Frontiers of Entrepreneurship Research 1994

Frontiers of Entrepreneurship Research

Abstracts from the 1994 Edition

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    William B. Gartner
    Department of Management
    School of Business
    San Francisco State University
    1600 Holloway Avenue
    San Francisco, CA 94132

    (206) 828-4809

    (206) 828-4808

    Jennifer A. Starr
    (Babson College)

    Jon P. Goodman
    (University of Southern California)

    Principal Topics
    This article describes the development of a venture screening questionnaire as a tool for systematically analyzing the factors that lead to venture success or failure. We discuss how the venture screening questionnaire was used in an MBA class to improve their abilities to identify the characteristics of potential successful ventures. We also demonstrate how an "academic" exploration of the aggregate data from the studentsanalyses lead to additional findings about the characteristics of venture success. For this study, the venture screening questionnaire was applied to articles from Inc. Magazine's "Anatomy of a Startup" series. The four part questionnaire (consisting of 75 items) focused on:(1) Individual Antecedents (e.,g., previous experience); (2) behaviors(e.g.,activities required to start the new venture); (3) Strategy (e.g., competitive position); and (4) Environment (e.g., number and type of competitors).

    A questionnaire was developed from previous academic research frameworks that had identified characteristics that could be used to screen for new venture success and failure (e.g., Timmons, 1994; Sandberg and Hofer, 1987). After reading the 27 articles in the book Anatomy of a Startup, MBA students were assigned to teams to analyze five of these articles using the venture screening questionnaire. Three of the 27 articles were used as training exercises to develop some preliminary skills at venture screening and to observe the between-team reliability of the questionnaire. Scores from these three articles were omitted in the subsequent comparative analyses reported here. Students analyzed all of the articles before learning, which startup ventures became successes or failures. There were six successful and 18 unsuccessful ventures as classified by Inc. magazine. A statistical comparison of the distribution of the quantitative scores between the successful and unsuccessful companies was carried out using a Kolmoorow-Smimov two-sample non- parametric test. All findings that are reported significant at the. 05 level.

    Major Findings
    Learning. Successful entrepreneurs learned the skills and knowledge to survive as a new in business in their industry. Successful entrepreneurs started their firms with little previous firm or industry specific experience.

    Entrepreneurs were more likely to fail if they had above average industry experience or who were judged to be experts in their industry at the beginning of the story of the launch of their venture in the three areas of: MARKETING/SALES experience (knowledge of customers and how to sell to them), DISTRIBUTION experience (Oettino the product/service to the customer), and TECHNICAL KNOWLEDGE (knowledge of industry standards and practices).

    Entrepreneurs were more likely to succeed if they had learned during the venture creation process in the following areas: MARKETING/SALES (knowledge of customers and how to sell to them), FINANCE AND ACCOUNTING (knowledge of resources required to run this type of business and the ability to monitor and control these resources), OPERATIONS (knowledge of how to make the products or provide the services), TECHNICAL KNOWLEDGE (knowledge of industry standards and practices), MANAGEMENT (of employees, consultants and other paid experts), and "STREET SMARTS" (Practical and real world knowledge of how industry really works and how to survive as a new business in this industry).

    Finally, entrepreneurs were more likely to be successful, if, at the end of the story of the venture creation process, they were judged to have acquired above average or expert-level STREET SMARTS.

    Effort. Entrepreneurs were likely to be successful if they undertook more effort Oudced as the amount of time and the level of intensity devoted to a specific activity) on the following activities: analyzing of possible substitutes. finding equity investors, getting a loan, and finding mentors (i.e., helpful non-paid experts).

    Competitive Strategy. In terms of the competitive strate or environmental characteristics in the Anatomy of a Startup sample startups with much lower prices than similar product/services in their industry were more likely to be successful, and startups with higher quality products or services than their competitors were more likely to be unsuccessful.

    This paper describes how a venture screening questionnaire developed from previous academic sources can be applied to an analysis of venture creation stories found in magazine articles. We believe this questionnaire helps students improve their skills and abilities at venture screening. In addition, this study shows that the data Generation and evaluation efforts of a class of students can be pooled to brine, about new insights on the factors influencing new venture success and failure.

    The findings from the analysis of this sample of startups have important implications for both research and practice. The results suggest that certain types of prior industry experience may be a liability rather than a benefit. For example, individuals with significant prior industry experience in marketing, distribution, and technical knowledge do not seem able (or willing,) to adapt to (or learn about) both the changing conditions in the industry and the competitive pressures that are unique to new ventures. Individuals who were able to gain experience (learn) in such areas as marketing, finance, operations, technical knowledge, management, and street smarts, were more likely to succeed.

    The idea of street smarts seems to encapsulate the difference between having, "experience" of a general sort, or "experience" that was valuable for solving prior problems, versus "experience" that leads to critical insights into how an industry really works in the present and how a particular new venture might actually survive. We were pleased to see that students could use the questionnaire to differentiate between savvy street smart individuals from those individuals who were not and that street smarts was shown to be an important predictor of success.

    The use of a venture screening questionnaire offers a way to comprehensively focus on many of the details concerning the startup of a business that might be overlooked in a In cursory overview of an entrepreneurial story. These details form the basis upon which judgments can be made about the future success of a new venture. The development of the skills and abilities to make such judgments requires practice through "experience" (of the street smart type). As the findings presented earlier suggest, learning (developing relevant toMCI lm experience) seems to pay off. We hope that this exercise (the questionnaire and the use of teams to analyze and evaluate the stories) enhances the relevant experience necessary for an individual to make judgments about feasible opportunities. We suggest that this experience InInc can be applied to other startup cases that can be found in business case books, biographiesc and autobiographies, newspaper articles, and published oral histories. These sources ID provide a rich database of information that can be analyzed, not only for the teaming that students can gain through careful reading, evaluation, discussion, and analysis, but also through the cumulative benefits of generating, information that can be aggregated and analyzed in an "academic" manner. Learning, and scholarly research can, sometimes, occur, in the same experience.

    Sandberg, W. R. & Hofer, C. W. (1987). Improving new venture performance: The role of strategy, industry structure, and the entrepreneur. Journal of Business Venturing. 2 (1): 5-28.

    Timmons, J. A. (1994). New Venture Creation. (4th Edition). Homewood, IL: Irwin.

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