Frontiers of Entrepreneurship Research 1994

Frontiers of Entrepreneurship Research
1994 Edition

1994 Summaries and Abstracts (D-G by Author)

Navigational Aids

  • Frontiers of Entrepreneurship Research Topical Index
  • Babson-Kauffman Entrepreneurship Research Conference (BKERC)
  • Entrepreneurial Research at Babson College
  • Center for Entrepreneurial Studies Homepage

    Order hard copy editions of Frontiers of Entrepreneurship Research by mail


    Garth K. Daniels

    Columbia College
    2346 East 2815 South
    Salt Lake City, Utah 84109


    Charles W. Hofer

    University of Georgia
    Management Department
    College of Business Administration
    Athens, Georgia 30602




    This study identifies the key performance characteristics of successful and unsuccessful new ventures that have spun out from university R&D programs. Significant characteristics are identified that explain why some university-born technologies are the basis for growing new ventures into billion dollar sales enterprises and why some become dismal failures.

    Prior research shows that University-based New Venture Development (UBNV) can produce substantial revenues for the universities involved (Rodenberger & McCray, (1981). Moreover, this research has also shown that universities possess an abundance of technology on which to base such ventures; and that many have started to utilize such technology in the development of new ventures (McQueen & Wallmark), 1985; Olofsson, et al, 1987). Three studies also identified a partial list of UBNV Development success factors (Roberts, 1968 & 1970; Doutriaux, 1985). However, none of these studies has identified a comprehensive list of UBNV development success factors.

    Principal Objectives

    The objectives of this study were to: (1) determine the full range of factors that distinguish successful and unsuccessful UBNV Development.
    (2) Incorporate these various factors into an analytical framework that can be used to improve UBNV Development.

    Methodology and Data Base

    In order to identify a full range of factors that might influence UBNV Development, a matrix was constructed that linked the past research findings in the areas of university-based new venture development, corporate-based new venture development, and independent new venture development with four conceptual frameworks that seek to explain successful organizational performance - namely the Traditional Management Process model proposed by Fayol (1949), the Key Functional Skill model by Newman & Logan (1959), Hofer and Schendel's model of the Strategic Management Process (1987), and the McKinsey Seven "S" model (1982). Based on this matrix, an integrated framework was constructed that included the following key variables:
    (1) The lead entrepreneur and the venture team.
    (2) The goals of the venture.
    (3) The environment in which the venture will operate.
    (4) The venture's business strategy.
    (5) The venture's financial, marketing, and technological skills and strategies.
    (6) The venture's organizational structure.
    (7) The venture's key managerial systems.
    Using existing theory and research, seventy eight propositions were developed and tested. Sixty of the propositions were statistically significant and important to the successful commercialization of university technology vis--vis UBNV spin-offs.

    The research methodology involved the study of UBNV centers (in the university environment) and the UBNV spin-off ventures ( in the marketplace). The methods of data gathering involved the use of questionnaires and three phases of lengthy in person interviews with academic, government and business informants. Also non-parametric statistics were required to appropriately analyze the quantitative data and qualitative insights.

    Major Findings

    Overall, this research significantly expands the understanding of how to create rapid growth UBNV spin-off ventures, using market-driven technology. This is the first study to develop a paradigm (using propositions, quantitative data and qualitative insights) that is necessary to develop the second generation of significant growth ventures that originate from university R&D programs. The successful UBNV spin-off ventures that were examined in this study achieved substantial growth because they: (a) Implemented aggressive goals in all important areas of business operations:
    (b) Developed leading edge innovations.
    (c) Selected market-driven new product ideas early in the R&D process.
    (d) Pursued differentiation strategies rather than low cost strategies.
    (e) Used their technology leadership position as the vehicle to achieve their differentiation advantage.
    (f) Organized corporate strategic partnerships.
    (g) Demonstrated an 80% long term survival rate. This compares to a 20% or less long term survival rate for independent new ventures.


    Christine Ennew
    Jaqueline Jolleys
    Phil Robinson
    David Whynes

    School of Management and Finance
    Social Sciences Building
    University of Nottingham
    University Park
    Nottingham N67 2RD



    Principal Topics

    Entrepreneurship has traditionally been associated with the activities of individuals operating within the private sector. Increasingly there is evidence to suggest that the concept and practice of entrepreneurship has a role to play in public sector organizations, particularly as governments are encouraging public sector organizations to become more market oriented. Reform of the public sector in the UK has concentrated primarily on the development of quasi-markets. In the primary care sector, the quasi market has been created through the introduction of fundholding which presents general practitioners (doctors providing primary care) with a much greater degree of independence and control than hitherto. In principle, the scheme gives general practitioners responsibility for determining the allocation of resources in relation to the type, quantity and quality of care provided. Accordingly, it can be argued that the fundholding reforms create the opportunity for and require entrepreneurship on the part of general practitioners. The paper is concerned with an investigation of the meaning and nature of entrepreneurial activity in this context.


