Frontiers of Entrepreneurship Research 1995

Frontiers of Entrepreneurship Research
1995 Edition

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    FRONTIERS OF ENTREPRENEURSHIP RESEARCH 1995.


    ENTREPRENEURSHIP: A DEFINITION REVISITED

    Myra M. Hart, Harvard University
    Howard H. Stevenson, Harvard University
    Jay Dial, Harvard University

    ABSTRACT

    Entrepreneurship is the process by which individuals pursue opportunities without regard to resources they currently control. - Stevenson and Jarillo, 1990

    By this definition, ownership or control of resources may not limit an entrepreneur's choice of opportunity. However, the resource choices that are necessarily made during the founding process may either limit or enhance the new venture's ability to succeed. This paper contends that founding resource choices have a significant impact on a new enterprise's viability and performance. It further argues that the founder(s)' industry-related experience can be a powerful proprietary resource that informs founding resource choices, thereby contributing to improved performance.

    The entrepreneur's experience provides unique knowledge and reputation assets to the new enterprise. Experience-based knowledge, tacit and explicit, is linked to improved skills in resource specification, identification of appropriate resource providers, and development of selection criteria. Industry experience that establishes an entrepreneur's reputation contributes to success in attracting resource partners and in achieving favorable terms of cooperation.

    These conclusions suggest that the definition of entrepreneurship should be modified. Resources that can be acquired or accessed in the marketplace ought not limit opportunity choices, but entrepreneur-specific industry knowledge and reputation are assets that can only be developed over time and that have their greatest value when applied in a similar context. Their potential contribution to a new venture's performance indicates that these inalienable resources should be considered in the initial choice of opportunity. They can be the source of the new venture's unique competitive advantage.

    INTRODUCTION

    Entrepreneurial ventures hold out the promise of innovation, wealth, and job creation (Schumpeter, 1934; Birch, 1987; Kirchoff and Phillips, 1988), but that promise is tempered by above-average risk. Data indicate that as many as half of the new enterprises in the US fail within their first six years (Aldrich and Auster, 1986).

    In order to discover why survival and performance characteristics of new ventures differ from those of older organizations, we examined the management tasks and decisions that are substantively different in new enterprises. Entrepreneurial ventures are distinguished from their mature counterparts by both their initial resource state and by their attitudes toward the ownership or control of resources as a determinant of strategy (Stevenson and Jarillo, 1991). Because new ventures often have neither roots nor resources, they face unique challenges in the development of cooperative relationships and the assembly of goods and services.

    Our investigation began with the founding resource decisions -- identification of needs, selection of providers, and structuring the terms of cooperation among the resource partners -- in an effort to discover how those early decisions affect a new venture's survival and performance. Grounded research was conducted at five venture-funded businesses to develop an understanding of which start-up resource choices were important and how they related to a new venture's growth, adaptability, and prosperity during its first 10 years. The findings suggest that, while all three choice sets are important, the selection of resource partners clearly dominates the specification of needs and the terms of agreement.

    Another outcome of the research was the discovery that an entrepreneur's prior experience in the same industry contributed to her ability to generate multiple resource alternatives, establish discriminating partnership selection criteria, and build trust-based relationships. These findings suggested an important distinction between resources that can be freely transferred or acquired in the marketplace and those that may be entrepreneur/venture-specific. This re-interpretation led to our proposal of the resource-based theory of entrepreneurship.

    CONCEPTUAL DEVELOPMENT

    The ability to imagine possibilities unconstrained by concerns about resources currently controlled and the willingness to pursue those opportunities are essential ingredients of entrepreneurship (Steven and Jarillo, 1991), but making the dream into reality requires resource assembly. An entrepreneur has been defined as one who...makes(s) strategic choices concerning the kinds of proprietary resource endowments and institutional functions in which it [the new firm] will engage and what other actors it will transact with to achieve self-interest and collective objectives (Van de Ven, 1993, p. 223).

    The challenges of acquiring the resources necessary for production and distribution of goods and services and of building the routines and relationships that foster understanding and trust are likely causes of the "liability of newness." Stinchcombe specifically cited:

    * the high costs of creating internal roles, relationships, and operating routines in new organizations
    * the time and investment required to establish external relationships that are conditioned on experience, reputation, and trust
    * competition, often with very limited resources, with mature organizations that alredy have goods or services in the marketplace and that enjoy established customer relationships (Stinchcombe, 1965)

    The entrepreneur's specification of resource needs, the location of potential resource providers, the choice of partners, and the terms of agreement structured at the time of founding have been shown to have significant implications for performance over time (Venkataraman, et al., 1990; Sahlman, 1985; Nanda, 1992). They enable the start-up of the organization and, subsequently, provide a "honeymoon period" for the new venture. "...variations in initial endowments will have significant long-run impacts on the pattern of mortality" (Fichman and Levinthal, 1991, p. 446).

