m e s t a t u s

G r o u p

F i r s t l e

v e l

S e c o

n d l e v e l

T h i r d

l e v e l

F o

u r t h l e v e l

P r o p n e w fi

r m s ( % )

A

P r o d u c

t i o n i m p l e m e n t : h i g h

B u s i n e s s p r e s e n c e : h i g h

S t a t e

t e n u r e : 1 0 o r m o r e y r s

I n d u s t r y e x p e r :

6

o r m o r e y r s

8 1 . 3

B

P r o d u c



S t a t e


I n d u s t r y e x p e r :

0

– 5 y r s

5 3 . 9

C

P r o d u c



S t a t e


4 9 . 0

D

P r o d u c


B u s i n e s s p r e s e n c e : l o w

I n d u s

t r y e x p e r : 6 + y e a r s

4 7 . 0

E

P r o d u c

t i o n i m p l e m e n t : l o w

I n v e

s t e d : $ 3 , 0 0 0 a n d u p

P e r s o

n a l p r e p a r a t i o n : l o w

3 5 . 6

F

P r o d u c


I n v e

s t e d : u n d e r $ 3 , 0 0 0

I n d u s

t r y e x p e r : 1 + Y r s

I n v e s t e d :

o

v e r $ 3 0 / m o n t h

2 3 . 5

G

P r o d u c


B u s i n e s s p r e s e n c e : l o w

I n d u s

t r y e x p e r : 0 – 5 y e a r s

2 2 . 4

H

P r o d u c


I n v e

s t e d : $ 3 , 0 0 0 a n d u p

P e r s o

n a l p r e p a r a t i o n : h i g h

1 1 . 8

I

P r o d u c


I n v e

s t e d : u n d e r $ 3 , 0 0 0

I n d u s

t r y e x p e r : 1 + Y r s

I n v e s t e d :

u

n d e r

$

3 0 / m o n t h

9 . 9

J

P r o d u c


i n v e s t e d : u n d e r $ 3 , 0 0 0

I n d u s

t r y e x p e r : n o n e

5 . 2

A v e r a g e v a l u e s

3 0 . 8 %




intensity of focus, and accumulation of the funds needed to implement

a new firm.

Second, the analysis leads to groups of start-up initiatives with dif-ferent characteristics and different outcomes, identified in Tables 5.12

and 5.13 by letters, from A to J. The groups can be described as follows:

Group A is characterized by a major emphasis on implement-

ing a production process – purchasing raw materials,

arranging for assets, supplier credit, initial receipt of

income – and establishing a business presence – bankaccounts, dedicated phone lines and listings, full time

effort of the respondent, and hiring of an employee.

These nascent entrepreneurs have lived in the state

for more than ten years and have six or more years of

industry experience. While they represent only 9% of

all start-ups, the fact that 81% are reporting an oper-

ating new business indicates they are 23% of all new

firms in this sample. Men, Whites, and those 35–54

years of age are slightly overrepresented in this group.

Group B is almost identical to Group A except they have less

than six years experience in the same industry as the

start-up. There is an overrepresentation of Whites,

women, and those under 34 or over 55 years of age.

They are 4% of the start-up efforts and as 54% report

a new firm, they are 6% of all start-ups.Group C reflects a strong emphasis on both the production

process and establishing a business presence and more

than ten years residence in the state. There is a slight

over-representation of Whites, men, and those over

54 years of age. This group is 6% of the start-ups

and because 49% report success, they are 10% of new

firms.Group D also reflects a strong emphasis on production imple-

mentation, but a low emphasis on business pres-

ence, and these nascents report six or more years

of same industry experience. The group has a slight

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T a b l e 5 . 1 3 S t a r t - u p s g r o u p s b y s o c i o - d e m o g r

a p h i c e m p h a s i s

G r o u p

P r o p

n e w

fi r m s

( % )

P r o p

a l l n e w

fi r m s

( % )

C u m u l

p r o p o f

n e w

fi r m s

( % )

P r o p o f

s t a r t - u p s

( % )

C u m u l

p r o p o f

s t a r t - u p s

( % )

P r o p

m e n i n

s t a r t - u p s

( % )

P r o p

w o

m e n

i n

s t a r t -

u p s (

% )

P r o p

w h i t e s i n

s t a r t - u p s

( % )

P r o p

b l a c k s i n

s t a r t - u p s

( % )

P r o p

h i s -

p a n i c s

i n

s t a r t - u p s

( % )

P r o p

1 8 –

3 4

y r s o l d

( % )

P r o p

3 5 –

5 4

y r s o l d

( % )

P r o p

5 5

y r s

a n d

o l d e r

( 1 )

( 1 )

( 1 , 2

)

( 1 , 2

)

( 1 , 2

)

( 1 )

( 1 )

( 1 )

A

8 1 . 3

2 2 . 8

2 2 . 8

8 . 9

8 . 9

6 . 7

− 6 .

7

7 . 5

− 1 .

4

− 1 .

9

− 1 .

8

3 . 9

− 2 .

0

B

5 3 . 9

6 . 6

2 9 . 4

3 . 9

1 2 . 7

− 2 8 .

4

2 8 . 4

2 4 . 8

− 1 2 .

8

− 7 .

7

8 . 3

− 1 4 . 8

6 . 6

C

4 9 . 0

9 . 7

3 9 . 1

6 . 3

1 9 . 0

1 6 . 6

−

1 6 .

6

1 0 . 1

− 9 .

9

− 0 .

1

− 3 .

0

− 2 . 7

5 . 8

D

4 7 . 0

1 6 . 0

5 5 . 1

1 0 . 8

2 9 . 8

3 . 1

− 3 .

1

2 . 6

− 0 .

8

− 1 .

5

− 1 9 .

4

1 8 . 8

0 . 7

E

3 5 . 6

1 9 . 5

7 4 . 6

1 7 . 3

4 7 . 1

9 . 9

− 9 .

9

6 . 0

− 6 .

9

1 . 5

− 1 0 .

9

1 1 . 0

0 . 0

F

2 3 . 5

8 . 9

8 3 . 5

1 2 . 0

5 9 . 1

− 2 .

5

2 . 2

− 1 1 .

7

6 . 9

3 . 8

3 . 0

− 1 . 3

− 1 .

6

G

2 2 . 4

8 . 6

9 2 . 2

1 2 . 2

7 1 . 3

− 1 0 .

7

1 0 . 7

8 . 0

− 4 .

3

− 4 .

7

− 0 .

6

− 1 . 8

2 . 5

H

1 1 . 8

2 . 7

9 4 . 9

7 . 2

7 8 . 5

− 4 .

0

4 . 0

− 1 9 .

1

1 8 . 6

− 4 .

0

7 . 9

− 7 . 9

0 . 0

I

9 . 9

3 . 4

9 8 . 2

1 0 . 7

8 9 . 2

− 5 .

4

5 . 4

− 1 1 .

5

0 . 5

5 . 3

1 8 . 9

− 1 7 . 5

− 1 .

2

J

5 . 2

1 . 8

1 0 0 . 0

1 0 . 8

1 0 0 . 0

− 0 .

8

0 . 8

− 5 .

3

7 . 7

1 . 9

1 0 . 9

− 6 . 4

− 4 .

4

A v e r a g e

3 0 . 8

6 1 . 1

3 8 . 9

7 2 . 4

1 5 . 6

7 . 7

4 6 . 6

4 8 . 9

4 . 4

N o t e :

( 1 ) D e v i a t i o n f r o m

o v e r a l l a v e r a g e .

( 2 ) O t h e r e t h n i c o m i t t e d .

C h i - s q u a r e s t a t i s t

i c a l s i g n i fi c a n c e .

[

0 . 0

1 ]

[ 0 . 0

0 3 ]

[ 0 . 0

0 5 ]




overrepresentation of those 35–54 years of age. This

group includes 11% of the start-ups; a success rate of

47% leads to 16% of the new firms.Group E reflects a lack of emphasis on product implementa-

tion, a start-up team investment of $3,000 or more,

but a low level of personal preparation. There is a

slight overrepresentation of men, Whites, and those

35–54 years of age. As 36% of the group reports a

new firm, this 17% of the start-ups provides 20% of

the new firms.Group F reflects a low emphasis on product implementation,

a total investment of less than $3,000, one or more

years of industry experience, and a rate of invest-

ments in excess of $30 per month. There is a slight

over-representation of Blacks and Hispanics in this

group. This 12% of all start-ups, however, has a suc-

cess rate of 24% and accounts for 9% of all new firms.

Group G is composed of those with strong attention to the pro-

duction process but not much effort on the business

presence and less than five years of same industry

experience. Women are slightly over-represented as

are Whites. This group is about 12% of all start-ups

and 9% of new firms, reflecting a 22% success rate.

Group H is composed of those with little effort on production

implementation, a start-up team investment in excessof $3,000, and a high level of personal preparation.

There is a substantial overrepresentation of Blacks in

this group. While they are 7% of all start-ups, only

12% report an operational new firm; they provide 3%

of all new firms.

Group I reflects low attention to production implementation,

a total investment of less than $3,000, some sameindustry experience, but a rate of investment of

less than $30 per month. There is a slight over-

representation of women, Hispanics, and a major

overrepresentation of those under 35 years of age.




This group is 11% of the start-ups but the 10% suc-

cess rate leads them to be 3% of all new firms.

Group J also reports little attention to production implemen-tation, investments of less than $3,000 and no same

industry experience. There is an overrepresentation of

Blacks as well as those under 35 years of age. While

they are 11% of start-ups they are only 2% of all new

firms, reflecting 5% of those that report a new firm is

in place.

In summary, then, it would appear that unique combinations of

start-up activities, personal experiences and contextual factors are asso-

ciated with different outcomes. There is little question that “doing

it” – taking action to implement a productive process and a business

presence – have a major impact, often associated with more same indus-

try experience.

Primary personal characteristics are associated with these other fea-

tures and may lead to differences in actions taken to implement new

firms. Of particular note is the greater representation of Whites among

those in the groups with higher rates of new firm creation, particularly

A, B, and C; these groups tend to be more successful in new firm cre-

ation. In contrast, Blacks tend to be overrepresented in groups F, H,

and J, those where new firms are less likely to be reported. Hispan-

ics, it is to be noted, seem to be rather evenly distributed among allthe groups, which may be why their outcome patterns, as shown in

Figure 5.4, are almost identical to Whites.

Younger adults, those 18–34 years of age, also seem to be overrep-

resented among groups with relatively low success rates, i.e., H, I, and

J. Older adults, those 55 years and above, seem to be overrepresented

in Groups B and C, which are relatively successful. Mid-career adults,

those 35–54 years of age, are clearly underrepresented in the less suc-cessful groups, F, G, H, I, and J.

Women, as a group, seem to be over-represented in Group B, which

has a high success rate, but also Groups G, H, and I, which have rather

low success rates. This results in an overall success rate that is the same

for men and women.

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One caution in terms of causal interpretations is important. It is

convenient to assume productive implementation and business presence

activities lead to a successful transition from start-up to new firm, butit could be that as the start-up team begins to focus on the 11 discrete

things associated with these two domains they are encouraged by others

in their commercial and personal networks. This encouragement could

provide an incentive to devote more time and resources to efforts to

create a viable new firm. These measures may reflect acceptance of the

new firm in the market place and positive reactions across a range of

dimensions that lead to a successful firm launch.One thing, however, is quite clear, compared with what is actually

done in the start-up process, socio-demographic and conceptual factors

do not have a major impact on which start-ups become firms.

5.4 Overview

Tracking the success of a representative sample of those involved in

business creation indicates that after seven years about one-third reporta new firm, one-third have disengaged, and about one-third are still

involved in attempting to create a new firm. Exploration of the impact

of over 130 factors, many reflecting reliable multi-item indices, and

23 organized into six activity domains, finds that many have very little

association with reports of new firm creation. Those that have the most

impact appear to be:

• Actions devoted to implementing a process for producing the

good or service• Actions devoted to developing a presence for the new business• Start-up team investment of funds into the process• Measures of business experience, particularly a background

in the same industry

In addition, it would appear that concentration of effort may lead to

a speedy resolution, leading nascent entrepreneurs to either implement

a new firm or disengage from the start-up process at an earlier point

in time.



5.4. Overview 85

There are a number of other factors that may have some impact,

often in unexpected ways:

• Start-ups in more rural areas report more new firm are

created.• Those with an internal locus of control, those that prefer to

do things better and on their own, are more sophisticated

about economic decision making, and perhaps with more

social confidence may be more likely to report new firms.

But these influences are more subtle.

There is no question that many socio-demographic factors found to

have an important impact on determining who enters the start-up pro-

cess – age, gender, educational attainment, household income, house-

hold net worth, and the like – have little or no influence on completion

of the process with a new firm. The effects of ethnic background may

reflect the strategies adopted for creating a business, rather than any

other features associated with ethnic background, such as educationalattainment, work experience, or household income.