    The data for this study were provided by a series of 21 in-depth interviews with providers of primary care (general practitioners) in Warwickshire, England. These interviews comprised 3 first wave fundholders, 6 second wave fundholders and 12 third wave fundholders. These interviews were supplemented by a detailed examination of the contracts used by these physicians when purchasing health care for their patients. Transcripts of the interviews were content analyzed by three researchers independently.

    Major Findings

    Although some interesting differences in contracting were identified, the formal analysis of the written contracts provided limited evidence of innovative or entrepreneurial behavior and many were characterized by a common format. In part, at least, this may be a reflection of the high costs of drawing up individual contracts. The interviews revealed a much greater variety of behaviour patterns and innovations. The main source of innovation occurred in relation to service delivery with the majority of practices arranging for out patient clinics to occur at the general practitioners office rather than at the hospital; in a smaller number of cases, additional services were being provided. A few practices had avoided (actively or passively) any significant innovation. Examining motivations suggests some similarities with the traditional craftsmen/opportunist distinction. Less than half of the general practitioners were motivated primarily by the opportunity to improve patient care. The remainder of the sample were more likely to be motivated by the fear of loosing out and the feeling that they had been placed under pressure to change status. Among those general practitioners who had adopted a proactive approach to fundholding, there is also evidence of Austrian-style entrepreneurship in the form of adjusting purchasing behavior in response to price/quality differentials. Nevertheless, despite some evidence of entrepreneurship, there was also widespread evidence of a reluctance to exploit the failure to invoice properly (or not at all) by the various providers. There is clear evidence to suggest that those who adopted fundholding at an early stage (first and second wave) are rather more entrepreneurial than those who adopted fundholding at a latter stage (third wave). Indeed, 8 out of 12 of the third wave fundholders were motivated primarily by push factors (the fear of loosing out, concern about political pressure, the desire to maintain existing services). These eight were found to be generally less innovative, unwilling to exploit price/quality differentials across provider and their contracting behaviour was often dominated by a concern to keep a particular provider in business. This was in sharp contract to the first wave fundholders who were all motivated by the opportunity to improve patient care, were willing to switch providers and whose contracting behavior was strongly influenced by price and quality consideration. Interestingly, however, two of the most entrepreneurial general practitioners were third wave fundholders.


    The concept of entrepreneurship in the public sector and the ways in which entrepreneurial activity are manifested is still poorly understood. The concept of the entrepreneur as a resource allocator and a coordinator appears relevant in the public sector on the basis of this analysis of primary care. However, the results suggest that not all physicians would wish to or are able to adopt an entrepreneurial role. Simply creating the opportunity for entrepreneurship and innovation to occur does not ensure that it will. Indeed this point is arguably of particular relevance in the public sector where there is the potential for considerable ideological resistance to the principle of entrepreneurship. Evidence of such resistance was provided explicitly in the form of responses to questions but also, and perhaps more importantly implicitly in the form of a general unwillingness to penalize providers for delays and mistakes in invoicing. Creating a quasi market in the public sector does not necessarily product entrepreneurs.


    Michael D. Ensley
    McRae C. Banks

    Department of Management
    P.O. Drawer MG
    Mississippi State, MS 39762



    Principal Topics

    This study attempts to test empirically the impact of formalized strategic planning systems on firm financial performance in extremely high growth ventures. The impact of particular stages of the traditional planning process on firm financial performance was also tested. The overall level of formality was controlled for and its impact on financial performance was also tested.


    A random sample of 150 firms from the inc. 500 was used. A total of 411 questionnaires were sent to officers of these firms. One hundred and eighty responses were returned and usable for a response rate of 43.8 percent. For this study the sample was reduced to a per firm response. The reduction was based on founder status and equity level. Performance measures included: (1) profitability, which was measured as a range of net profit,
    (2) productivity, which was measured as sales per employee and sales growth per employee, and
    (3) growth, which was measured as a percentage of the previous year's sales.

    Major Findings There were three principal outcomes of this study. First, the link between formalized planning systems and short-term firm financial performance appears not to exist at all in this sample of firms. The link between the use of a formal planning system and firm financial performance appears to exist, although the link appears to be weak. None of the stages of the planning model appear to be any more important than the other. Finally, the level of formality in the planning process, which was considered previously as an important factor in planning system effectiveness, was found to have no impact on this group of firms.


