Scholars and practitioners have investigated how critical factors such as planning and uncertainty affect the performance of small and entrepreneurial ventures, but little is known about how these same key factors may influence entrepreneurial intentions or expectations of firm performance. Using data from the Entrepreneurship Research Consortium (ERC), a national study of nascent entrepreneurs, we examine how age, gender, prior work experience, business plan formalization, and nascent entrepreneurs’ perceptions of environmental uncertainty affect their expectations of firm growth. This study provides baseline data regarding nascent entrepreneurs’ growth expectations that can be compared with future data collected on actual firm growth as nascent entrepreneurs become (or not) practicing entrepreneurs.

In the current project, we examine key factors often associated with entrepreneurial performance or success, but we examine them in the context of emergent or nascent entrepreneurs. We selected five characteristics from the entrepreneurship literature: age, gender, prior work experience, business plan formalization, and perceived environmental uncertainty. All of these characteristics have been of interest to scholars in their attempts to develop models of entrepreneurial success. In addition, since nascent entrepreneurs, by definition, have growth expectations or intentions, rather than actual growth, we examine nascent entrepreneurs’ growth expectations in relation to these critical factors. Our study is guided by two primary questions. First, how do nascent entrepreneurs’ age, gender and prior work experience relate to their expectations of organizational growth? Second, how do nascent entrepreneurs’ business plan formalization and perceived environmental uncertainty relate to their expectations of organizational growth?

Scholarship on entrepreneurs’ age and gender as it relates to entrepreneurial success has had mixed results. For instance, some scholars (e.g., Alsos & Ljunggren, 1998; Kalleberg & Leicht, 1991) have found that female entrepreneurs start smaller businesses, hire fewer employees, or have lower levels of gross earnings than male entrepreneurs, while others have found that sales and employee levels were the same across genders (e.g., Hisrich & Brush, 1997). However, Kalleberg and Leicht also found that while absolute levels of earnings may differ across genders, that there were no gender differences in earnings growth. While Orser, Hogarth-Scott, and Wright (1998) found that female owners were less likely to seek growth than male business owners, Ljunggren and Kolvereid (1996) found no statistically significant gender differences in expectations of firm profitability.

Regarding age, Reynolds’ (1999) examination of early ERC data suggests that a larger proportion of men in the U.S. population are actively engaged in trying to start a new firm in the 25–34 year old age group, while for women the prevalence of pre-startup activity is in the 35–44 year old age group. Further, in a study of the business launch decision, Van Auken (1999) found that both financial and time resources were less difficult to acquire for individuals over 37 years old as compared to those under 37 years old. Given the inconclusive nature of the extant literature regarding differences between men and women and the age of the entrepreneur, it is proposed here that

P1: Gender and age of the nascent entrepreneur will not significantly predict expectations of firm growth.

The literature on prior work experience as it relates to entrepreneurial success has had more consistent results. Findings from Duchesneau and Gartner (1990), Davidsson (1991), Begley (1995) and others indicate that such activities as prior work experience, broad work experience and prior startup experience are positively and significantly related to business success. In addition, Orser et al. (1998) found that diversity of management experience or activities is strongly associated with firm growth intentions. Therefore, we posit that

P2: Years of prior work experience of the nascent entrepreneur will significantly predict expectations of firm growth.

Academics and consultants have been telling nascent entrepreneurs for years that they need to do a better job of planning for the future (e.g., Baker, Addams, & Davis, 1993). However, a close look at the relevant research does not reveal clear-cut support for the planning-performance relationship (e.g., Schwenk & Shrader, 1993). Indeed, recent findings support these earlier studies, and conclude that “planning is sometimes useful and sometimes not (Lumpkin, Shrader & Hills, 1998: 198). However, Lumpkin et al., also conclude that planning might be more related to the success of new ventures than established firms. Although mixed results have been found, it is reasonable to posit that formalization of business planning will significantly predict expectations of firm growth.