6Overview and Implications

How do new businesses come about? The most comprehensive anddetailed assessment of this issue is the first US Panel Study of

Entrepreneurial Dynamics. This project started with the screening of

64,000 US adults, and was followed by four extensive interviews spread

over a five year period. Analysis began with a consideration of 75 factors

that may affect the decision of an adult to get involved in the creation

of a new business – becoming a nascent entrepreneur. General compar-

isons were made of those active in start-ups with a sample of typicaladults identified in the screening surveys. Additional detailed compar-

isons between the nascent entrepreneurs and a small comparison group

were also explored. The assessment continued with an exploration of

over 130 factors that may be associated with completing the start-up

process with an operating new firm. This effort focused on understand-

ing how the 200 nascent entrepreneurs that reported a new firm within

seven years of entering the start-up process were different from that

468 that had quit or continued to work on the start-up.

There are a number of significant findings. First, perhaps, is the

large number of individuals involved as nascent entrepreneurs – per-

haps, 10 million in 1998–1999 when the PSED research project was

87



88 Overview and Implications

implemented, perhaps as many as 16 million in 2005. Even the finding

that one-third of this number may be casual hobbyists – not pursu-

ing a new firm as a serious career option – does not detract from themagnitude of social effort devoted to the entrepreneurial process. This

is more US adults than have children or get married in a given year.

Clearly participation in business start-ups is a major feature of life in

the contemporary United States.

Second is the finding that the factors associated with entry into the

start-up process are not associated with completion of the process with

a new firm.1

The most important factors affecting both processes aresummarized in Table 6.1, reflecting the analyses reviewed in Chapters 4

and 5.

The major factors associated with entry into the start-up process

and becoming a nascent entrepreneur, such as age, gender, educational

attainment, household income or net worth, and residing in a commu-

nity with recent population growth, is unrelated to completion of the

start-up with a new firm. In fact, the host community characteristic

that seems to increase the presence of start-ups – recent population

growth – is inversely related to the level of urbanization; the transi-

tion from start-up to new firm seems to occur more frequently in more

rural areas. This may reflect a lack of competition for the new firm or

a scarcity of career options for the nascent entrepreneur, which may

enhance commitment to make the start-up succeed.

Two factors seem to be common at both stages of the process. Entry

into a start-up and completion with a firm both seem to be facilitatedby more work experience or more business classroom experience. Class-

room experience is, however, a secondary factor associated with entry

into the start-up process and has a small tertiary impact on completion

the process with a new firm. Measures of same industry business experi-

ence seem to have a major impact on the transition to an operating new

firm. The second primary factor is ethnic identity, which has a major

impact on which participation in a start-up; Blacks and Hispanics aremore involved in start-ups than whites. Blacks are, however, slightly

1 This same pattern has been found in a similar sample of Swedish nascent entrepreneurs(Davidsson and Honig, 2003).

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89

Table 6.1 Factors associated with entry into start-ups and new firm creation

Factors affecting entry into a start-up Factors affecting new firm creation

Primary factors:• Age• Gender• Current work activity• Ethnic background• Educational attainment

Primary factors:• Start-up activity to produce a

good or service• Start-up activity to develop a pres-

ence for the new firm• Measures of business experience,

particularly in the same industry• Start-up activity to create a finan-

cial and organizational structure• Start-up team financial

commitments• Concentration of resources (time,

money) and speedy completion of start-up activities

Secondary factors:

• Household income• Household net worth• Recent community

population growth• Extent, intensity of manage-

ment training and adminis-trative experience

• Positive impressions, encour-agement from friends andfamily

• Strong commitment andexpectations from anentrepreneurial career option

Secondary factors:

• Presence in a less urbanized,more rural area

• Personal traits

– Locus of control

–

Try to do better, notdifferently

– Economic sophistication

– Social confidence

• Ethnic background

less likely to report a firm birth than Whites or Hispanics, but thisseems to reflect an ineffective strategy adopted for start-ups by young

Blacks.

A third major finding is that the activity pursued in the start-up

process – not the characteristics of the entrepreneur or the start-up

or the setting – has a major impact on the successful transition to a

new firm. Actions associated with the productive process, developing a

presence for the new firm or developing an organizational and financialstructure, seem to be particularly important. This is, of course, closely

related to the intensity of effort devoted to the initiative by the start-up

team as well as the funds they assemble to facilitate implementation.

Intensity not only is more likely to lead to a new firm, but it is likely to




accelerate implementation and, in addition, facilitate an earlier decision

by those that elect to abandon the process.

When a representative sample of adults are asked if they are cur-rently involved in creating a new firm, it is now clear that one-third are

treating this as a casual hobby; they may be those who are not invest-

ing substantial time and money in the effort and, in turn, a resolution

to their initiative is delayed – sometimes for decades.

6.1 Implications: Research

This project demonstrates, in a most powerful form, the benefits of a

detailed, multifaceted longitudinal study with a representative sample.

Without the effort to develop representative samples, the results could

be dismissed as an artifact of the individuals selected for the study.

Without identifying individuals at the initial stages of the process and

tracking outcomes over time, it would be possible to dismiss the poten-

tial for causal interpretations. Without the expansion of data collection

to cover dozens of facets proposed as significant in affecting participa-

tion in the start-up process and completion with a new firm, it would

be possible to consider the options for explanations as “incomplete.”

The use of a unique multivariate analysis has facilitated identifying

groups of people with great variation in the potential for entering the

start-up process. Almost 16 per 100 among the most active group,

18–54 year old Black men engaged in full or part-time work, report

participation in new firm creation, compared to 3 per 1,000 among theleast active group, women over 65 years old who are not working or

working part-time; this is a 58-fold difference in participation rates.

Predicting who will be active in the start-up process has two com-

ponents: who will and who will not become involved. It is clear that

predicting who will not be involved is very successful, since 997 per

1,000 in the least active group will not report participation in a start-

up. However, the majority, five in six, in the most active group are alsonot active nascent entrepreneurs. To increase the predictive success,

consideration of a wider range of personal and situational variables –

many identified in the nascent entrepreneur versus comparison group

assessment in Chapter 4, might yield some improvements. On the other

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6.1. Implications: Research 91

hand, such an effort would be expensive, as it would entail identify-

ing a representative sample of candidates – perhaps limited to those

18–54 years of age – with a strong potential for entering the start-upprocess and gathering a great deal of information on all respondents

in order to compare actual nascent entrepreneurs with all potential

nascent entrepreneurs. This could be quite expensive and it might be

more cost-effective to add the “nascent entrepreneur interview mod-

ule” to a comprehensive ongoing labor force survey like the monthly

US Current Population Survey.

When the technique for identifying the unique interactions amongcritical variables was applied to exploring transitions from start-up to

new firm, it was found that the most successful were those engaged in

production implementation and developing a business presence, having

over ten years residence in the state, and having six or more years of

same industry experience; 81 per 100 of this group reported a new firm

had been created. The least successful group were those not empha-

sizing production implementation, who had invested less than $3,000

in the start-up, and had no same industry experience; 5 per 100 of

this group reported a new firm was created. This is a 16-fold differ-

ence between the most extreme groups. The most successful groups

were more likely to involve mid-career White men; the least successful

groups were younger Blacks. This suggests that the modest associa-

tion between ethnic background and reporting a new firm in place may

reflect how the start-up effort is approached and implemented, rather

than the ethnicity of the nascent entrepreneur.These findings are a substantial contribution to understanding the

business creation process. It is, however, specific to the sample based

on a cohort of nascent entrepreneurs that emerged in one time period,

1998–2000. Given the dramatic rise in activity between 1998 and 2005,

different transition rates and factors may be present in a later cohort –

but it will take a five year follow-up to explore this issue. Results would

not be available until 2010. The importance of one factor – same indus-try experience – and the possibility that this has declined among the

post 2000 nascent entrepreneurs suggests that the transition rates to

new firms may decline for the most recent cohorts. This possibility

is consistent with the counts of new employer firm registrations in




the federal data, which have been relatively constant over the past

decade.

Perhaps most significant is the clear indication that the most crit-ical factors affecting new firm creation are those associated with the

creation process itself – not individual traits, orientations, attitudes,

perceptions of the context (such as the entrepreneurial climate) or the

nature of the economic or social context. This is, perhaps, because of

the critical impact of the specific situation – the exact nature of the

business activity and the precise nature of the competition at hand. As

start-up teams get serious about implementation and devote time andenergy to adjusting strategy and focus to maximize attractiveness to

a specific group of customers – or potential customers – it would seem

that the ability to cope with the immediate situation are critical for a

successful new firm launch. Whether or not one is male or female; has

a high school degree or an MBA; is White, Black or Hispanic; has a

substantial household net worth; or is sophisticated about accounting

practices may not, in comparison, have much impact.

The assessment in Chapter 5 may not identify all the most promising

factors to incorporate in the next study, but it does identify a large

number that may be of limited value in predicting which start-ups will

become operational new firms.

6.2 Implications: Entry Into the Start-Up Process

This assessment is of some value for those who may be planning toenter the start-up process by indicating what lies ahead if they expect

to eventually launch a new firm. In particular, nascent entrepreneurs

should be apprised of the importance of business experience and the

capacity for a period of intense personal and financial commitments. On

a positive note, they can be informed that how they conduct the start-

up process is far more important than any personal attributes – age,

gender, ethnicity, educational attainment, household income or wealth,and the like. It would appear that creating a new business is truly an

egalitarian opportunity – everyone has a good chance to succeed or

fail, regardless of their station in life or social attributes. What will be

critical is how the start-up team pursues the development of a new firm.

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6.3. Implications: New Firm Creation 93

6.3 Implications: New Firm Creation

The major factors are two: knowledge about business and the industryand intensity of commitment. It may not matter how the knowledge

is obtained – formal coursework, apprenticeship in other firms, general

business experience – but it is clear that knowing the world of business

and the specific industry in which the firm is to be located is a major

asset in implementing a new business. Experience with other start-ups,

regardless of its intuitive appeal, does not appear to be a major asset.

Intensity of effort is also a clear indicator. Both the level of personal

commitment and the amount of funds assembled from the start-up team

appear to be associated with successful implementation of a new firm.

There is also guidance regarding the focus of these efforts. Primary

attention should be given to the mechanisms for creation of the good or

service to be sold, closely followed by efforts to create a publicly visible

business entity, one with a phone listing, a phone line, an employee,

etc. In short, a focus on putting the business in place seems to be most

effective in having a business in place.Most important – and encouraging – anybody can do this. There

is no magic associated with being White, Black or Hispanic, having

more education, being a man, experience with an earlier start-up, or

having an “entrepreneurial personality” – none of these traits seem to

make any difference. Anybody with the knowledge, skill, ideas, drive,

and resources that emphasize business creation may establish a new

business.

6.4 Implications: Public Policy

Implications depend, of course, on the policy objectives. Policy efforts

tend to emphasize new firm creation – the entrepreneurial process –

often reflects two different objectives. One is to promote overall eco-

nomic growth and adaptation, usually at the national level, but oftenfor specific regions. The other is to facilitate the work careers or eco-

nomic advancement of certain groups – women, minorities, immigrants,

etc. Implications are slightly different for these two objectives for the

two major transitions in the business creation process – entry into the




Table 6.2 Policy implications and transitions to new firm creation

Promote national economic

growth

Promote economic status

of disadvantaged groupsEntry into start-upprocess

Encourage those with higherpotential for new firmcreation

Provide training to compen-sate for gaps in experience

Complete start-up processwith a new firm

Focus on speed of implemen-tation for a timely resolution

Focus on quality of the imple-mentation to compensate forgaps in business experienceand subsidize financial needs

start-up process and completion of the process with a new firm. This

is illustrated in Table 6.2.

For general advancement of overall economic growth, it could be

more efficient to encourage those to enter the start-up process – com-

plete the transition to nascent entrepreneur – who are most likely to

complete the process with a new firm, that is, those with the skills and

experience that will increase the likelihood they will be successful. As

presented in Table 5.11, this is likely to be those that have lived over

a decade in the state and have some years of same industry experience

as the proposed start-up. Gender may not be critical, but it seems that

Whites may be slightly more likely to have these characteristics. The

dilemma for government policy-makers is that these individuals are not

only in full or part-time jobs, but often the most desirable employees.

It is not clear how government programs can encourage valued,

experienced employees to become involved in creating new firms –which may compete with their existing employers – in a way that will

be acceptable to established employer firms.