    The major implications of this study center on the idea of time horizon and planning value. Patience would truly appear to be a virtue when looking for returns on the investment of time and effort of a strategic planning system. The characteristics of the planning system itself are of little importance. Whether the planning system is formalized and detailed or simply in the mind of the planner(s) would appear to have little consequence.


    Deborah R. Ettington
    Karen A. Bantel

    Management Department, 466 Owen
    Eastern Michigan University
    Ypsilanti, MI 48197




    Principal Topics

    Grant proposals submitted by 44 small high-technology firms to the State of Michigan strategic Research Fund were analyzed. The intended approach to commercializing the proposed R&D projects was determined. The sample was divided between firms which intended to use strategic alliances as an approach to commercialization, and those that intended to commercialize the result of their R&D independently, or to license the technology for another company to commercialize. Factors associated with intent to use strategic alliances were examined, including characteristics of the proposed project, the target markets, the company and the management team. The types of current and proposed alliances discussed by the companies were categorized as R&D, production, or marketing related. Other sources of financial assistance and advice related to commercialization were also identified.


    The sample consists of 44 business plans submitted by small high-technology companies in 1993 to the State of Michigan as part of their application for R&D grants for pre-prototype research. The sample includes both firms which received grants and firms which did not. The plans were written in a standard format in response to questions on the State's request for proposal (RFP). Firms with fewer than 500 employees were eligible for the grants, but only three of the applicants had more than 100 employees. The majority of the firms (69%) had fewer than 10 employees. Ten of the firms (23%) were started for the purpose of conducting the proposed research ("start-ups"), while eleven firms (26%) were more than 10 years old, trying to revitalize their businesses ("entrepreneurs"). The remaining 23 young firms included some that were shifting their business focus (e.g., from consulting to product development), and some that were developing a second product line.

    A standard data collection sheet was developed, tested, and used by two graduate assistants to collect pertinent data from the business plans. One of the authors reviewed the data sheets, resolved discrepancies between the two reviews, and summarized the data on coding sheets for computer entry. Cross-tabulations were computed to compare firms which intended to use alliances with those that did not, according to the measures of interest.

    Major Findings

    Twenty-nine (66%) of the 44 firms indicated an intent to pursue strategic alliances in commercializing their R&D projects. These alliances included R&D assistance from potential customers and suppliers, production contracting, marketing agreements, and joint ventures or other combinations of joint activities.

    The most significant factor related to the type of project was that companies that intended to rely on patent protection were more likely to seek strategic alliances. There was no difference between the two groups regarding the expected result of the R&D project or the base technology. Most of the R&D efforts were expected to result in a product (70%), with the rest resulting in software, a process, or a service. The largest number of projects relied on manufacturing technology (35%),second largest was information systems (16%), with the rest divided among biotechnology, environmental science, materials, and other technologies. Most of the projects (77%) were related to the firm's current business. All but one of the 10 firms with an unrelated project planned to use a strategic alliance to commercialize it.

    Companies intending to use strategic alliances were more likely to have multiple, diverse target markets, and less likely to have focused niche markets. The two groups did not differ in whether or not they had a formal business plan prior to preparing the R&D grant proposal (half did).

    The companies intending to use alliances were more likely to be less than ten years old, more likely to be a start-up, less likely to have previously commercialized a product, but more likely to be currently involved in a strategic alliance. The three companies in the sample with more than 100 employees all intended to use strategic alliances. The smallest companies (fewer than 10 employees) also were more likely to use alliances.

    Overall, the sample companies had experienced management teams, in terms of years of experience, number of previous employers, and diversity of functional backgrounds. The average management team size was 3.5; only five firms identified a sole owner/manager. Over half the sample (58%) had a management team member with prior experience founding a company - with no difference between those intending to use alliances and the others. Almost all of the firms had someone with previous experience in the industry and experience with the base technology.

    The management teams of the companies intended to use alliances differed somewhat in being more likely to have at least one member with the following: more than twenty years work experience; experience establishing alliances; finance/accounting functional experience; a Ph.D. degree. These management teams were less likely to have someone with experience raising capital, and less likely to be composed entirely of full-time employees.

    Companies intending to use strategic alliances were also more likely to be considering other sources of capital to finance commercialization such as venture capital, other private financing, or debt. They were somewhat less likely to have internal financing available. Very few companies in the sample intended to invest more founders' equity, or to raise public equity.

    The majority of the sample (64%) intended to obtain technical assistance from a local university, but only two companies mentioned seeking business assistance from universities. Four of the companies in the sample were associated with an incubator. The companies seeking alliances seemed more likely to seek other types of assistance from sources such as government, patent attorneys, or technical consultants.