P3: The degree of business plan formalization of the nascent entrepreneur will significantly predict expectations of firm growth.

One reason that the role of environmental uncertainty has been overlooked in small firm research is linked to a lack of a precise definition of exactly what constitutes uncertainty with respect to the business environment. Indeed, environmental uncertainty has received considerable attention from an organizational perspective (e.g., Emery & Trist, 1965; Downey & Slocum, 1975; Boulton, Lindsay, Franklin, & Rue, 1982). Small and entrepreneurial firm research has yet to fully explore the relationship of the environment and the firm and the ultimate impact on firm performance. Recent empirical and conceptual evidence, however, suggests that perhaps it is the entrepreneur’s or small business person’s perception of the environment which plays a key role in the firm’s chances of success (Bruno & Tyebjee, 1982; Jauch & Kraft, 1986; Luo, 1999). In the current study, we adopt Milliken’s (1987) conceptual definition of environmental uncertainty as “state uncertainty” or the uncertainty that occurs when the entrepreneur is uncertain about “how components of the environment might be changing [such as] an inability to predict the future behavior of a key competitor . . . or inability to predict whether Congress will deregulate one’s industry” (p. 136). Given the findings of prior research, we posit that

P4: Perception of environmental uncertainty of the nascent entrepreneur will significantly predict expectations of firm growth.

With few exceptions, scholars have yet to examine entrepreneurs’ expectations of firm growth as opposed to actual firm growth (e.g., Krueger & Carsrud, 1993; Orser, et al., 1998). However, while nascent entrepreneurs do not yet have actual firm performance measures such as employee and sales growth, they do have expectations of firm performance that may foreshadow their organizational growth experience. Indeed, the literature on firm performance in smaller and newer firms, in which entrepreneurs’ perceptions of organizational effectiveness were consistent with objective measures of performance, would suggest that growth expectations may provide a useful predictor of actual performance (Chandler & Hanks, 1993).

In addition, the theory of planned behavior (Ajzen, 1991) posits that you can predict actions from intentions and may be relevant for understanding how nascent entrepreneurs’ firm growth expectations lead to actual firm performance. While the actions we refer to are firm level actions (e.g., performance) and the intentions we refer to are entrepreneurs’ intentions (e.g., firm growth intentions), it can be argued that in the context of smaller and newer firms in general, and nascent entrepreneurs in particular, the entrepreneur and the firm are equivalent (Chandler & Hanks, 1993). Thus, the current study views the examination of nascent entrepreneurs’ firm growth expectations as important baseline data from the ERC study that can be compared with future data collected on actual firm growth as nascent entrepreneurs become (or not) practicing entrepreneurs.

Procedure and Sample¹

Dependent Variables

Expectations of Financial Growth. The phone interview included the question, “We would like to ask about your expectations regarding the future of this new firm. First, what would you expect the total sales, revenues, or fees to be in the first full year of operation? And what about in the fifth year?” A simple percentage growth rate for the five-year period was calculated by subtracting year one from five and dividing by year one. A log transformation was performed on the growth rate in order to approximate a normal distribution to facilitate the regression analysis.

Expectations of Employee Growth—Full and Part Time. Four times in the phone interview asked for the respondent to estimate the number of full and part-time employees, exclusive of the owner, were expected in year one and year five. For example, “By the end of the first full year of operation, about how many full time employees, not counting owners, do you expect to be working for pay at this new business?” Expectations for full and part-time employees were summed for year one and year five and a simple percentage growth rate was calculated by subtracting year one from year five and dividing by year one.

Independent and Control Variables

Age. Age was calculated by subtracting the respondent’s birth year from 1999, the year of the survey.

Gender. Sex of the respondent was recorded by the phone interviewer as one for male and two for female.

Years of Full-Time Paid Work Experience. It was asked, “How many total years of full time, paid work experience in any field have you had?”