If the objective is to help the socially disadvantaged, then it may

be necessary to develop programs that compensate for a potential lack

of business experience – either formal business classes or work expe-

rience. This training may be in the form of classes or internships in

existing businesses. While there is little evidence in the United Statesthat more education beyond the high school degree has a major impact

on successful new firm creation, there is evidence that those without

basic skills – reading, writing, and arithmetic – are not good candidates

for creating a new business. Those without basic skills, and it appears

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6.4. Implications: Public Policy 95

that over one-quarter of US junior high graduates do not finish high

school (Greene and Winters, 2005), may benefit from remedial work in

reading, writing, and arithmetic.Once the business creation process has begun, the emphasis might

be slightly different. Those programs designed to enhance economic

growth will have encouraged the most skilled and energetic employees

to pursue new firm creation. The major cost may be the time fore-

gone from other career options. To minimize this cost, these start-

up teams should emphasize moving quickly to develop and implement

a productive mechanism and create a presence for the business. Atimely resolution of the central question, “Is this new business idea

viable?” will reduce the aggregate human and financial investment.

This “testing cost” will be minimized if the time to resolution – new

firm or disengagement – is reduced. Strong evidence suggests that

the greater the intensity and breadth of activities implemented, the

sooner the issue is resolved. The experienced and well-connected per-

sons in these programs might benefit from assistance in the search

for start-up funding, but they may not require substantial financial

subsidies.

A slightly different focus might be more suited to assistance for

the disadvantaged groups. As they may not have the business back-

ground or skills, more attention might be paid to the development of

the implementation strategy – reflected in creation of a detailed busi-

ness plan – and provision of an experienced mentor who might guide

them through the start-up process. As this group may include thosewith limited work experience and modest financial resources, it may be

appropriate to provide some financial subsidy, perhaps in conjunction

with funds provided by established commercial sources.

It is, of course, an open question whether government policies and

programs are needed to encourage experienced workers and adminis-

trators to pursue new business creation in the United States. Large

numbers of Americans, 16 million or more, are currently pursing theseoptions without much direct encouragement or significant assistance

from any federal, state, or local government initiatives. A more appro-

priate emphasis might be to ensure that government policies and

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procedures do not hinder the speedy resolution of the central ques-

tion – “Is this business viable?”

Other countries, where the rate of new firm creation is quite low,are another matter. Many advanced countries in Europe – as well as

Japan – have a very low rate of participation in business creation. They

may benefit by implementing policies to promote entrepreneurship and,

in turn, national economic growth and adaptation.

Assistance for disadvantaged groups, however, may be a challenge in

all countries. In most countries, there are distinctive groups or regions

where economic growth or well-being is sub-optimal. The basic strate-gies for assisting these groups – training to compensate for a lack of

business experience, assistance in developing a appropriate business

plan, and help in securing the resources for implementation – is likely

to be the same in all countries. Major variations may be related to the

need to acquaint the potential entrepreneurs with the social and cul-

tural norms of the potential customers; an issue to be addressed with

new immigrants.



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1165–1185.

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ness Creation . Thousand Oaks, CA: Sage.

Greene, J. P. and M. A. Winters (2005), Public High School and

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98 References

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MacMillan. reissued by Allyn and Bacon in 2006.

Reynolds, P. D. (2007), Entrepreneurship in the United States: The

Future is Now . New York: Springer.

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City, MO: Kauffman Center for Entrepreneurial Leadership.

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Entrepreneurship Monitor: 2003 Summary Report . Babson Park,

MA: Babson College.

Reynolds, P. D., S. M. Camp, W. D. Bygrave, E. Autio, and M. Hay

(2001), Global Entrepreneurship Monitor: 2001 Executive Report .

Kansas City, MO: Kauffman Center for Entrepreneurial Leadership.

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(2004b), ‘The prevalence of nascent entrepreneurs in the United

States: Evidence from the panel study of entrepreneurial dynamics’.

Small Business Economics 23(4), 263–284.

Reynolds, P. D., M. Hay, W. D. Bygrave, S. M. Camp, and E. Autio

(2000), Global Entrepreneurship Monitor: 2000 Executive Report .

Kansas City, MO: Kauffman Center for Entrepreneurial Leadership.Reynolds, P. D., M. Hay, and M. Camp (1999), Global Entrepreneurship

Monitor: 1999 Executive Report . Kansas City, MO: Kauffman Center

for Entrepreneurial Leadership.

Reynolds, P. D., B. Miller, and W. Maki (1995), ‘Explaining regional

variation in business births and deaths: U.S. 1976–1988’. Small Busi-

ness Economics 7, 389–407.

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217–226.

Sherrod, P. H. (2005). DTREG: Classification and Regression Trees for

Data Mining and Modeling . www.dtreg.com.



PSED I Scholarly Works

Publications and Papers based the Panel Study of Entrepreneurial Dynamics Research Protocol, including thePSED I (U.S.) Data Set

Initiated by Per Davidsson (July 2005)

Update by Paul Reynolds (August 2005)

NOTE: Papers reflecting the Global Entrepreneurship Monitor research

program are excluded.

Books [Edited and monographs]

Gartner, W. B., K. G. Shaver, N. M. Carter, and P. D. Reynolds (2004),

Handbook of Entrepreneurial Dynamics: The Process of Business

Creation . Thousand Oaks, CA: Sage.

[NOTE: The 38 individual chapters and 3 appendices from thiswork are not listed.]

Reynolds, P. D. and S. B. White (1997), The Entrepreneurial Process:

Economic Growth, Men, Women, and Minorities. Westport, CT:

Quorum Books.

99



100 PSED I Scholarly Works

Dissertations

Meeks, M. D. (2004), Antecedents to the Entrepreneurial Decision: An

Empirical Analysis of Three Predictive Models . Doctoral disserta-

tion. Boulder, CO: University of Colorado at Boulder.

Samuelsson, M. (2004), Creating New Ventures: A Longitudinal Inves-

tigation of the Nascent Venturing Process . Doctoral dissertation.

Jonkoping, Sweden: Jonkoping International Business School.

Stouder, M. D. (2002), The Capital Structure Decisions of Nascent

Entrepreneurs . Doctoral dissertation. Newark, NJ: Rutgers TheState University of New Jersey-Newark.

Peer Review Journal Articles

Acs, Z. J. and A. Varga (2005), ‘Entrepreneurship, agglomeration and

technological change’. Small Business Economics 24, 323–334.

Alsos, G. A. and L. Kolvereid (1998), ‘The business gestation process

of novice, serial and parallel business founders’. Entrepreneurship

Theory and Practice 22(4), 101–114.

Brush, C. G., L. F. Edelman, and T. Manolova (Forthcoming), ‘Proper-

ties of emerging organizations: An empirical test. Journal of Busi-

ness Venturing .

Brush, D. G., L. F. Edelman, and T. Manolova (Forthcoming), ‘The

effects of initial location, choice on resource assembly on likeli-hood of first sale in nascent firms’ Journal of Small Business

Management .

Carter, N. M., W. B. Gartner, and P. D. Reynolds (1996), ‘Explor-

ing start-up event sequences’. Journal of Business Venturing 11,

151–166.

Carter, N. M., W. B. Gartner, K. G. Shaver, and E. J. Gatewood (2003).

‘The career reasons of nascent entrepreneurs’. Journal of Business Venturing 18, 13–29.

Chandler, G. N., B. Honig, and J. Wiklund (2005), ‘Antecedents, mod-

erators and performance consequences of membership change in

new venture teams’. Journal of Business Venturing 20, 705–725.



Publications and Papers based on the Panel Study 101

Davidsson, P., P. D. Reynolds (2005), ‘Entrepreneurship research inno-

vator, coordinator and disseminator’. Small Business Economics 24

351–358.Davidsson, P. and M. Henreksson (2002), ‘Institutional determinants of

the prevalence of start-ups and high-growth firms: Evidence from

Sweden’. Small Business Economics 19(2), 81–104.

Davidsson, P. and B. Honig (2003), ‘The role of social and human cap-

ital among nascent entrepreneurs’. Journal of Business Venturing

18(3), 301–331.

Delmar, F. and P. Davidsson (2000), ‘Where do they come from? Preva-lence and characteristics of nascent entrepreneurs’. Entrepreneur-

ship and Regional Development 12, 1–23.

Delmar, F. and S. Shane (2004), ‘Legitimating first: Organizing activi-

ties and the survival of new ventures’. Journal of Business Ventur-

ing 19, 385–410.

Eckhardt, J., S. Shane, and F. Delmar (In press), ‘Multi-stage selec-

tion and the financing of new ventures’ Management Science ,

forthcoming.

Edelman, L. F., C. G. Brush, and T. Manolova (Forthcoming),

‘Entrepreneurship education: Correspondence between practices

of nascent entrepreneurs and textbook prescriptions for success’.

Academy of Management Learning and Education .

Honig, B. (2001), ‘Learning strategies and resources for nascent

entrepreneurs and intrapreneurs’. Entrepreneurship Theory and

Practice 24(Fall), 21–35.Honig, B., P. Davidsson, and T. Karlsson (2005), ‘Learning strategies of

nascent entrepreneurs’. Journal of Competence-Based Management

1(3), 67–88.

Honig, B. and T. Karlsson (2004), ‘Institutional forces and the written

business plan’. Journal of Management 30(1), 29–48.

Liao, J. and H. Welsch (2003b), ‘Social capital and entrepreneurial

growth aspiration: A comparison of technology- and non-technology-based nascent entrepreneurs’. Journal of High Technol-

ogy Management Research 14, 149–170.

Newbert, S. L. (2005), ‘New firm formation: A dynamic capability per-

spective’. Journal of Small Business Management 43(1), 55–77.




Reynolds, P. D. (1997), ‘Who starts new firms? Preliminary

explorations of firms-in-gestation’. Small Business Economics 9,

449–462.Reynolds, P. D., N. M. Carter, W. B. Gartner and P. G. Greene (2004),

‘The prevalence of nascent entrepreneurs in the United States: Evi-

dence from the panel study of entrepreneurial dynamics’. Small

Business Economics 23(4), 263–284.

Reynolds, P. D. and B. Miller (1992), ‘New firm gestation: Conception,

birth and implications for research’. Journal of Business Venturing

7, 405–417.Ruef, M., H. E. Aldrich, and N. M. Carter (2003), ‘The structure of

organizational founding teams: Homophily, strong ties, and iso-

lation among U.S. entrepreneurs’. American Sociological Review

68(2), 195–222.

Shane, S. and F. Delmar (2004), ‘Planning for the market: Busi-

ness planning before marketing and the continuation of organizing

efforts’. Journal of Business Venturing 19, 767–785.

Shaver, K. G., W. B. Gartner, E. Crosby, K. Bakalarova, and E. J.

Gatewood (2001), ‘Attributions about entrepreneurship: A frame-

work and process for analyzing reasons for starting a business’.

Entrepreneurship: Theory and Practice 26(2), 5–33.

Singh, R. P. and L. M. Lucas (2005), ‘Not just domestic engineers: An

exploratory study of homemaker entrepreneurs’. Entrepreneurship:

Theory and Practice 29(1), 79–91.

Peer Review Conference Presentations, Proceedings

Aldrich, H. E., N. M. Carter, M. Ruef, and P. H. Kim (2003), ‘Ham-

pered by homophily? The effects of team composition on the suc-

cess of nascent entrepreneurs’ organizing efforts (Summary)’. In

Frontiers of Entrepreneurship Research 2003 , W. D. Bygrave et al.

(eds.). Wellesley, MA: Babson College.Alsos, G. A. and E. C. Ljunggren (1998), ‘Does the business start-

up process differ by gender? A longitudinal study of nascent

entrepreneurs’. In Frontiers of Entrepreneurship Research 1998 ,

P. D. Reynolds et al. (eds.). Wellesley, MA: Babson College.




Baltrusaityte, J., Z. J. Acs, and G. E. Hills (2005), Opportunity Recogni-

tion Processes and New Venture Failure: Examination of the PSED

Data. Paper presented at the Babson College/Kauffman Founda-tion Entrepreneurship Research Conference, Wellesley, MA.

Brush, C. G., L. F. Edelman, and T. Manolova (2004), ‘Properties of

emerging organizations: An empirical test’, At Academy of Manage-

ment Research Conference , New Orleans, LA, Academy Highlighted

Show Program Session.

Brush, C. G., L. F. Edelman, and T. Manolova (2003), ‘Home or

away: The impact of initial location decisions on resource assemblyin nascent firms’. Academy of Management Research Conference ,

Seattle, WA.

Brush. D. G., T. Manolova and L. F. Edelman (2003), ‘Home

or away: Initial location decisions and the construction of new

ventures’ resource base’. Babson College-Kauffman Foundation

Entrepreneurship Research Conference , Wellesley, MA.