    Although not a random or representative sample, these 44 firms provide some insight into the earliest planning stage of new product ventures. Firms that are intending to use strategic alliances appear to be those that most need financial resources and assistance in reaching multiple or unrelated markets. They have something to offer as well though, because of their patented technology and experienced, technically knowledgeable management teams. They seem to be open to all types of assistance, and experienced in obtaining it. The next step in this research is to follow up on these firms to determine if they are able to form the strategic alliances they seek, and if these alliances are successful in commercialization.


    Cynthia A. Farrell
    Jrme A. Doutriaux

    Faculty of Administration
    University of Ottawa
    P.O. Box 450, Stn. A
    Ottawa, Ontario, Canada, K1N 6N5

    613-564-6590 Fax


    Principal Topics

    Analysis of the relative effectiveness of external versus internal strategies for small independent firms in the electronics and micro-electronics industry. An external strategy is based on a formal or informal agreement between two or more than two firms which can include joint ventures, licensing agreements, partnering, and other types of strategic alliances. The stage of development of the firm, managerial style, and industry and technology development stages are considered.


    A postal survey of over 1009 manufacturing firms in the Canadian electronics and microelectronics sectors was conducted during the winter of 1994. The analysis is based on the responses of the 73 firms which had originally started as independent new ventures. The study focuses on their use or lack of use of external collaborative agreements between 1985 and 1993, their stage of development, R&D orientation, and their performance.

    Major Findings

    70% of the respondents reported some type of external collaborative agreement in the past six years (an average of two agreements for those firms). Licenses were the most common (31% of the cases), followed by informal partnering (24%) and formal partnering (21%). The objective of most external agreements is the development of existing markets, and to a lesser extent of new markets; in only 15% of the cases was new product development the primary objective of the external agreements. Although firms in early stages of development have been observed to enter into significantly more external agreements than firms in later stages of development, no relationship has been observed between company stage of development and the type of external agreement.

    Contrary to expectations, no significant size differences (sales level) have been observed between firms with and firms without external agreements. Firm success, measured in terms of value of sales, change in sales level, and CEO's subjective evaluation, do not appear to be related to the existence or the number of external agreements, although a majority of the respondents felt that their external agreements had a positive impact on their sales and technology competency. Testing of the specific factors which differentiate successful and less successful firms with and without external agreements is continuing and will be reported in the complete conference paper.


    Contrary to expectations, preliminary results do not support the hypothesis of a shift from R&D or product-based external agreements in the early stages of development of a firm towards a marketing orientation in later stages. And the expected relationship between success and externally-based strategies is also not supported. These observations may be due to the small size of our sample. They are however congruent with the skepticism expressed by many entrepreneurs, curious as to the "strategic alliance" fashion, but aware that because of their relatively high failure rate, strategic alliances and other types of external collaboration may not always be the most appropriate option for their company.


    Lene Foss

    The Norwegian College of Fishery Science
    University of Tromso
    Kjaerbrygga, N-9037 Tromso



    Research problem and hypotheses

    The aim of this paper was to test the importance of individual resourcefulness for developing social networks. Social networks are often taken for granted and researchers are more interested to study the effect of social networks on start-ups, venture success or profitability. In making social network an endogenous variable we may test to which extent individual's education and work experience are conducive for the social network prospective entrepreneurs build for business purposes. In this way we may be able to predict how entrepreneurs may enhance their changes for developing business network by increasing their own individual resources.

    In this paper it was hypothesized that a prospective entrepreneur's human capital affects the social network developed for resource acquisition. The findings revealed that the eight human capital variables (age, business education, level of education, education diversity, technical experience, industrial experience, degree of prior self-employment and self-employment in the family) only explained 2-6% variance in the three social network variables; number of ties to the collegial zone, number of ties to the industrial zone and number of ties to the service zone.

    Data and Major Findings

    The data for testing these hypotheses were taken from a survey of 289 prospective entrepreneurs in the cod farming industry in Norway. The regression analysis revealed the following result:

    As hypothesized educational human capital variables do affect number of ties to the service zone. Educational background helps when making ties to actors more socially distanced from Ego. For making ties to the collegial zone the main impact came as expected from an experience related human capital variable. The making of ties to other business starters if affected by the technical experience the prospective entrepreneur has. In making ties to the industrial zone, both business education and technical experience are conducive.


    A likely reason to the relatively bad fit of the model, is that individual resources as the only explanatory variable for predicting a prospective entrepreneur's social network only captures a tiny part of the factors conducive for developing business networks. Efficient business networks likely depend on the actual availability of a business infrastructure in the local communities. Therefore regional differences may affect the availability of resource persons in an area. A prospective entrepreneur's chances of developing an efficient business network does therefore depend on more than his own individual resources.