Business Plan Formalization. As part of the phone survey, it was asked, “A business plan usually outlines the markets to be served, the products or services to be provided, the resources required—including money—and the expected growth and profits for a new business. Has a business plan been prepared?” A “yes” or “no” response was provided. If yes, the respondent was asked, “What is the current form—unwritten or in your head (1), informally written (2), formally prepared (3), or something else (0)?”

Perception of Environmental Uncertainty. An 11-item measure in the mail survey using a five point Likert response scale was used to assess the respondent’s perception of environmental uncertainty. This scale focused on state uncertainty referring to the inability of the nascent entrepreneur to understand or to predict the state of the environment due to a lack of information. The directions read, “Considering the economic and community context for the new firm, how certain are you that the new business will be able to accomplish each of the following?” The response scale was anchored by very high (5) to very low (1) including a category for “does not apply.” The items were reverse scored to be consistent with prior literature on environmental uncertainty.

While the measure was unidimensional in terms of state uncertainty, it was multi-dimensional in terms of the sources of uncertainty. Building on the extant literature (Matthews & Scott, 1995; Jauch, Osborn, & Glueck, 1980; Duncan, 1972), seven a priori environmental sectors (customers, suppliers, distributors, competitors, government, technology, and financial markets) were included.

A principal components factor analysis with varimax rotation was conducted on the responses to the 11-item measure and three factors were extracted with eigenvalues greater than one (Table 1).  A scree plot suggests all three factors be retained. Four items dealing with obtaining start-up and working capital and help from a bank or venture capitalist loaded on one factor which was termed Financial Uncertainty. One item each on attracting customers, competing with other firms, complying with federal, state, and local regulations, and keeping pace with technological advances loaded on one factor which was termed Competitive Uncertainty. One item each dealing with obtaining raw materials, attracting employees, and dealing with distributors loaded on one factor which was termed Operational Uncertainty. Cronbach’s alphas for the subscales were .78, .75, and .55 respectively, with the three factors cumulatively accounting for 60 percent of the variance.

Correlations and descriptive statistics for all the study variables are presented in Table 2. The degree of business plan formalization is significantly and negatively correlated with expectation of financial growth and age is significantly and negatively correlated with degree of business plan formalizations. This suggests that formal planning may temper expectations of financial growth and that younger respondents are more likely to formalize their business plans.

Hierarchical multiple regression with mean replacement for missing data was used to further test these relationships (Tabachnick & Fidell, 1996). In the simple bivariate model, when degree of business plan formalization entered the regression equation predicting expectation of financial growth, the overall results were significant and the regression coefficient was significant and negative (Table 3). This provides support for Proposition Three. In this equation, however, the more formal the business plan, the lower the expectation of financial growth. Similarly, in the simple bivariate model predicting expectation of full and part-time employee growth, when the degree of business plan formalization entered the regression equation, the overall results and business plan formalization were significant, again supporting Proposition Three. However, the regression coefficient for planning this time was positive (Table 4). In this equation, more formal planning would suggest greater expectation of full and part-time employee growth.

To further explore the relationship between formalization of planning and expectations of financial and employee growth, financial, competitive, and operational uncertainty were next entered into the equation. Sequential models were tested beginning with only financial uncertainty in the case of expectation of financial growth and operational uncertainty in the case of expectation of full and part-time employee growth. Subsequent models added years of prior work experience, as well as age and sex of the entrepreneur into the equation.

In the case of expectation of financial growth, Models 1, 2 and 3 were significant (Table 3). The additional variance explained in each step, however, was not significant. Model three appears to be the most parsimonious model that is significant. In this equation, the overall model is significant and both the degree of business plan formalization and operational uncertainty are significant and negative, thus providing support for Propositions Three and Four. Years of prior work experience, as well as the entrepreneur’s age and sex do not appear to be significant predictors of expectation of financial growth in any of the models, providing support for Proposition One, but not for Proposition Two.