Cassar, G. (2004), Entrepreneur Motivation, Growth Preferences and

Intended Venture Growth (Summary). Paper presented at the

Babson College/Kauffman Foundation Entrepreneurship Research

Conference, Strathclyde, Scotland.

Crosa, B., H. A. Aldrich, and L. A. Keister (2002), ‘Is there a

wealth effect? Financial and human capital determinants of business

start-ups’. In Frontiers of Entrepreneurship Research 2002 , W. D.

Bygrave et al. (eds.). Wellesley, MA: Babson College.

Delmar, F. and P. Davidsson (1999), ‘Firm size expectations of nascententrepreneurs’. In Frontiers of Entrepreneurship Research 1999 ,

P. D. Reynolds, W. D. Bygrave, S. Manigart, C. Mason, G. D.

Meyer, H. J. Sapienza, and K. G. Shaver (eds.). Vol. 19, pp. 90–

104. Wellesley, MA: Babson College.

Delmar, F. and J. Gunnarsson (2000), ‘How do self-employed parents of

nascent entrepreneurs contribute?’ In Frontiers of Entrepreneurship

Research 2000 , P. D. Reynolds et al. (eds.). Wellesley, MA: BabsonCollege.

Delmar, F. and S. Shane (2002), ‘What founders do: A longitudinal

study of the start-up process’. In Frontiers of Entrepreneurship




Research 2002 , W. D. Bygrave et al. (eds.). pp. 632–645.

Wellesley, MA.

Delmar, F. and S. Shane (2003b), ‘Does the order of organizingactivities matter for new venture performance?’ In Frontiers of

Entrepreneurship 2003 , P. D. Reynolds et al. (eds.). Wellesley, MA:

Babson College.

Diochon, M., M. Menzies, and Y. Gasse (2003), Insights Into the

Dynamics of Canadian Nascent Entrepreneurs’ Start-Up Efforts

and the Role Individual Factors Play in the Process . Paper pre-

sented at the 20th Annual CCSBE Conference, Victoria.Edelman, L. F., C. G. Brush, and T. Manolova (2006), ‘One size

doesn’t fit all growth expectancies of U.S. women and men nascent

entrepreneurs’. Academy of Management Research Conference ,

Atlanta, Georgia.

Edelman, L.F., C. G. Brush, and T. Manolova (2005), ‘Entrepreneurial

education: Do they practice what we teach?’ Academy of Manage-

ment Research Conference , Honolulu, Hawaii.

Gartner, W. B., K. G. Shaver, and E. J. Gatewood (2000), ‘Doing it for

yourself: Career attributions of nascent entrepreneurs’. In Frontiers

of Entrepreneurship Research 2000 , P. D. Reynolds et al. (eds.).

Wellesley, MA: Babson College.

Hills, G. E., G. T. Lumpkin, and J. Baltrusaityte (2004), Opportunity

Recognition: Examining Search Formality, Search Processes and

the Impact on Firm Founding (Summary). Paper presented at the

Babson College/Kauffman Foundation Entrepreneurship ResearchConference, Strathclyde, Scotland.

Kim, P. H., H. A. Aldrich, and L. A. Keister (2003), If I Were

Rich? The Impact of Financial and Human Capital on Becoming a

Nascent Entrepreneur . Paper presented at the Annual Meeting of

the American Sociological Association, Atlanta.

Kim, P. H. and H. E. Aldrich (2004), Teams That Work Together,

Stay Together: Resiliency of Entrepreneurial Teams (Summary).Paper presented at the Babson College/Kauffman Foundation

Entrepreneurship Research Conference, Strathclyde, Scotland.

Liao, J. and H. Welsch (2002), ‘The temporal patterns of ven-

ture creation process: An exploratory study’. In Frontiers of




Entrepreneurship Research 2002 , W. D. Bygrave et al. (eds.).

Wellesley, MA: Babson College.

Liao, J. and H. Welsch (2003a), ‘Exploring the venture creation pro-cess: Evidence from tech and non-tech nascent entrepreneurs’. In

Frontiers of Entrepreneurship Research 2003 , W. D. Bygrave et al.

(eds.). Wellesley, MA: Babson College.

Liao, J. and H. Welsch (2002), ‘Exploring the venture creation process:

Evidence from tech and non-tech nascent entrepreneurs’. Frontiers

of Entrepreneurship Research 2002 . Wellesley, MA: Babson College.

Liao, J. and H. Welsch (2004), Start-Up Resources and Entrepreneurial Discontinuance: An Empirical Investigation of Nascent

Entrepreneurs (Summary). Paper presented at the Babson Col-

lege/Kauffman Foundation Entrepreneurship Research Conference,

Strathclyde, Scotland.

Lichtenstein, B. B., N. M. Carter, K. Dooley, and W. B. Gartner (2004),

Exploring the Temporal Dynamics of Organizational Emergence

(Summary). Paper presented at the Babson College/Kauffman

Foundation Entrepreneurship Research Conference, Strathclyde,

Scotland.

Manolova, T., C. G. Brush, and L. F. Edelman (2002), ‘Nascence to

newness: The influence of internal and external factors on the likeli-

hood of first sales’. Academy of Management Research Conference ,

Denver, CO.

Matthews, C. H., M. W. Ford, and S. E. Human (2001), ‘The context of

new venture initiation: Comparing growth expectations of nascententrepreneurs and intrapreneurs’. In Frontiers of Entrepreneur-

ship 2001, W. D. Bygrave et al. (eds.). Wellesley, MA: Babson

College.

Matthews, C. H. and S. E. Human (2000), ‘The little engine that could:

Uncertainty and growth expectations of nascent entrepreneurs’. In

Frontiers of Entrepreneurship Research 2000 , P. D. Reynolds et al.

(eds.). Wellesley, MA: Babson College.Menzies, T., Y. Gasse, M. Diochon, and D. Garand (2002), Nascent

Entrepreneurs in Canada: An Empirical Study . Paper presented at

the ICSB 47th World Conference, San Juan, Puerto Rico.




Palit, C. and P. D. Reynolds (1993), ‘A network sampling procedure for

estimating the prevalence of nascent entrepreneurs’. Proceedings of

the American Statistical Association International Conference on Establishment Surveys , pp. 657–661.

Reynolds, P. D. and S. B. White (1992), ‘Finding the nascent

entrepreneur: Network sampling’. In Frontiers of Entrepreneur-

ship Research 1992 , N. C. Churchill, S. Birley, W. D. Bygrave,

C. Wahlbin, and W. E. J. Wetzel (eds.). pp. 199–208. Wellesley,

MA: Babson College.

Samuelsson, M. (2001), ‘Modelling the nascent venture opportunityexploitation process across time’. In Frontiers of Entrepreneurship

Research 2001, W. D. Bygrave, E. Autio, C. G. Brush, P. Davidsson,

P. G. Greene, P. D. Reynolds, and H. J. Sapienza (eds.). pp. 66–79.

Wellesley, MA.

Shaver, K.G., N. M. Carter, W. B. Gartner, and P. D. Reynolds

(2001), ‘Who is a nascent entrepreneur? Decision rules for

identifying and selecting entrepreneurs in the panel study of

entrepreneurial dynamics’. Babson-Kauffman Entrepreneurship

Research Conference .

Smith, B. (2005), The Search For and Discovery of Different Types of

Entrepreneurial Opportunities: The Effects of Tacitness and Cod-

ification . Paper presented at the Babson College/Kauffman Foun-

dation Entrepreneurship Research Conference, Wellesley, MA.

Van Gelderen, M., N. Bosma, and A. R. Thurik (2001), ‘Setting up

a business in the Netherlands: Who starts, who gives up, who isstill trying?’ In Frontiers of Entrepreneurship Research 2001, W. D.

Bygrave et al. (eds.). Wellesley, MA: Babson College.

Wagner, J. (2004), Nascent Entrepreneurs . IZA DP No. 1293. Bonn,

Germany: Forschungsinstitut zur Zukunft der Arbeit.

Welter, F. (2001), ‘Who wants to grow? Growth Intentions and growth

profiles of (nascent) entrepreneurs in Germany’. In Frontiers of

Entrepreneurship Research 2001, W. B. Bygrave et al. (eds.).Wellesley: Babson College.

Welter, F. (2001), Would-Be Entrepreneurs in Germany . Paper pre-

sented at the RENT XV Conference, Turku, Finland.




Book Chapters

Davidsson, P. (2005), ‘Method issues in the study of venture start-upprocesses’. In Entrepreneurship Research in Europe: Outcomes and

Perspectives , A. Fayolle, P. Kyro, and J. Ulijn (eds.). pp. 35–54.

Cheltenham, UK: Edward Edgar.

Gartner, W. B. and N. M. Carter (2003), ‘Entrepreneurial behav-

ior and firm organising processes’. In Handbook of Entrepreneur-

ship Research , Z. J. Acs and D. B. Audretsch (eds.). pp. 195–221.

Dordrecht, NL: Kluwer.Greene, P. G., N. M. Carter, and P. D. Reynolds (2003), ‘Minority

entrepreneurship: Trends and explanation’. In New Movements in

Entrepreneurship, C. Steyaert and D. Hjorth (eds.). pp. 239–257.

Cheltenham, UK: Elgar.

Reynolds, P. D. (2000), ‘National panel study of US business start-ups.

Background and methodology’. In Advances in Entrepreneurship,

Firm Emergence and Growth , J. A. Katz (ed.), Vol. 4, pp. 153–227.

Stamford, CT: JAI Press.

Research Reports

de Rearte, A. G., E. Lanari, and P. A. A. J. Atucha (1998), El pro-

ceso de creaction de empresas; Abordaje methodologico y primeros

resultados de un studio regional. Argentina: Universidad Nacional

de Mar del Plata.Honig, B. and T. Karlsson (2001), Business Planning and the

Nascent Entrepreneur: An Empirical Study of Normative Behav-

ior . Jonkoping: Jonkoping International Business School.

Reynolds, P. D. and S. B. White (1993), Wisconsin’s Entrepreneurial

Climate Study. Milwaukee, WI: Marquette University Center for

the Study of Entrepreneurship.

Van Gelderen, M., A. R. Thurik, and N. Bosma (2003), ‘Success and

risk factors in the pre-startup phase’. SCALES paper N200314.

Zoetermeer, NL: EIM.



Acknowledgments

The first Panel Study of Entrepreneurial Dynamics was organized andimplemented by the Entrepreneurial Research Consortium [ERC], a

voluntary association of 34 member units with over 120 members; the

ERC was able to support the implementation of the project as well

as the first follow-up. The Ewing Marion Kauffman Foundation pro-

vided support for the second and third follow-up interviews and the

cost of shifting the operational base of the program from the Univer-

sity of Wisconsin to the University of Michigan Institute for SocialResearch. Additional support was provided by the National Science

Foundation for two enhancements, an over sample of women [Dr. Nancy

Carter, Principal Investigator, Grant SBR-9809841] and an over sample

of minorities [Dr. Patricia Green, Principal Investigator, Grant SBR-

9905255]. Substantial support was provided to the author during the

completion of the research by Marquette University, Babson College,

and Florida International University.

109



AMethodlogical Appendices

Appendix.4Ax.1 Notes on Assessment of the ScreeningData

The following lists the actual variables used in the analysis presented

in Figures 4.2, 4.3, 4.4, 4.5, and Tables 4.1 and 4.2. All are from the

Table 4Ax.1.1 Variables used from PSED I screening data file

Variable labelScreening interviewdataset variable labels

Active in start-up process [0 = not active, 1 = active] SUOWNACTGender USGENDERAge categories USAGE7CEthnic background USRACE4Educational attainment USEDUC5Household income USHHINC6Labor force participation USLABFR3Martial status USMARR

Household size USHHSZE3Annual rate of population growth: 1980–1992 [four categories] US8092A4Population density [persons per square mile in 1992, four

categories]USPDN924

Urbanization index, composed of average value of four items[Chronbach’s alpha = 0.87], continuous index then placed in

four ordinal quartiles

PCINC93, HH75K89,PC254490, PCOLL90

111

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112 Methodlogical Appendices

screening interview data set, with data for full sample comparison group

[RTYPE = 20] omitted (Table 4Ax.1.1).

Appendix.4Ax.2 Detailed Comparison of NascentEntrepreneurs and Typical Adults

All comparisons based only on the nascents identified and interviewed

for the initial full sample [n = 446; RTYPE = 10] and the initial com-

parison group selected to represent all US adults [N = 219; RTYPE =

20]; weights re-centered to an average of one for each group. The tablecolumns represent the following:

Dimension, characteristics, factor: Summary of dependent variable.

Nascent entre’s: Value for nascent entrepreneur sample.

Comp group: Value for the comparison group.

Stat signif: statistical significance is provided from a Chi-Square test

for cross tabulations and the F-test for the means comparisons.Alpha: reliability, where appropriate, computed as Chronbach’s Alpha.