    Yvon Gasse
    Bernard Garnier

    Faculty of Administrative Sciences
    Laval University
    Quebec, Canada, G1K 7P4



    Principal Topics

    A major evaluation study is conducted since 1986 on various methods and approaches in teaching entrepreneurship in Canada. Three types of programs using the media (newspapers and television) are compared with more traditional classroom, and seminar approaches.

    A television series, a TV credit-course and a newspapers series are evaluated in terms of performance and impact on various target clienteles, taking into consideration the objectives and expected results. These programs have been regularly modified and adjusted over the years in function of the evaluation results and observations from the participants.


    A continuous longitudinal evaluative research approach has been used over a period of seven years involving a sample of more than 1000 individuals having participated in 4 different programs utilizing newspapers and television. These results are then compared with courses in the classroom and a program of seminars and coaching. In each case, data have been collected at different times during the presentation of the programs.

    Major Findings

    The results tend to show that the performance and impact of a particular approach depends largely on the target groups, the objectives of the program or the course and the needs and expectations of the participants. Hence, five main target groups have been identified (General Public, Potential Entrepreneurs, Confirmed Entrepreneurs, Business Creators, Owner-Manager) and they represent typical stages in the process of creating a new business. In terms of the objectives of the programs or courses, they are broadly described as awareness, promotion, coaching, teaching, and support. Related to these objectives are the needs and expectations of the participants which are often expressed in terms of specific contents (information, marketing studies, business plans, financial sources, etc.). The longitudinal nature of the study has permitted a follow up over the years on a sample of participants in terms of business plans, creation of businesses or reorientations of careers.


    The major implication of this study is that entrepreneurship is best taught through a multi-method approach when the participants are not well defined or the objectives of the program are multiple and broad. Otherwise, it is advised to choose the appropriate method in function of the target groups, the stage in which they are located in the process of entrepreneurship, the objectives pursued and the needs of the participants. This research is an effort for a better selection of performing approaches and programs for teaching entrepreneurship to various groups and clienteles.


    Murray Gillin

    Swinburne University of Technology
    Faculty of Engineering
    John Street
    Hawthorn, Victoria, 3122



    Marcus Powe
    Ernst Young


    Principal Topics

    The completion of the subjects, opportunity and feasibility analysis, project development and life cycles, marketing for new ventures, new venture financing and the business plan, equip the customer with what the School of Innovation and Enterprise view to be the minimum requirements for opportunity exploitation. The sequencing of the subjects leads the customer to a point where they can competently assess an idea, examine the market place, understand what and where their idea may be with regard to the "life cycle", assess the financial viability of the deal and be able to package this information into a business plan which may result in a commercial outcome. The issue is one of adding value to the learning process.

    The adding of value between the subjects is almost organic. The "carrier" of value is the customer. The customer is continually putting the linkages of the subjects together. The customer is testing, (on a daily basis) the relevance and effectiveness of the previous night's lecture. This feed back is then channeled to the lecturer who is then challenged. The addition of the value is the way the lecturer can draw upon his or her non academic experience to set up a scenario and then argue to a point that satisfies and hopefully exceeds the questions of the customer.

    Method and Data Base

    A survey was sent out to current and past students of the School of Innovation and Enterprise, Swinburne University of Technology, Australia in September 1993. The aim of the survey was to test the notion that students who participated in the School's programs actually produced tangible outcomes. The outcomes were either qualitative or quantitative. Where the intellectual inputs, academic processes are important, it is the outcomes that drive the School. In effect this research is really a customer survey to test whether the School is successfully meeting its mission statement and adapting to the need of its students (customers).

    The survey measured change issues: what were you doing before the course, what are you doing now, external/internal change, business started, sales, export people employed, etc. In addition, a SWOT analysis of the School, its delivery team, subjects and facilities was performed by each respondent.


    Based on a 60% response rate from 300 current students and graduates, the number of new business start-ups, increases in sales turnover attributed to learned skills and incidence of career change from course participation, growing ventures within an organization and the strengths and weaknesses of the courses as perceived by the graduates is reported. Overall some 26 new businesses have been started with a number involved in export trade. In addition, increased company sales of $60 million (91/93 financial years) are attributed to program participation from students and graduates employed in 22 companies.

    Major Findings

    The student profile is diverse, in terms of background, for example, engineers, scientists, accountants, film producers, graphic designers, business owners, and those working for a variety of large Australian and multinational corporations. They come from federal, state and local government authorities, banking and finance, education, manufacturing and health industries. The response to and the results of the survey have indicated that the student or customer is held by the School as a valuable resource. The focus is upon building relationships between those organizations the customers come from.