In the case of expectation of full and part-time employee growth, Model 1 and 2 were significant overall (Table 4). In Model 2, however, the additional variance explained by the addition of the operational uncertainty variable is significant (F = 1.958, p £ .10). In this equation, the coefficient for degree of business formalization was positive, but not significant and the coefficient for operational uncertainty was significant at the p £ .10 level and negative. The change in additional amount of variance explained in each additional model, however, was not significant. Model two appears to be the most parsimonious model that is significant. Years of prior work experience, as well as the entrepreneur’s age and sex do not appear to be significant predictors of expectation of full and part-time employee growth in any of the models. Again this supports P1 that gender and age are not significant predictors of expectations of firm growth, but does not support P2 that predicts prior work experience will be. Support for P3 and P4 that business plan formalization and perception of environmental uncertainty will significantly predict expectations of firm growth is suggested.

Overall, our findings suggest that, for nascent entrepreneurs, business plan formalization and perceptions of firm operational uncertainty help predict entrepreneurs’ growth expectations. First, for business plan formalization, findings indicate that as nascent entrepreneurs prepare more formal, written plans, the more likely they are to have lower financial growth expectations and higher employee growth expectations. Thus, it appears that business plan formalization tempers nascent entrepreneurs’ financial growth expectations and kindles their employee growth expectations. We would argue that these two outcomes may be complementary. First, one would hope that entrepreneurs would be as realistic as possible when considering entering the new venture arena. One of the purposes of the formal business plan is to organize the entrepreneurs’ thought processes and to help determine if the business idea is indeed a good business opportunity. If the business plan process leads entrepreneurs to somewhat underestimate their revenue estimates and somewhat overestimate their personnel requirements, then this might help entrepreneurs avoid typical undercapitalization problems of new ventures.

Next, our findings suggest that only one type of perceived environmental uncertainty, operational uncertainty, aids in predicting growth expectations. Thus, it appears that nascent entrepreneurs’ uncertainty over key operational resources tempers their expectations of firm growth, while uncertainty over financial resources and the competitive environment does not appear to influence expectations of firm growth. Regarding financial uncertainty, perhaps the increased opportunities for and promotion of financial bootstrapping methods (e.g., Hofman, 1997) creates the perception that growth does not need to be curtailed due to lack of financial resources controlled. Indeed, Stevenson’s definition of entrepreneurship, in which the entrepreneur searches for opportunities regardless of resources controlled (Stevenson, 1985), would suggest that financial uncertainty should not inhibit expectations of entrepreneurial success.

Along the same lines, at the heart of entrepreneurship is the assumption that entrepreneurs can overcome competitive uncertainty through their firms’ unique or competitive advantage. Thus, if entrepreneurs did not believe they could overcome competitors and gain customers, then they would not likely start their ventures. Operational uncertainty issues such as obtaining raw materials, employees, and distributors, however, are not as easily “bootstrapped” and are subject to liabilities of newness and smallness such as lack of credibility with suppliers, lack of size with distributors, and lack of resources to attract key employees. Thus, operational uncertainty may be more likely to temper growth expectations than financial or competitive uncertainty.

Finally, our findings suggest that nascent entrepreneurs’ age, gender, and years of prior work experience do not help predict their financial or employee growth expectations. In other words, male and female nascent entrepreneurs of various ages and work experiences may have a wide range of firm growth expectations. The literature suggests that increased years of work experience can help predict entrepreneurial performance and success. However, the research linking prior experience to venture success has primarily examined existing or post-startup entrepreneurs, while the current study examines pre-startup or nascent entrepreneurs. It may be likely that during the pre-startup period when a venture is still being formulated, and the specific products or services are not finalized, that the linkage between prior experience and new venture success is not as important as it is once the venture is initiated. If, as Birley (1985) suggests, entrepreneurs often recreate their previous employment in their new venture, then after startup the linkage between prior employment and the new venture should be more evident. In addition, since entrepreneurs’ age is highly correlated with years of full-time work experience (see Table 2), the same argument for work experience should apply to the lack of association between age and firm growth expectations.