Table: The table in this chapter in which the results are summarized.

Hand’k chapter: The chapter in the Gartner et al. (2004) Handbook of

Entrepreneurial Dynamics in which the background and rationale for

measure(s) is/are discussed.

Variable label: The variable labels from the phone and mail interview

schedules as found in the full PSED I data set, or the items used to

compute multi-item indices.

Dimension,characteristics,factor

Nascententre’s

Compgroup

Statsignif Alpha Table

Hand’kchap

Variablelabels

HH income:0–$20,000/Yr

9.7% 10.3% N/A 4.3 5 HHINCR5

HH income:

$20–40,000/Yr

31.1% 27.4%

HH income:$40–60,000/Yr

23.8% 29.5%


25.0% 25.4%

HH income:$100,000–Up/Yr

10.5% 7.4% 0.3987

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Appendix.4Ax.2. Comparison of Nascent Entrepreneurs and Typical Adults 113

Dimension,characteristics, factor

Nascententre’s

Compgroup


Hand’kchap

Variablelabels

HH net worth: Negative 5.5% 4.5% N/A 4.3 5 HHNETR6HH net worth:

$0–100,00051.9% 46.0%

HH net worth:$100,000–250,000

14.0% 20.0%

HH net worth:$250,000–500,000

7.9% 4.1%

HH net worth:$500–1,000,000

16.8% 23.4%

HH net worth:$1,000,000 and up

4.0% 2.1% 0.0292

Never married 17.7% 16.4% N/A 4.3 4 Q385Married or living as

married68.4% 62.3%

Other: divorced,widowed, separatedetc.

13.9% 21.3% 0.0517

Single adult 16.6% 15.0% N/A 4.3 4 Q380,Q381,Q382,Q383

Two or more adults: nochildren

35.8% 33.7%

Adults and childrenless than 19 years old

47.5% 51.3% 0.6474

Household size: all ages 2.96 2.93 0.8379 N/A 4.3 4 Q380Household size: adults

only2.15 2.13 0.6687 N/A 4.3 4 Q384

Household: totalearning money inprevious week

1.70 1.60 0.1108 N/A 4.3 4 Q384A

Last work day: avehours on work plustravel

7.25 7.45 0.5761 N/A 4.3 9 QM5D1

Last day off: ave hourson work plus travel

0.51 0.24 0.0284 N/A 4.3 9 QM5D2

Satisfaction with mostrecent job [Z-score]

0.37 −0.58 0.0000 N/A 4.3 14 QI8

Satisfied with lifeoverall [Z-score]

0.02 −0.03 0.6025 N/A 4.3 14 QL1M

Reporting social

network present(proportion)

64.0% 75.6% 0.0027 N/A 4.3 29 Q241

Number in socialnetwork (average)

3.17 5.11 0.0014 N/A 4.3 29 Q242





Nascententre’s

Compgroup


Hand’kchap

Variablelabels

Lived in county0–2 years 15.4% 10.3% N/A 4.3 6 Q353A MT

Lived in county2–5 years

14.1% 12.8%


17.9% 18.5%


19.4% 20.8%


26.6% 22.9%

Lived in county

40–75 years

6.6% 14.6% 0.0159

Born in the UnitedStates

94.1 96.4% N/A 4.3 6 Q358

Not born in the UnitedStates

5.9% 3.6% 0.2117

Entrepreneurial climate:community groupssupport

2.72 2.89 0.0082 0.69 4.4 35 QB1B,QB1C,QB1D,QB1E,QB1I

Entrepreneurial climate:friends and familymodels

2.59 2.50 0.3930 0.65 4.4 35 QB1G,QB1H

Entrepreneurial climate:community models

3.80 3.83 0.6203 0.38 4.4 35 QB1A,QB1F,QB1J

Knowledge of assistanceprograms

52.6% 59.0% 0.1546 N/A 4.4 30 Q315

Actual contact withassistance programs

15.3% 15.8% 0.8664 N/A 4.4 30 Q303

No of assistanceprograms contacted

2.55 1.89 0.2372 N/A 4.4 30 Q305

Parent’s own a business 51.6% 52.9% 0.7693 N/A 4.4 16 Q362Worked for parent 29.5% 25.2% 0.3732 N/A 4.4 16 Q367,

Q371,Q375

Family friendsencouraged start-up

73.4% 34.9% 0.0000 N/A 4.4 16 Q379

Friends and neighborsown businesses (four

point scale)

2.14 2.06 0.2692 N/A 4.4 16 Q377

Impression of owning abusiness from friends,relatives (five pointscale)

4.14 3.70 0.0000 N/A 4.4 16 Q378





Nascententre’s

Compgroup


Hand’kchap

Variablelabels

General managementclasses, average taken 1.76 1.44 0.0617 0.64 4.4 7 QF1A1,QF1B1,QF1H1,QF1I1

Human, financialmanagement classes,average taken

0.82 0.73 0.5312 0.61 4.4 7 QF1D1,QF1F1

Operationsmanagement classes,average taken

0.75 0.35 0.0013 0.27 4.4 7 QF1C1,QF1E1,QF1G1

General managementwork experiences,average years

4.25 3.22 0.0351 0.84 4.4 7 QF1A2,QF1B2,QF1D2,QF1F2,QF1H2,QF1I2

Operationsmanagement workexperiences, averageyears

3.25 2.22 0.0104 0.65 4.4 7 QF1C2,QF1E2,QF1G2

Total activity count:

over 12 prior years

18.50 20.14 0.0205 N/A 4.4 10 QO1A87-

QO1D91No yrs in which

full-time employment7.39 7.80 0.3169 N/A 4.4 10 QO1A87-

QO1D91No yrs in which

part-timeemployment

2.08 1.69 0.1443 N/A 4.4 10 QO1A87-QO1D91

No yrs in whichfull-timeself-employment

1.58 0.65 0.0004 N/A 4.4 10 QO1A87-QO1D91

No yrs in which

part-timeself-employment

1.57 1.21 0.1777 N/A 4.4 10 QO1A87-

QO1D91

No yrs in whichfull-time student

1.51 1.62 0.7121 N/A 4.4 10 QO1A87-QO1D91

No yrs in whichpart-time student

0.85 1.02 0.3189 N/A 4.4 10 QO1A87-QO1D91

No yrs in whichunemployed seekingwork

0.25 0.26 0.9047 N/A 4.4 10 QO1A87-QO1D91

No yrs in whichunemployed not

seeking work

0.22 0.55 0.0125 N/A 4.4 10 QO1A87-QO1D91

No yrs in which doingunpaid volunteerwork

0.90 1.86 0.0008 N/A 4.4 10 QO1A87-QO1D91

No yrs in which ahomemaker

1.60 2.58 0.0118 N/A 4.4 10 QO1A87-QO1D91





Nascententre’s

Compgroup


Hand’kchap

Variablelabels

No yrs in which disableand unable to work 0.30 0.22 0.5497 N/A 4.4 10 QO1A87-QO1D91No yrs in which retired 0.25 0.69 0.0133 N/A 4.4 10 QO1A87-

QO1D91

Cognitive style:different

30.7% 16.2% N/A 4.5 15 Q327

Cognitive style: better 69.3% 83.8% 0.0026

Entrepreneurialintensity

3.34 2.73 0.0000 0.72 4.5 17 QL1D,QL1E,QL1F,

QL1GEntrepreneurial

expectations4.22 3.57 0.0000 0.83 4.5 13 QK1A,

QK1B,QK1C,QK1D,QK1E,QK1F

Self realization 3.94 3.95 0.9166 0.78 4.5 12 QG1R,QG1O,QG1P,

QG1HFinancial security 3.61 3.50 0.2189 0.78 4.5 12 QG1K,

QG1G,QG1J,QG1N

Recognition 2.58 3.29 0.0000 0.76 4.5 12 QG1L,QG1E,QG1A

Role expectations 1.83 2.69 0.0000 0.60 4.5 12 QG1D,QG1L

Innovation 2.65 2.83 0.0842 0.71 4.5 12 QG1C,QG1M,QG1Q

Independence 4.13 4.12 0.8942 0.66 4.5 12 QG1B,QG1F

Confidence in socialsettings (three items)

3.87 3.74 0.0303 0.48 4.5 21 QL1T,QL1X,QL1Y

Emotional control (twoitems)

3.01 2.93 0.3188 0.57 4.5 21 QL1S,QL1V

Shyness (two items) 2.85 2.87 0.8110 0.04 4.5 21 QL1U,

QL1W





Nascententre’s

Compgroup


Hand’kchap

Variablelabels

Emphasis on highpayoff/high risk

2.51 2.53 0.6484 0.52 4.5 None QH1,QH2

Emphasis on highpersonal impact

1.72 1.70 0.5902 0.44 4.5 None QH5,QH6

Preferscollective/groupefforts

1.42 1.56 0.0003 0.19 4.5 None QH4,QH8

Prefers challenge/taskfocus

1.48 1.41 0.0017 0.17 4.5 None QH3,QH7,QH9

Financial issues in firm

choice

2.35 2.45 0.0679 0.60 4.5 None QH10B,

QH10COperational issues in

firm choice2.44 2.56 0.0005 0.58 4.5 None QH10A,

QH10D,QH10E,QH10F,QH10G

Locus of control 4.00 4.01 0.8925 0.47 4.5 19 QL1H,QL1I,QL1J

Ignore sunk costs in

decision making

3.07 2.98 0.3771 N/A 4.5 20 QL1K

Focus on current valuewhen selling asset,not cost

3.48 3.43 0.6344 N/A 4.5 20 QL1L

Frequency of new,unpredictablesituations at work

2.31 2.44 0.1647 N/A 4.5 18 QJ2A

Feel overloaded,pushed to limits atwork

3.10 2.96 0.1452 N/A 4.5 18 QJ2B

Delay decisions ondifficult problems togather moreinformation

3.62 3.68 0.4019 N/A 4.5 18 QL1R

Problem complexity:identifying problemsfor priority

37.9% 33.1% N/A 4.5 18 QI9

Problem complexity:developing solutions

62.1% 66.9% 0.4640

Business problem

solving: calculatingand analytical

21.3% 19.3% N/A 4.5 18 QJ1

Business problemsolving: intuitive

16.7% 13.9%

Business problemsolving: varies bysituation

61.9% 66.8% 0.5375




Appendix.5Ax.1 Constructing Start-Up Time LinesData Set

Constructing the time lines for the start-up processes reported by

nascent entrepreneurs in the PSED I project was somewhat involved.

A customized data set was prepared as follows:

(1) Data on start-up activities, outcome of the start-up effort and

date of change in status (when start-up became an operating

firm or the respondent quit the project) was consolidated for

all four waves of data collection.(2) For those events where a year was provided, the month was

assumed to be June. For those events where a year and season

was reported (winter, spring, summer, or fall) rather than a

month, an appropriate month (February, May, August, or

November) was assumed.

(3) All dates were transformed into a common metric and the

earliest occurrence reported for each activity was identified

from all four waves of data collection.

(4) The first eight behaviors (omitting serious though about the

start-up) were identified and the time lag between each pair

in the sequence was established.

(5) For all cases with two or more start-up behaviors (serious

thought was not considered a behavior), the earliest activity

in any pair where both were initiated within a 12 month

period was considered the “conception date.”(6) Based on reports of the respondent of that date when the

start-up became an “operating business” or “no longer being

worked on by anyone” the time between conception and new

firm birth, quit, or continuation of the start-up activity was

computed for each case.

(7) Starting with the first month following conception and for 3

month or 12 month time periods following, the proportion of cases in each time segment were computed. Those cases con-

sidered an “operating business” or “no longer being worked

on by anyone” were removed from the base for periods fol-

lowing their transitions out of the “start-up phase” status.




Table 5Ax.1.1 PSED I sample attrition

Criteria for inclusion Cases

All cases in original data file 830Retain cases that did not report going business prior to initial interview [See

Table C.3, page 499, in Reynolds and Curtin, Appendix C, Gartner et al., 2004].824

Retain cases with at least one follow-up interview 690Retain cases with three or more start-up acts 682Retain cases with two start-up acts within a 12 month period 669Retain cases that do not report positive monthly cash flow two years prior to any

other start-up event668

Retain cases where initial act was reported less than ten years before the initialinterview

648

To confine the assessment to only those cases that met the initial

criteria, the sample was systematically reduced, the case reduction cri-

teria is presented in the following Table 5Ax.1.1.

The distribution of selected variables before and after the attrition

criteria developed above is presented in the following Table 5Ax.1.2.