    The view is held that apart from the traditional advertising media, the development of a network is one thing, but the customers have to be taught to recognize that they are operating in a network, and how to use it. It may be peculiar to the Australian background, however there is an initial tendency not to share information (non sensitive) and be quite uncooperative. The emphasis on group activities demonstrates that it is all right to talk and explore opportunities in a group environment and that the combination of the customer's skills, experience and contact are synergistic.

    The customers quickly realize that they need to work together (or is this educational process getting too close to the reality of the market place?) to cope with the heavy workload, achieve academic excellence, keep their companies happy with their working performance and try to maintain a family and social life. An underlying theme is now apparent, the customers are highly motivated, they seem to place low on their list of priorities that "credential" and the number one issue is to be able to create and maintain a sustainable competitive advantage in the market place. Interestingly, all students take out the credential.

    The process the customer goes through is a mixture of quantitative and qualitative analyses. The elements of risk permeate all subjects. The integration of these subjects through a focus on the market produces and outcome where customers minimize risk and maximize the return on tangible and intangible investment.


    The School of Innovation and Enterprise can conclude from this survey that the outcomes of the students and graduates in the commercial context is both real and positive. The question is raised, do the students select themselves, do they have the propensity before commencing the various courses to be innovative and entrepreneurial, or is it that innovation and entrepreneurship can be taught?

    The evidence from this survey suggests that innovation and entrepreneurship can be taught, and the mix of the teaching staff, the involvement with specialist practitioners, and the international focus has seen the School of Innovation and Enterprise attract a variety of students and graduates from diverse commercial, social and intellectual backgrounds.

    The curricula development for each course is continually adapted to integrate both "knowledge-based" and "experiential-based" methods in line with academic requirements for credit and successful business outcomes.

    There will be a compounding of networks and the "success" ethic, as more students participate in the School's programs. This effect is almost organic, as opportunities are not defined and rarely evident, unless the students eyes are opened by and taught how to use the School's suite of innovative and creative "success tools".


    Paul Gompers

    Graduate School of Business
    University of Chicago
    11101 E. 58th Street
    Chicago, IL 60637



    Josh Lerner

    Harvard Business School
    Morgan Hall, Room 381
    Boston, MA 02163



    Principal Topics

    In this paper, we analyze the structure of compensation in U.S. venture capital partnerships. We develop a learning model that extends Gibbons and Murphy (1992) to a situation in which the venture capitalist and the investor split the expected gains from investment. We then present empirical evidence regarding variable and fixed compensation, as well as the sensitivity of compensation to performance.


    The empirical analysis is based on 441 U.S. venture capital partnerships formed between January 1978 and December 1992. We only include independent private partnerships primarily engaged in venture capital investments: i.e., investments in equity or equity-linked securities of private firms with active participation by the fund managers in the management or oversight of the firms. We use the files of three organizations to construct the sample: Aeneas Group, Kemper Financial Services and Venture Economics.

    Major Findings

    Empirical evidence is generally consistent with the four primary predictions of the model. Compensation is bunched, with 81 percent of the sample funds sharing in between 20 and 21 percent of the profit. The compensation of new and smaller funds shows considerably less variation than older and larger funds. The composition of compensation for older and larger funds is significantly more sensitive to performance than compensation for newer and smaller funds. Finally, funds that focus on early stage and high technology investments have higher fixed compensation, consistent with the greater effort required to monitor these projects. The data also shows that the market has "evolved" by eliminating fixed fees based on net asset value.


    Newell Gough

    College of Business
    Boise State University
    1910 University Drive
    Boise, Idaho 83725



    Principal Topics

    This paper examines small firms which are active in acquisitions. Previous research (Gough, 1991; Frontiers of Entrepreneurship Research) has found that acquisitions by small firms occur frequently and, in general, create significantly more value than those by larger firms.

    This study takes a closer look at these small-sized acquirers with the aid of firm behavior models proposed by Zahra, and Covin and Slevin (1993) and Brazeal's (1992) behavioral orientations based on dimensions predicated by Stevenson and Jarillo (1990). Besides environmental and internal variables, other variables measuring the degree of similarity or "relatedness" between acquiring and acquired firms and the completeness of integration were included in the study. The purpose of the study is to determine which groups of variables best explain the performance of the small acquiring firms.