In addition to years of full-time work experience and age, entrepreneurs’ gender does not appear to predict expectations of firm growth. While previous literature examining gender affects on firm performance has provided mixed results, recent systematic studies indicate little to no gender affects related to firm performance (e.g, Hisrich & Brush, 1997; Kalleberg & Leicht, 1991). Perhaps, as earlier authors argue, the mixed results can be attributed to confounding with other variables such as type of industry in which the firm operates, previous entrepreneurial or work experience, and education. For instance, earlier authors have argued that women may operate more in service industries, have less prior experience, and have less business education than men. However, in the recent decade, increasing numbers of women have moved into “nontraditional” industries and jobs, and are currently starting new ventures at a rate faster than startups by men. Thus, our results indicating no gender differences in expectations of firm growth are not surprising given the context for female startups today.

This final discussion suggests several questions or areas for future research. First, given the results of the main effects reported here, it would be useful to examine the interactions among the variables we have studied. For instance, what is the relationship between business plan formalization and perceptions of environmental uncertainty for nascent entrepreneurs. Scholars have examined this question for entrepreneurs and small business managers (Matthews & Scott, 1995), but not yet for emergent entrepreneurs. Second, are there other factors such as perceptions of technology intensiveness that may affect expectations of firm growth. Given the current market emphasis on technology driven new ventures, it would be valuable to assess whether nascent entrepreneurs consider their potential firms to be “high-tech” or not and how it affects their expectations of growth.

While this study is not without limitations, we believe that it sets the stage to further understand the complex relationship between planning and firm launch. Subsequent research will need to analyze the interactions among the variables of interest in order to determine if there are possible alternative explanations for our results. Second, since the data were collected in multiple rounds of data collection using telephone and mail surveys, there is a potential administration and sequencing effect. However, the data collection procedures for the ERC project were pilot tested, used systematic protocols, and included computer data entry to minimize variation and human error. We anticipate that future use of the ERC data will be valuable in the unraveling of the mysteries of the planning performance equation.

1. This section is adapted from Reynolds, Paul D., 2000. “National Panel Study of U.S. Business Start-Ups: Background and Methodology,” to appear in Advances in Entrepreneurship, Firm Emergence, and Growth, Vol. 4, Jerome A. Katz (Editor), Stamford, CT: JAI Press.

CONTACT: Charles H. Matthews, University of Cincinnati, College of Business Administration, Department of Management, 2600 Clifton Avenue, Cincinnati, OH 45221-0165; (T) 513-556-7123; (F) 513-556-4891; charles. matthews@uc.edu

Ajzen, I. (1991). “The Theory of Planned Behavior.” Organizational Behavior and Human Processes 50: 179–211.

Alsos, G.A., & E. Ljunggren. (1998). “Does the Business Start-Up Process Differ by Gender? A Longitudinal of Nascent Entrepreneurs.” Frontiers of Entrepreneurship Research. Wellesley, MA: Babson College.

Baker, W., H. L. Addams, & B. Davis. (1993). “Business Planning in Successful Small Firms.” Long Range Planning 26(6): 82–88.

Begley, T.M. (1995). “Using Founder Status, Age of Firm, and Company Growth Rate as the Basis for Distinguishing Entrepreneurs from Managers of Smaller Businesses.” Journal of Business Venturing 10: 249–263.

Birley, S. (1985). “The Role of Networks in the Entrepreneurial Process.” Journal of Business Venturing 1: 107–117.

Boulton, W., W. Lindsay, S. Franklin, & L. Rue. (1982). “Strategic Planning: Determining the Impact of Environmental Characteristics and Uncertainty.” Academy of Management Journal 25(3): 500–509.

Bruno, A. & Tyebjee, T. (1982). “The Environment of Entrepreneurship.” In Encyclopedia of Entrepreneurship, eds. C. Kent, D. Sexton, & K. Vesper, Englewood Cliffs, NJ: Prentice-Hall.