The distributions for most variables are quite similar and none of

the differences are statistically significant. The biggest differences are

with ethnic status, with a lower proportion of minorities in the consoli-

dated sample; this probably reflects the additional difficulty of locating

minorities for follow-up interviews. Based on this assessment, it would

appear that this customized data set was representative of the initial

sample that met the criteria for nascent entrepreneurs in the initial

interview. For analysis the wave one weights were utilized, adjusted so

the average weight equaled one.Most of the “conception dates” occurred prior to the initial detailed

interview. Even though those that appeared to begin the process more

than 10 years (120 months) prior to the first interview were deleted,

there was still a considerable variation in the “conception to first inter-

view” gap. The mean of this time lag was 26 months, the median

20 months, and the range from minus 45 months (occurring four years

after the first interview) to 120 months. For seven it was actually nega-tive, as their conception date occurred after the first detailed interview.

This operational feature of the procedure may affect two aspects of

the analysis: (1) the likelihood that a start-up would be reported as

an operating new firm and (2) the relationship between the various

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Table 5Ax.1.2 Comparison of PSED I samples: pre and post attrition

Pre attrition Post attrition

Number of cases 824 648Gender

Males 51.3% 49.7%Females 48.7% 50.3%

Age

18–24 years old 8.3% 8.2%25–34 years old 26.6% 24.1%35–44 years old 31.3% 31.6%45–54 years old 23.7% 26.2%55–up years old 9.1% 8.8%

Missing data 1.1% 1.1%

Ethnic background

White 59.3% 63.3%Black 26.1% 23.3%Hispanic 10.1% 8.8%Other 3.2% 3.2%Missing data 1.3% 1.4%

Educational attainment

No high school degree 4.5% 3.7%

High school degree 23.2% 21.8%Post high school, no college degree 32.6% 32.4%College degree 25.2% 25.6%Graduate experience 14.0% 15.9%Missing data 0.5% 0.6%

Labor force status

Working full-time 69.9% 68.2%Working part-time 14.7% 15.9%Not working, retired 15.2% 15.6%Missing data 0.2% 0.3%

Expected business ownership

Full ownership by one or more natural persons 86.9% 85.8%Independent start-up, legal persons own up to 50% 0.8% 0.8%Franchise or multi-level marketing, legal persons own up

to 50%6.2% 6.8%

Business sponsored, legal persons own up to 50% 5.2% 5.7%Legal persons own 51–100% 0.8% 0.9%

independent variables and the likelihood that a start-up would be

reported.

The pattern related to reports of operational new firms is presented

in Table 5Ax.1.3.

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Table 5Ax.1.3 Conception to first interview time lag and start-up outcomes

Conception to first

interview time lag

Percentage of cases

(n = 648) (%)

Average lag

(months)

Percentage reporting a new firm

in a follow-up interview (%)Up to 12 months 30.8 6.8 28.012 to 36 months 47.7 22.2 34.436 to 120 months 21.6 61.1 30.7

This pattern is slightly curvilinear, with more new firms reported by

those initiating conception 12 to 36 months prior to the first interview;the differences in the proportions reporting a new firm, however, are

far from statistically significant.

The second issue was explored by considering the potential impact

of the conception-interview time lag on the relationship between 89

independent variables and the measure of outcome, reports of an oper-

ating new business. It was found that for 60 variables (67%) the lack of

statistical significance was present for the overall relationship as well as

for each of the three conception-interview time lag subgroups. For one

variable (1%) the positive relationship was found for both the overall

sample and for each time lag subgroup. For 19 variables (21%) the over-

all relationship was statistically significant, but it was not significant

for one or two of the time lag groups. This appeared, in most cases, to

reflect differences in sample size. For nine variables (10%) the overall

relationship was not statistically significant but it was significant for

one of the time-lag sub-groups. There was no apparent pattern in thesedifferences, suggesting that no major biases were introduced into the

analysis by the use of all cases where the start-up was initiated up to

120 months prior to the first interview.

This suggests that the strategy adopted in other similar analyses, to

restrict analysis to those cases initiated no more than nine months prior

to the first detailed interview may have lead to an unnecessary reduc-

tion in the sample (Delmar and Shane, 2003). Based on the analysisdeveloped to explore the impact of the conception-interview time lag,

it would seem that incorporating start-ups initiated up to 60 months

(five years) prior to the initial detailed interview should not provide

any serious bias in the subsequent analysis.

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Appendix.5Ax.2 Disposition of All Cases and 72 MonthOutcome Status

A listing of all cases in the nascent entrepreneur cohort is provided

below. For each case, eleven variables are provided, described as follows:

RESPID 830 INITIAL NE CASE ID NUMBER: P3281 DATA

ID 830 SHORT CASE ID NUMBER

CASEKEEP 830 0 = GOOD CASE, DROP VALUES > 0

WT_72MT 648 WAVE 1 WEIGHT RE-CENTERED FOR 72 MO OUTCOME

CASESCPT_YR 830 START-UP CONCEPTION YEAR : CALCULATED

CPT_MTH 804 START-UP CONCEPTION MONTH: CALCULATED

PHYR 830 INITIAL DETAILED PHONE INTERVIEW: YEAR

PHMTH 830 INITIAL DETAILED PHONE INTERVIEW: MONTH

STAT_72M 648 START-UP OUTCOME STATUS AT 72 MONTHS

GBLG_MTH 200 CONCEPTION TO GOING FIRM BIRTH LAG: MONTHS

QTLG_MTH 221 CONCEPTION TO QUIT START-UP LAG: MONTHS

The variable CASEKEEP was computed to identify those cases to

be excluded from the analysis. The value label and reasons for exclu-

sions are provided in the following frequency distribution. Cases with

a CASEKEEP value of “0” were retained for the analysis.

Value label Value Frequency Percent

GOOD CASE .00 648 78.1

1ST ACT >10 YR B4 INTERVIEW 40.00 23 2.8

+MTH CSH FL 24 MTHS B4 INTR 50.00 1 .1

>12 MTH ACT GAP 60.00 26 3.1

<3 START-UP ACTS 70.00 2 .2

NO WAVE 2,3,4 INTERVIEWS 80.00 125 15.1

EARLY +MTH CASH FLOW 90.00 5 .6

------- ------

Total 830 100.0

The following listing is available from the author as an SPSS

Portable file and an Excel spreadsheet file.



Appendix.5Ax.2. Disposition of All Cases and 72 Month Outcome Status 123




Appendix.5Ax.3 Detailed Comparison of Start-UpsOutcomes: New Firms and Others

All comparisons based only on the 648 nascents identified as qualified,

reviewed in Appendix.5Ax.1, n = 648, as of their personal reports at the

end of six years after entry into the start-up process. Some assessmentsare based on self-administered questionnaire data and the same size

may be reduced by up to 30%. They can be identified by those variable

labels that have a letter following the initial “Q.” Details of creation

of multi-item indices or complex transforms are not provided, but vary

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Appendix.5Ax.3. Detailed Comparison of Start-Ups Outcomes: New Firms and Others 135

depending on the nature of the feature being described. The column

headings can be described as follows:

Dimension, characteristics, factor: summary of dependent variable.

New firm: Those nascents reporting a new firm at any time before the

end of six years.

Active SU, quit: those nascents reporting they have disengaged from

the effort at any time the end of six years or, by default, are considered

to be still active in the start-up effort.

Stat signif: Statistical significance is provided from a Chi-Square testfor cross tabulations and the F-test for the means comparisons.

Alpha: Reliability, where appropriate, computed as Chronbach’s Alpha.

Table: The table in this chapter in which the results are summarized.

Hand’k chapter: The chapter in the Gartner et al. (2004) Handbook

of Entrepreneurial Dynamics in which the background and rationale

for measure(s) is/are discussed. Some features are not covered in this

handbook.

Variable label: The variable labels from the phone interviews and mail

questionnaires or as transformed and provided in the full PSED I data

set; in some cases items used to compute multi-item indices or trans-

forms are listed.

Dimension,

characteristics,factor Newfirm ActiveSU, quit Statsign Alpha Table Hand’kchap Variablelabels

All 31.6% 68.4%

Men 31.4% 68.6% N/A 5.1 2 NCGENDERWomen 32.0% 68.0% 0.8824

18–24 yrs atconception/interview

25.9% 74.1% N/A 5.1 None AGE CPT5

25–34 yrs atconception/

interview

29.7% 70.3%


34.2% 65.8%


34.4% 65.6%

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Newfirm

ActiveSU,quit

Statsign Alpha Table

Hand’kchap

Variablelabels


30.6% 69.4% 0.5831

Men: 18–24 yrsat conception/interview

22.3% 77.7% 5.1 None NCGENDER,AGE CPT5


29.2% 70.8%

Men: 35–44 yrs

at conception/interview

35.4% 64.6%


33.3% 66.7%


37.5% 62.5%

Women: 18–24yrs at

conception/interview

34.0% 66.0%

Women: 25–34yrs atconception/interview

30.4% 69.6%


32.3% 67.7%

Women: 45–54

yrs atconception/interview

36.0% 64.0%


15.7% 84.3% 0.7971

White 34.2% 65.8% N/A 5.1 3 PGRACEHispanic 31.7% 68.3%Black 22.3% 77.7%

Other 17.6% 82.4% 0.0497Lived in county

0–2 years34.4% 65.6% N/A 5.1 6 Q353A MT


30.3% 69.7%





Newfirm

ActiveSU,quit


Hand’kchap

Variablelabels


29.7% 70.3%


27.5% 72.5%


35.0% 65.0%


30.7% 69.3% 0.7810

Lived in state0–2 years

38.1% 61.9% N/A 5.1 6 Q354 MT


24.6% 75.4%


26.6% 73.4%


27.8% 72.2%


33.9% 66.1%


35.1% 64.9% 0.4159

Born in theUnited States

31.2% 68.6% N/A 5.1 6 Q358

Not born in theUnited States

39.0% 61.0% 0.3089

Up to HS degree 26.8% 73.2% N/A 5.1 7 ITRWEDU4Post HS, Pre

college degree31.0% 69.0%

College degree 36.8% 63.2%Graduate

experience31.3% 68.7% 0.3516

Parent’s own abusiness

53.4% 52.4% 0.8244 N/A 5.1 16 Q362

Worked forparent

44.6% 39.3% 0.3612 N/A 5.1 16 Q367, Q371,Q375

Family friendsencouragedstart-up

64.9% 64.0% 0.8653 N/A 5.1 16 Q379

Friends andneighbors ownbusinesses

2.22 2.13 0.6418 N/A 5.1 16 Q377(4-point)

Impression of owning abusiness fromfriends,relatives

4.16 4.13 0.6699 N/A 5.1 16 Q378(5-point)





Newfirm

ActiveSU,quit


Hand’kchap

Variablelabels

Never married 35.1% 64.9% N/A 5.2 4 Q385Married or living

as married32.9% 67.1%

Other: Divorced,widowed,separated etc.

21.8% 78.2% 0.0855

Single adult 41.8% 58.2% N/A 5.2 4 Q380, Q381,Q382, Q383

Two or moreadults: no

children

29.9% 70.1%

Adults andchildren lessthan 19 yearsold

30.4% 69.6% 0.1003

Household size:all ages

3.04 3.14 0.3973 N/A 5.2 4 Q380

Household size:adults only

2.18 2.14 0.3645 N/A 5.2 4 Q384

Household: total

earning moneyin previous week

1.73 1.72 0.8344 N/A 5.2 4 Q384A

HH income:0–$20,000/Yr

29.9% 70.1% N/A 5.2 5 HHINCR5


26.2% 73.8%


33.2% 66.8%


33.6% 66.4%

HH income:$100,000–Up/Yr 42.9% 57.1% 0.1394

HH net worth:negative

41.6% 58.4% N/A 5.2 5 HHNETR6

HH net worth:$0–100,000

28.5% 71.5%

HH net worth:$100,000–250,000

39.3% 60.7%

HH net worth:$250,000–500,000

36.8% 63.2%

HH net worth:$500–1,000,000

29.6% 70.4%

HH net worth:$1,000,000 andup

27.7% 72.3% 0.2648





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Hand’kchap

Variablelabels

Last work day:ave hours onwork plus travel

6.58 7.07 0.2205 N/A 5.2 9 QM5D1

Last work day:ave hours onstart-up firm

2.15 2.12 0.9103 N/A 5.2 9 QM5E1

Last day off: avehours on workplus travel

0.62 0.64 0.9287 N/A 5.2 9 QM5D2

Last day off: ave

hours onstart-up firm

1.53 2.25 0.0061 N/A 5.2 9 QM5E2

Satisfaction withmost recent job[Z-score]

0.34 0.37 0.7983 N/A 5.2 14 QI8

Satisfied with lifeoverall [Z-score]