    The sample of firms was drawn from the domestic merger and acquisition database compiled by Securities Data Company. The screening criteria selected only firms with U.S. ownership, firms with 1991 sales ranging between $10 and $200 million, and those which had made at least three acquisitions between 1986 and 1991 (excluding financial and ownership restructuring). Slightly less than 240 small firm officers were asked, by means of a telephone survey, to characterize their firms, their environments, and their acquisitions based upon a reduced set of variables. Individual firm performance was measured by the period's growth rate in sales, by the average ROA (and operating returns on assets), and by the average market to book ratio -- a proxy for value creation. These performance measures were derived from Standard & Poor's Compustat PC Plus and the National Bureau of Economic Research's R&D Master File.

    Major Findings

    Preliminary findings indicate that the firms whose management emphasized informal communication and change, who created a future focus, whose environment was dynamic but less so than the firms they acquired, and whose acquisitions were vertically related but not similar internally registered the highest performance over the period.


    The design limitations of this exploratory study, and the large amount of undigested data temper the findings. Over a limited time period, small firms whose dominant mode of CE was acquisitions seemed to benefit most by an entrepreneurial orientation, by a moderately dynamic industry environment, and by choosing to acquire firms that were vertically related but dissimilar with respect to internal characteristics, or not related in a product/market dimension but similar internally. For managers and owners of small companies, this is not a prescription so much as an indication of successful CE.


    Alan J. Grant

    Babson College
    Babson Park, MA 02157-0310



    Principal Topics

    Under sponsorship of the American Electronics Association, an Expert Panel of 20 successful Chief Executive Officers of New England member companies participated in a Delphi study. The study's objective was to isolate those behavioral factors which the founding CEOs believed had most enhanced their success. This investigation used the same methodology of a 1991 investigation wherein an expert panel of Venture Capitalist had isolated what they believed were the most dominant entrepreneurial success enhancement factors. The results of both studies were then compared to determine agreement and disagreement on the perceptions of the CEO and VC panels.


    A three round iterative Delphi survey technique was employed. Its purpose was to determine a consensus of opinion of the CEO Expert Panel regarding what they believed were a venture's most dominant success enhancement factors. Using a five-point Likert Scale, the Panel also provided the relative ranked importance of each factor. These data were than statistically compared to the findings of a 1991 survey which had used the identical methodology. The 1991 Expert Panel consisted of 25 successful Venture Capitalists.

    Since parametric test statistics were not valid for this type of ordinal data, a number of non-parametric tests were employed. Meaningful results were obtained through the use of Pearson correlation techniques, Spearman-rho analyses and extensive Chi-Square testing. The 15 most dominant success enhancement factors from each study were analyzed first as group variables, then by Chi-Square testing of the same factor pairs from each study.

    Major Findings

    Each study produced one dominant behavioral factor unique to that study. In the VC investigation the factor was SELF CONCEPT (The entrepreneur has a realists attitude rather than one of invincibility). In the CEO study, the factor, LEADERSHIP PRACTICE (The leader acts to empower subordinates in an environment of mutual trust) stood out. The occurrence of these factors would be expected since the VC study dealt with early stage companies and the CEO study with later stages.

    Although there were 14 dominant entrepreneurial success enhancement factors common to the CEO study and the VC study, each panel had perceived different ranked importance for these factors. When each group of 14 factors was treated as one variable, Pearson correlation parameters of r = 0.289 and R-squared = 0.084 were calculated. Similar results were obtained from the Spearman-rho ranking tests, r = 0.315 and R-squared = 0.099.

    These results were quite surprising. The low positive correlation coefficients (r = 0.3) and the extremely low coefficient of determinations (R-square = 1%) indicate that less than 1% of the variance in the CEO group factors can be associated with those of the VC group. The analysis suggests that each GROUP of fourteen common success enhancement factors were quite independent.

    However, when Chi-Square testing was applied to each of the 14 pairs, the raw data for three of the similar pairs of factors produced Chi-Square calculated values below the critical value, thereby not rejecting the null hypothesis. Both panels agreed that the following factors were the most major importance:

    Adherence to ethical business practices.
    Creating and maintaining a fair performance/reward environment.
    The entrepreneur/CEO must perform as a team player.


    Although the importance of the relationship of a leader to his/her team and adherence to ethical behavior dominated each study, the statistical analysis led to what at first appeared to be a surprising conclusion. This was that the relative importance of the 14 ranked common success enhancement factors as ranked by the CEOs and those ranked by the VCs represented uncorrelated independent variables.