Chandler, G.N., & S.H. Hanks. (1993). “Measuring the Performance of Emerging Businesses: A Validation Study.” Journal of Business Venturing 8: 391–408.

Davidsson, P. (1991). “Continued Entrepreneurship: Ability, Need and Opportunity as Determinants of Small Firm Growth.” Journal of Business Venturing. 6: 405–429.

Downey, H. & J. Slocum. (1975). “Uncertainty: Measures, Research, and Sources of Variation.” Academy of Management Journal 18: 562–578.

Duchesneau, D.A, & W.B. Gartner. (1990). “A Profile of New Venture Success and Failure in an Emerging Industry.” Journal of Business Venturing. 5: 297–312.

Duncan, R. (1972). “Characteristics of Organizational Environments and Perceived Environmental Uncertainty.” Administrative Science Quarterly 17: 313–327.

Emery, F. & E. Trist. (1965). “The Causal Texture of Organizational Environments.” Human Relations 18: 21–32.

Hisrich, R.D., & C.G. Brush. (1997). “Performance in Entrepreneurial Ventures: Does Gender Matter?” Frontiers of Entrepreneurship Research. Wellesley, MA: Babson College.

Hofman, M. (1997). “Boostrappers’ Hall of Fame.” Inc. Magazine (August): 53–50.

Jauch, L., & K. Kraft. (1986). “Strategic Management of Uncertainty.” Academy of Management Review 11(4): 777–790.

Jauch, L., R. Osborn, & W. Glueck. (1980). “Short-Term Financial Success in Large Business Organizations: The Environment-Strategy Connection.” Strategic Management Journal 1: 49–63.

Kalleberg, A.L. & K.T. Leicht. (1991) “Gender and Organizational Performance” Determinants of Small Business Survival and Success.” Academy of Management Journal (34(1): 136–161.

Krueger, N.F. & A. L. Carsrud. (1993). “Entrepreneurial Intentions: Applying the Theory of Planned Behavior.” Entrepreneurship & Regional Development 5: 315–330.

Ljunggren, E. & L. Kolvereid. (1998). “New Business Formation: Does Gender Make a Difference?” Women in Management Review. 11(4): 3–12.

Lumpkin, G.T., R.C. Shrader, & G.E. Hills. (1998). “Does Formal Business Planning Enhance the Performance of New Ventures?” Frontiers of Entrepreneurship Research. Wellesley, MA: Babson College.

Luo, Y. (1999). “Environment-Strategy-Performance Relations in Small Businesses in China: A Case of Township and Village Enterprises in Southern China.” Journal of Small Business Management 37(1): 37–52.

Matthews, C. & S.G. Scott. (1995). “Uncertainty and Planning in Small and Entrepreneurial Firms: An Empirical Assessment.” Journal of Small Business Management (October): 34–52.

Milliken, F.J. (1987). “Three Types of Perceived Uncertainty About the Environment: State, Effect, and Response Uncertainty.” Academy of Management Review 12(1): 133–143.

Orser, B.J., S. Hogarth-Scott, & P. Wright. (1998). “On the Growth of Small Enterprises: The Role of Intentions, Gender and Experience.” Frontiers of Entrepreneurship Research. Wellesley, MA: Babson College.

Reynolds, P. D. (2000) “National Panel Study of U.S. Business Startups: Background and Methods.” Under review with Advances in Entrepreneurship Research: Firm Emergence and Growth, vol. 4, ed. J. A. Katz. Stamford, CT: JAI Press.

Schwenk, C. & C. Shrader. (1993). “Effects of Formal Strategic Planning on Financial Performance in Small Firms: A Meta-Analysis.” Entrepreneurship Theory and Practice 17(3): 53–64.

Stevenson, H.H. & D.E. Gumpert. (1985). “The Heart of Entrepreneurship.” Harvard Business Review (March–April): 85–94.

Tabachnick, B. G., & L.S. Fidell. (1996). Using Multivariate Statistics. New York: HarperCollins College Publishers.