0.18 −0.09 0.0061 N/A 5.2 14 QL1M

Self realization 3.86 3.95 0.2884 0.78 5.3 12 QG1R,QG10,QG1P,

QG1HFinancial security 3.54 3.59 0.6225 0.78 5.3 12 QG1K,

QG1G,QG1J,QG1N

Recognition 2.57 2.53 0.7497 0.76 5.3 12 QG1L,QG1E,QG1A

Role expectations 1.92 1.85 0.4791 0.60 5.3 12 QG1D,QG1L

Innovation 2.61 2.63 0.8583 0.71 5.3 12 QG1C,QG1M,QG1Q

Independence 4.14 4.14 0.9449 0.66 5.3 12 QG1B,AG1F

Entrepreneurialexpectations

4.32 4.18 0.0112 0.83 5.3 13 QK1A,QK1B,QK1C,QK1D,QK1E,QK1F

Problemcomplexity:identifyingproblems forpriority

34.5% 65.5% N/A 5.3 18 QI9





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Hand’kchap

Variablelabels

Problemcomplexity:developingsolutions

32.9% 67.1% 0.7247

Business problemsolving:calculating andanalytical

33.2% 66.8% N/A 5.3 18 QJ1

Business problemsolving:

intuitive

36.0% 64.0%

Business problemsolving: variesby situation

32.5% 67.5% 0.8400

Cognitive style:different ormixed

25.6% 74.4% N/A 5.3 15 Q327

Cognitive style:better

35.1% 64.9% 0.0471

Entrepreneurial

intensity

3.41 3.28 0.0403 0.72 5.3 17 QL1D,

QL1E,QL1F,QL1G

Prefer to grow aslarge as possible

18.3% 22.4% N/A 5.3 33 Q322

Prefer to stay amanageable size

81.7% 77.6% 0.2349

Projected Jobs infirst full year of operation

4.5 27.6 0.4126 N/A 5.3 33 Q318, Q319

Projected Jobs infifth full year of operation

29.1 30.6 0.9394 N/A 5.3 33 Q320, Q321

Projected Sales infirst full year of operation($1,000)

194.2 692.8 0.0975 N/A 5.3 33 Q317

Projected Sales infifth full year of operation

($1,000)

1,542.7 2,386.1 0.3077 N/A 5.3 33 Q317A

Percent equityownership infive years

68.3% 67.6% 0.7912 N/A 5.3 33 Q323

Proportion expectfirm to primaryHH income

66.7% 64.4% 0.4036 N/A 5.3 33 Q324





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Variablelabels

Estimatedprobability firmoperating in fiveyears

85.2% 80.0% 0.0117 N/A 5.3 33 Q325

Frequency of new,unpredictablesituations atwork

2.34 2.42 0.4535 N/A 5.3 18 QJ2A

Feel overloaded,pushed to limits

at work

3.22 3.11 0.2883 N/A 5.3 18 QJ2B

Delay difficultproblemdecisions togather moreinformation

3.54 3.63 0.2936 N/A 5.3 18 QL1R

Locus of control 4.09 3.96 0.0143 0.47 5.3 19 QL1H,QL1I, QL1J

Ignore sunk costsin decision

making

3.07 2.98 0.4001 N/A 5.3 20 QL1K

Focus on currentvalue whenselling asset,not cost

3.61 3.40 0.0309 N/A 5.3 20 QL1L

Confidence insocial settings

3.95 3.83 0.0419 0.48 5.3 21 QL1T,QL1X,QL1Y

Emotional control 3.04 2.97 0.4499 0.57 5.3 21 QL1S.QL1VShyness 2.74 2.82 0.2830 0.04 5.3 21 QL1U,

QL1WBelief in

incremental,systematicsearch

3.29 3.29 0.9937 0.43 5.3 24 QK1J,QK1L

Belief that goodideas just occur

2.83 2.81 0.8970 N/A 5.3 24 QK1K

Desire forbusinesspreceded idea

31.3% 68.7% N/A 5.3 24 QA2

Desire/ideaoccurredtogether

32.7% 67.3%

Idea for businesspreceded desire

35.4% 64.6% 0.6881





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Hand’kchap

Variablelabels

Emphasis on highpayoff/high risk

2.54 2.53 0.9384 0.52 5.3 None QH1, QH2

Emphasis on highpersonal impact

1.73 1.70 0.3782 0.44 5.3 None QH5, QH6

Preferscollective/groupefforts

1.35 1.47 0.0016 0.19 5.3 None QH4, QH8

Preferschallenge/taskfocus

1.46 1.47 0.6766 0.17 5.3 None QH3, QH7,QH9

Financial issuesin firm choice

2.38 2.39 0.8135 0.60 5.3 None QH10B,QH10C

Operationalissues in firmchoice

2.42 2.47 0.2064 0.58 5.3 None QH10A,QH10D,QH10E,QH10F,QH10G

No same industryexperience

20.9% 79.1% N/A 5.4 6 Q199,Q213 1

1–5 years same

industryexperience

31.0% 69.0%

6–14 years sameindustryexperience

37.2% 62.8%

15–60 years sameindustryexperience

38.1% 61.9% 0.0025

Helped start noother businesses

31.1% 68.9% N/A 5.4 6 Q200,Q214 1

Helped start oneother business 28.7% 71.3%

Helped start 2–4other businesses

35.6% 64.4%

Helped start 5–60other businesses

31.6% 68.4% 0.6875

Full time paidworkexperience:years

18.75 16.98 0.0570 N/A 5.4 None Q340

Managerial,supervisory,administrativework exper:years

9.81 7.94 0.0080 N/A 5.4 None Q341





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Variablelabels

Generalmanagementclasses, averagetaken

1.90 1.78 0.5148 0.64 5.4 7 QF1A1,QF1B1,QF1H1,QF1I1

Human, financialmanagementclasses, averagetaken

0.99 0.72 0.0704 0.61 5.4 7 QF1D1,QF1F1

Operationsmanagement

classes, averagetaken

0.75 0.60 0.2586 0.27 5.4 7 QF1C1,QF1E1,

AF1G1

Generalmanagementworkexperiences, avgyears

4.54 3.56 0.0328 0.84 5.4 7 QF1A2,QF1B2,QF1D2,QF1F2,QF1H2,QF1I2

Operationsmanagement

workexperiences, avgyears

3.58 2.57 0.0159 0.65 5.4 7 QF1C2,QF1E2,

AF1G2

Total activitycount: over 12prior years

18.34 18.99 0.3847 N/A 5.4 10 QO1A87-QO1D91

Yrs in whichfull-timeemployment

4.21 4.30 0.1750 N/A 5.4 10 QO1A87-QO1D91

Yrs in whichpart-timeemployment

1.98 2.17 0.4961 N/A 5.4 10 QO1A87-QO1D91

Yrs in whichfull-timeself-employment

1.72 1.27 0.1007 N/A 5.4 10 QO1A87-QO1D91

Yrs in whichpart-timeself-employment

1.74 1.62 0.6854 N/A 5.4 10 QO1A87-QO1D91

Yrs in whichfull-timestudent

1.46 1.91 0.1332 N/A 5.4 10 QO1A87-QO1D91

Yrs in whichpart-timestudent

0.83 0.90 0.7162 N/A 5.4 10 QO1A87-QO1D91

Yrs in whichunemployedseeking work

0.16 0.34 0.0524 N/A 5.4 10 QO1A87-QO1D91





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Hand’kchap

Variablelabels

Yrs in whichunemployed notseeking work

0.15 0.27 0.2165 N/A 5.4 10 QO1A87-QO1D91

Yrs in whichdoing unpaidvolunteer work

0.60 1.15 0.0367 N/A 5.4 10 QO1A87-QO1D91

Yrs in which ahomemaker

1.78 1.91 0.7238 N/A 5.4 10 QO1A87-QO1D91

Yrs in whichdisable and

unable to work

0.13 0.32 0.2924 N/A 5.4 10 QO1A87-QO1D91

Yrs in whichretired

0.22 0.23 0.9844 N/A 5.4 10 QO1A87-QO1D91

Start-up problemindex (fiveitems)

3.17 3.22 0.5316 0.51 5.5 QC1A,QC1B,QC1C,QC1D,QC1E

Start-upproblems: social

challenges

2.87 3.10 0.0342 0.54 5.5 25 QC1A,QC1B

Start-upproblems:personalchallenges

3.36 3.29 0.3848 0.41 5.5 25 QC1C,QC1D,QC1E

Entrepreneurialclimate:communitysupport groups

2.68 2.70 0.7464 0.69 5.5 35 QB1B,QB1C,QB1D,QB1E, QB1I

Entrepreneurial

climate: friendsand familymodels

2.48 2.49 0.9192 0.65 5.5 35 QB1G,

QB1H

Entrepreneurialclimate:communitymodels

3.76 3.77 0.9161 0.38 5.5 35 QB1A,QB1F, QB1J

Econ/Communitycontext,uncertainty:overall

2.92 2.89 0.7582 0.73 5.5 36 QD1A,QD1B,QD1C,QD1D,QD1E,QD1F,QD1G,QD1H,QD1I, QD1J,QD1K





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Variablelabels

Econ/Communitycontext,uncertainty:financial

2.35 2.36 0.9526 0.72 5.5 36 QD1C,QD1D,QD1J,QD1K

Econ/Communitycontext,uncertainty:competitive

3.90 3.91 3.7258 0.05 5.5 36 QD1F,QD1G,QD1H,QD1I

Econ/Communitycontext,

uncertainty:operational

2.16 2.34 0.1644 0.44 5.5 36 QD1A,QD1B,

QD1E

Total teamstart-up timecommitted:0–100 hours

19.7% 80.3% N/A 5.6 None Q197,Q211 1,Q211 2,Q211 3,Q211 4,Q211 5

Total teamstart-up time

committed:101–500 hours

34.3% 65.7%

Total teamstart-up timecommitted:501–2,000 hours

34.3% 65.7%

Total teamstart-up timecommitted:2,001–7, 500hours

38.7% 61.3% 0.0016

Start-up timecommitted/member: 0–80hours

17.3% 82.7% N/A 5.6 None TEAMZP

Start-up timecommitted/member: 81–300hours

36.0% 64.0%

Start-up timecommitted/

member:301–1,000 hours

39.1% 60.9%

Start-up timecommitted/member:1,001–5,000hours

36.8% 93.2% 0.0001





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Hand’kchap

Variablelabels

Total teamstart-up timecommitted/month: 0–8hours

22.0% 78.0% N/A 5.6 None Conceptionto 1stinterview


31.0% 69.0%


36.9% 63.1%


37.3% 62.7% 0.0084

Start-up timecommitted/member/month:0–6 hours

23.0% 77.0% N/A 5.6 None TEAMSZP;Conceptionto 1stinterview


29.4% 70.6%

Start-up timecommitted/member/month:

21–50 hours

39.7% 60.3%


37.2% 62.8% 0.0044

Extractive sectors 38.4% 61.6% N/A 5.6 23 SUSIC 5Transformative

sectors29.0% 71.0%

Distributivesectors

43.2% 56.8%

Business servicessectors

32.8% 67.2%

Consumerservices sectors

29.2% 70.8% 0.3831





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Variablelabels

Soleproprietorship

34.4% 65.6% N/A 5.6 23 Q189

Partnership 25.1% 74.9%Corp, LLC 38.7% 61.3%Other, not yet 14.7% 85.3% 0.0098

Private home 30.5% 69.5% N/A 5.6 23 Q194Exist business

location38.0% 62.0%

Dedicated newfirm location

39.4% 60.6%

Other/notneeded

23.8% 76.2% 0.1042

Naturalpersons: 100%ownership

31.5% 68.5% N/A 5.6 27 AUTONSU

Naturalpersons:51–99%ownership

28.5% 71.5%

Natural

persons:0–50%ownership

74.1% 25.9% 0.0340

One personstart-up team

28.7% 71.3% N/A 5.6 27 TEAMZP

Two personsstart-up team

37.2% 62.8%

Three personsstart-up team

35.3% 64.7%

Four persons

start-up team

15.9% 84.1%

Five personsstart-up team

34.2% 65.8% 0.0922

Reportingsocial networkpresent(proportion)

66.7% 64.2% 0.5372 N/A 5.6 29 Q241

Number insocial network(average)