    A review of Churchill's (1983) observations in his The Five Stages of Small Business Growth article suggests that entrepreneurial leadership demands radically vary during different periods in the evolution of an enterprise. This may account for the difference in rankings of the 14 success enhancement factors common to both the CEO and the VC studies. Burn's (1978) observed, in his seminal work Leadership, that the term, "leadership", may be better understood if it were segmented into two separate behaviors, "transformational leadership" and "transactional leadership". Certainly transformation leadership must occur in any start-up entrepreneurial venture. The entrepreneur as an "agent of change" continually seeks ways to satisfy his/her vision regardless of his/her currently held resources. He/she must innovate. On the other hand as the organization matures, the need for a more formal organization changes the focus of the leader to handle more and more transaction leadership functions. This, then, suggests another explanation for the statistical results which indicated that the input from each of the studies represented uncorrelated independent variables.

    This comparative study also suggests that researchers who investigate the causes of new venture failures and successes be extremely careful in selecting their survey populations. Research data based on responses from subjects who are operating at different stages of an organization's growth may not provide a reliable source of determining causal relationships.


    Patricia Gene Greene
    Terrence E. Brown

    School of Management
    Rutgers University
    University Heights
    92 New Street
    Newark, NJ 07102



    Bruce A. Kirchhoff

    New Jersey Institute of Technology
    School of Management
    University Heights
    Newark, NJ 07102



    Principal Topics

    This paper describes a pilot study for the creation of a longitudinal data base of small businesses in New Jersey. The study is designed to provide for the analysis of resources contributing to the survival and growth of businesses. The theoretical framework of the project is drawn from a resource based perspective (Barney, 1991; Conner, 1991) recognizing that perspective's underlying assumptions of the heterogeneity and mobility of resources. We are particularly interested in the application of this perspective in a 'resource-poor' environment.

    Connor (1991) describes the resource based approach as reaching for a theory of the firm, specifically looking at the reason behind the firm's existence and the determinants of the scope and size of the firm. Most organizational theory is based upon and located in large, or at least medium sized organization. This paper tests the generalizability of resource based perspective as a theory of the micro-firm and uses the perspective as a framework for the generation of research questions.

    This paper also analyzes participation in a Small Business Development Center consulting program as a type of sponsorship which can be considered a resource (Flynn, 1993). This resource, along with others identified in the study, is analyzed controlling for characteristics of both the owner and the business in the context of the process of the business creation and growth process.


    Our data set is the 1522 businesses that received counseling from one SBDC state system during the calendar year of 1990. This SBDC data set includes items such as information on the race, ethnicity, gender and military background of the founder/owners. The data set also included the businesses' standard identification codes (SIC), the size of the firm measured as employment and intensity of SBDC involvement both number of times and hours consulted.

    In this data set male founder/owners represented 54% of the total, while female founder/owners were 33%. Firms founded jointed by men and women accounted for the balance. Of this sample set of firms 72% of the founder/owners were white and 18% were black with balance made up of predominately smaller minority groups including Hispanic and Asian. Veterans made up slightly over 17% of the data set. This set of firms included 372 different four digit SIC codes representing all major categories from agriculture and forestry through medical, legal and educational services (except government). This set of SBDC firms was skewed toward the truly small firms with 21% having paid employees and with all reporting at or below 500 employees.

    First, for this preliminary study we randomly selected 10 businesses still in operation from our data set. The founder/owners were contacted and asked to complete a semi-structured telephone questionnaire concerning the business history, the resources they used during the startup and ongoing operation of the business and the survival strategies used. Second, we randomly selected from this same data set 10 businesses that were no longer in operation. These founder/owners were questioned like the above, but they were also questioned on why their businesses were no longer in operations. the resources and or strategies that could have been helpful and how and why these resources were unavailable to them.

    Major Findings

    Preliminary analysis of our results revealed interesting findings regarding resource utilization and business survival strategies. These founder/owners found accountants and friends or family their most important resources for information and assistance as they planned their businesses. Surprisingly, generally available books and manuals were the next most important source of information for these founder/owners. Furthermore, bankers, suppliers and trade organization were found to be generally not used.

    The founder/owners had a relatively clear view of the business survival strategies and their position in competitive environment. Over half of the respondents stated that their primary business strategy was to provide a unique product or service. Providing better quality was the second most important strategy. These founder/owners seemed to be quite aware that competing only on price was a risky strategy, while competing in a defendable niche was preferred strategy.


    This project is the front end of a longitudinal study of clients of the Rutgers Small Business Development Center. The results of this project are expected to be important to practitioners in providing more knowledge about how the relationship between resource usage, strategy decisions, and the growth and survival of the firm. The results of this front end project is also expected to be important to academics as it extends the application of the resource based view of the firm to the micro-firm.

    The expected benefits of this project to researchers include an increased understanding of the relationship between sponsorship programs and the growth and survival of small businesses.

    Return to Babson College
    Main Home Page
    Table of
    1996 Babson College. All rights reserved.
    Last updated November 11, 1996 by Frank Lafleur