3.37 3.24 0.8057 N/A 5.6 29 Q242

Contact helpingprograms:four waves

35.3% 23.3% N/A 5.6 30 Q303,R755,S755, T755

No contact withhelpingprograms:four waves

64.7% 76.7% 0.0017





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Variablelabels

Program sponsor:government

38.8% 61.2% N/A 5.6 30 Q306,R759,S759,T759

Program sponsor:educationalinstitution

43.7% 56.3%

Program sponsor:businessassociation

42.2% 57.8%

Program sponsor:for profitorganization

26.9% 73.1% 0.7073

Number programscontacted: fourwaves

2.21 3.68 0.1370 N/A 5.6 30 Q305,R757,S757,T757

Hours spend mostrecent program:four waves

116.35 89.03 0.7260 N/A 5.6 30 Q309,R762,S762,

T762Estimated valueof help indollars: fourwaves

1991.08 1980.48 0.9839 N/A 5.6 30 Q311,R764,S764,T764

Number of programsknown about:four waves

11.05 13.58 0.6598 N/A 5.6 30 Q316,R769,S769,T769

Total team fundsinvested:$0–$500

21.5% 78.5% N/A 5.6 31 Q198,Q212 1,Q212 2,Q212 3,Q212 4,Q212 5

Total team fundsinvested:$501–$3,000

27.0% 73.0%

Total team fundsinvested:$3,001–$12,000

38.1% 61.9%

Total team fundsinvested:$12,001–$56,000

40.6% 59.4% 0.0003

Funds invested/member:$0–$500

22.0% 78.0% N/A 5.6 31 TEAMSZP





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Variablelabels

Funds invested/member:$501–$2,000

32.7% 67.3%

Funds invested/member:$2,001–$7,500

34.6% 65.4%

Funds invested/member: $7,501–$164,000

41.3% 58.7% 0.0020

Total team funds

invested/month:$0–$30

21.5% 78.5% N/A 5.6 31 Conception

to 1stinterview

Total team fundsinvested/month:$31–$150

26.7% 73.3%

Total team fundsinvested/month:$151–$500

38.2% 61.8%

Total team fundsinvested/month:

$501–$28,000

38.9% 61.1% 0.0008

Funds invested/member/month:$0–$25

24.1% 75.9% N/A 5.6 31 TEAMSZP;Conceptionto 1stinterview


27.9% 72.1%


34.0% 66.0%

Funds invested/member/month:$501–$10,000

43.0% 57.0% 0.0046

Accountingsophistication:cash accounting

24.4% 75.6% N/A 5.6 32 QE1A,QE1C,QE1E

Accountingsophistication:

bank account,not accrual

35.6% 64.4%

Accountingsophistication:bank acct,accrual

22.6% 77.4% 0.2504





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Variablelabels

Businessplanning: none,marketassessment only

31.8% 68.2% N/A 5.6 32 Q111, Q112,Q134, Q135

Businessplanning:marketassessment andbuss plan

26.7% 73.3%

Business

planning:financial andmarketing orplan

43.8% 56.2%

Businessplanning:financial, mktassessment, plan

36.0% 64.0% 0.0540

Competitivestrategy: hi

technologyprocesses

2.92 2.76 0.0576 0.49 5.6 37 Q302G,Q302I

Competitivestrategy: new,quality products

2.81 2.75 0.5224 0.58 5.6 37 Q302D,Q302E

Competitivestrategy: lowerprices

2.61 2.55 0.5323 N/A 5.6 37 Q302

Competitivestrategy:superior

location,convenience

2.69 2.85 0.1152 N/A 5.6 37 Q302C

Competitivestrategy: nichemarket

3.15 3.17 0.7695 N/A 5.6 37 Q302B

Competitivestrategy:superior quality

3.69 3.60 0.0993 N/A 5.6 37 Q302A

No technologyemphasis

35.5% 64.5% 0.32 5.6 38 Q299, Q300,Q301

Low technologyemphasis

30.4% 69.6%

Mediumtechnologyemphasis

24.9% 75.1%

High technologyemphasis

28.4% 71.6% 0.2079





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Hand’kchap

Variablelabels

No and low tech 32.9% 67.1% 5.6 38 Q299, Q300,Q301

Medium and hightechnology

25.8% 74.2% 0.0820

Per capita totalpersonalincome, 1993:0–25%-tile

30.9% 69.1% N/A 5.7 None PCINC934

Per capita totalpersonal

income, 1993:25–50%-tile

35.0% 65.0%


31.0% 69.0%


30.0% 70.0% 0.7854

Per cent HH w/income$75,000-up,1989: 0–25%-tile

39.9% 60.1% N/A 5.7 None HH75K894

Per cent HH w/income$75,000-up,1989:50–75%-tile

27.0% 73.0%


31.7% 68.3%


29.8% 70.2% 0.1179

Per centpopulation

25–44 years old,1990: 0–25%-tile

33.2% 66.8% N/A 5.7 None P2544904

Per centpopulation25–44 years old,1990:25–50%-tile

32.0% 68.0%





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Variablelabels


35.8% 64.2%


26.0% 74.0% 0.2312

Per cent 25+ yrsw/collegedegrees, 1990:0–25%-tile

34.6% 65.4% N/A 5.7 None PCOLL904


33.2% 66.8%

Per cent 25+ yrsw/college

degrees, 1990:50–75%-tile

33.4% 66.6%


26.1% 73.9% 0.3319

Urbanizationindex, fouritems:0–25%-tile

40.2% 59.8% 0.87 5.7 None PCINC934,HH75K894,P2544904,PCOLL904


26.2% 73.8%


34.1% 65.9%

Urbanizationindex, fouritems:

75–100%-tile

27.8% 72.2% 0.0447

Populationdensity,persons/sq mile,1992: 0–25%-tile

41.2% 58.8% N/A 5.7 None POPDN924





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Hand’kchap

Variablelabels

Population density,persons/sq mile,1992: 25–50%-tile

27.8% 72.2%

Population density,persons/sq mile,1992: 50–75%-tile

26.6% 73.4%

Population density,persons/sq mile,1992:75–100%-tile

32.4% 67.6% 0.0231

Population growth,avg annual:1980–1992:0–25%-tile

29.9% 70.1% N/A 5.7 None PC8092A4


35.3% 64.7%

Population growth,avg annual:

1980–1992:50–75%-tile

31.2% 68.8%


29.5% 70.5% 0.6498

Appendix.5Ax.4 Constructing Start-Up Activity IndicesThe procedure for developing the indices involved attention to both the

results of standard factor analysis and reliability measures using SPSS

PC 5.0.1. Final allocations of items to factors involved consideration of

results from both assessments.

Factors analysis was run on the acts initiated at 1 month, 6 months,

and 1, 2, 3, 4, 5, and 6 years following conception. There were few clear

patterns across the early periods, one and six months, but the resultsfor years two through six reflected considerable stability; a six fac-

tor solution appeared in most assessments, using the standard default

criteria. The weakest loading – split between two factors – was for ini-

tiating a bank account. The final allocation of items is as followed in




T a b l e 5 A x . 4 . 1 I t

e m s i n c l u d e d i n t h e s t a r t - u p

a c t i v i t y d o m a i n s

D o m a i n

I t e m s

P S E D I : V a r i a b l e l a b e l s

B u s i n e s s p r e s e n c e

E s t a b l i s h e d a n e x c l u s i v e b a n k a c c o

u n t

Q

1 6 0 ; R 6 1 7 ; S 6 1 7 ; T 6 1 7

D e v o t e d f u l l t i m e t o s t a r t - u p e ff o r t , 3 5 + h r s / w e e k

Q

1 5 3 ; R 6 1 0 ; S 6 1 0 ; T 6 1 0

I n s t a l l e d d e d i c a t e d p h o n e l i n e

Q

1 7 4 ; R 6 3 2 ; S 6 3 2 ; T 6 3 2

I n i t i a t

e d a p h o n e b o o k o r i n t e r n e t l i s t i n g

Q

1 7 1 ; R 6 2 9 ; S 6 2 9 ; T 6 2 9

H i r e d

a n e m p l o y e e f o r p a y

Q

1 5 5 ; R 6 1 2 ; S 6 1 2 ; T 6 1 2


P u r c h a s e d r a w m a t e r i a l s , i n v e n t o r y , s u p p l i e s , c o m p o n e n t s

Q

1 2 8 ; R 5 8 5 ; S 5 8 5 ; T 5 8 5

P u r c h a s e d , l e a s e d p l a n t , e q u i p m e n t , p r o p e r t y

Q

1 3 1 ; R 5 8 8 ; S 5 8 8 ; T 5 8 8

P r o m o

t i o n o f p r o d u c t o r s e r v i c e h a s s t a r t e d

Q

1 2 2 ; R 5 7 9 ; S 5 7 9 ; T 5 7 9

R e c e i v

e d a n y m o n e y , i n c o m e , o r f e e s

Q

1 6 2 ; R 6 1 9 ; S 6 1 9 ; T 6 1 9

E s t a b l i s h e d s u p p l i e r c r e d i t

Q

1 4 9 ; R 6 0 6 ; S 6 0 6 ; T 6 0 6

I n i t i a l

p o s i t i v e m o n t h l y c a s h fl o w

Q

1 6 3 ; R 6 2 1 ; S 6 2 1 ; T 6 2 1


O r g a n i z e d a s t a r t - u p t e a m

Q

1 1 6 ; R 5 7 3 ; S 5 7 3 ; T 5 7 3

P r e p a r e d a b u s i n e s s p l a n

Q

1 1 1 ; R 5 6 8 ; S 5 6 8 ; T 5 6 8

D e v e l o

p fi n a n c i a l p r o j e c t i o n s

Q

1 3 7 ; R 5 9 4 ; S 5 9 4 ; T 5 9 4

A s k e d

fi n a n c i a l i n s t i t u t i o n s o r o t h e r p e o p l e f o r f u n d s

Q

1 4 5 ; R 6 0 2 ; S 6 0 2 ; T 6 0 2

P e r s o n a l p l a n n i n

g

T i m e t h i n k i n g a b o u t t h e n e w b u s i n e s s

Q

1 0 9 ; r 5 6 6 ; S 5 6 6 ; T 5 6 6

D e fi n e

m a r k e t o p p o r t u n i t i e s

Q

1 3 4 ; R 5 9 1 ; S 5 9 1 ; T 5 9 1

I n v e s t m e n t o w n m o n e y

Q

1 4 3 ; R 6 0 0 ; S 6 0 0 ; T 6 0 0

P e r s o n a l p r e p a r a

t i o n

B e g a n

t o s a v e m o n e y t o i n v e s t

Q

1 3 9 ; R 5 9 6 ; S 5 9 6 ; T 5 9 6

A r r a n g e d c h i l d c a r e , h o u s e h o l d h e l p

Q

1 5 1 ; R 6 0 8 ; S 6 0 8 ; T 6 0 8

T a k e n

a n y c l a s s e s o r w o r k s h o p

Q

1 6 7 ; R 6 2 5 ; S 6 2 5 ; T 6 2 5

T a s k o r p r o d u c t

D e v e l o

p e d p r o d u c t o r s e r v i c e m o d e l o r p r o t o t y p e

Q

1 2 0 ; R 5 7 7 ; S 5 7 7 ; T 5 7 7

P a t e n t , t r a d e m a r k , c o p y r i g h t a p p l i c a t i o n s u b m i t t e d

Q

1 2 4 ; R 5 8 2 ; S 5 8 2 ; T 5 8 2

F o r m a l r e g i s t r a t i o n

P a i d fi

r s t s t a t e u n e m p l o y m e n t i n s u

r a n c e t a x

Q

1 7 5 ; R 6 3 3 ; S 6 3 3 ; T 6 3 3

P a i d fi

r s t f e d e r a l s o c i a l s e c u r i t y t a x p a y m e n t

Q

1 7 8 ; R 6 3 6 ; S 6 3 6 ; T 6 3 6

F i l e d fi r s t f e d e r a l i n c o m e t a x r e t u r

n

Q

1 7 9 ; R 6 3 7 ; S 6 3 7 ; T 6 3 7

K n o w

fi r m l i s t e d w i t h D u n a n d B r

a d s t r e e t

Q

1 8 1 ; R 6 3 9 ; S 6 3 9 ; T 6 3 9




Table 5Ax.4.2 Reliability for start-up activity domain indices, by year

First

month

Sixth

month

First

year

Second

year

Third

year

Fourth

yearBusiness presence 0.43 0.58 0.70 0.72 0.75 0.75Production implementation 0.45 0.67 0.66 0.72 0.72 0.74Organizational, financialstructure

0.21 0.58 0.59 0.59 0.58 0.58

Personal planning 0.37 0.55 0.52 0.54 0.52 0.51Personal preparation −0.02 0.38 0.31 0.36 0.36 0.38Task, product development 0.22 0.26 0.25 0.25 0.24 0.22

Table 5Ax.4.1 [first letter of PSED I variable labels indicates the datacollection wave: Q = 1,R = 2;S = 3; and T = 4].

Once the six factors were established, reliability to determine

Chronbach’s Alpha was completed on all eight time periods. “Initi-

ating a bank account” was allocated to equalize the reliability for the

first two factors. The reliabilities for the measures for the first six time

periods is presented in Table 5Ax.4.2, the results for years five and six

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