    A theory of the social embeddedness of economic action provides some explanation of how entrepreneurs manage the resource assembly process and maintain resource access -- mobilizing through social networks (Granovetter, 1991), building strategic alliances (Jarillo, 1986), and leveraging those relationships through primary partners (Venkataraman and Van de Ven, 1993). The relationships between entrepreneurs and resource providers may be based on explicit contractual agreements, but, because of the multiple contingencies likely to arise in a new venture, they must also incorporate elements of trust (Arrow, 1974; Bhide and Stevenson, 1990; Granovetter, 1991).

    There is evidence that an entrepreneur's experience can affect new venture performance. Technology roots (Roberts, 1991), new venture experience (Stuart and Abetti, 1990) and industry experience (Cooper et al, 1994; Chandler and Hanks, 1993) have been shown to influence performance through strategic decision-making but very little research has addressed the ways in which experience influences the resource assembly process.

    RESEARCH DESIGN

    The exploratory nature of the inquiry and the focus on process indicated in-depth case studies as an appropriate research tool (Eisenhardt, 1989, Yin 1989). Five venture-capital funded businesses founded within the last 10 years were included in this study. These ventures provided an opportunity to reconstruct founding choices and to create an accurate history of the choice effects, using multiple informants and archival documentation. The same informants and company records were used to establish performance estimates for each stage of the company's life.

    Specific qualifiers used to select research sites included 1) the founder(s)' expressed intention to create a high growth enterprise; 2) the need for multiple resource commitments as a condition to launch; 3) high capital requirements at start-up; 4) relative newness (less than 10 years old); and 5) willingness of critical resource users and providers to cooperate in the research.

    Sites that met these criteria were classified by stage of development in the business organizational life cycle and one (or more) was chosen to represent each of the first three theoretical stages (Eisenhardt, 1989). Because the relationship between founding resource choices and success was assumed to transcend industry groups, sites were selected without regard to SIC code. The exploratory research was designed to discover similarities across industries and to look for common patterns of development.

    An organizational life cycle model was used to sort the new ventures by age, expectations, and progress in their product development passages. Though there are several such models from which to choose, the "Stages of Small Business" described in Churchill and Lewis (1983) was deemed most appropriate for a study of new ventures. Though the full model includes five stages -- from Existence to Maturity -- our interest in how founding choices affect an organization's ability to reach successful operation suggested the investigation be limited to firms in the first three stages. They are:

    Existencethe period during which the venture is developing products and/or services, finding customers, operating as a simple flat organization. Systems and formal planning are minimal. Usually lasts from 0 to 3 years.

    Survivalthe stage at which the organization is delivering product, becoming more concerned with cash flow and revenue generation while producing marginal returns. At this stage, the organization and its systems remain simple. Likely to occur between years 1 and 5.

    Successthe stage at which the organization has established a market position and is achieving at- or above-market returns. At this point, it typically begins professionalizing management and is making choices to exploit and expand its position or to stabilize operations. Representatives of this stage are likely to range from 3 to 10 years old.

    Performance of new ventures is difficult to measure by conventional financial indicators. Long product development cycles and relatively short histories may render revenue, income, and growth statistics meaningless during the first 5 to 7 years. Survival provides a gross measure of performance, but meeting specified benchmarks offers better definition of the degree of success a firm is achieving. Unfortunately, the original benchmarks may become useless if the firm changes strategy, as did the majority of those included in our study.

    One measure of organizational success that can be applied consistently across firms, industries and developmental stages is continuing access to resources (Yuchtman and Seashore, 1967). Because such access is premised on the resource providers' adjusted estimate of the venture's probability of success, it provides a very flexible performance indicator. Resource access was our primary indicator of progress for all the firms included in the study and was supplemented with more traditional financial measures when possible.

    The first phase of the investigation included four ventures (with one or more representatives of each of the first three organizational stages) to provide insights on how founding choice effects can vary over time. Within-case and cross-case analyses generated hypotheses of how experience influences performance by informing founding choices. A fifth site was then selected in order to test the theoretical replicability of the hypothesized relationships. The original selection criteria were used, but potential research sites were further screened to exclude those entrepreneurs who had industry-related experience.

    DATA

    Though it is impossible to include all the relevant data provided by grounded field research at the sites, brief descriptions of the five ventures are included here for reference.

    Business Matters, Inc. (BMI). This venture is still in the first stage of its organizational development - Existence Start-up. The company was founded in January 1993 in order to develop financial forecasting software for the business community. Now nearing the end of its product development phase, it is achieving its business plan targets at approximately 85%. Delays in meeting the schedule have made it necessary to secure additional funding, but its overall success in meeting its targets has enabled it to have continued access to the needed financial resources. It has recently raised a second round of venture capital.

    BMI has two co-founders, one of whom has both industry-related and start-up experience. He previously founded two similar, venture-funded, applications software companies. The first, which he sold in 1981, was moderately successful. The second was a much more ambitious venture that consumed more than $30 million before it was abandoned. His partner is a seasoned investor and an advisor to software ventures who has no industry operations experience. From the start, it was clear that neither intended to be involved in the general management of the new venture once it was organized.

    The co-founders developed and tested the concept, provided seed funding and assembled the primary resources, then became active board members. They hired a CEO/president who had extensive marketing and managerial experience in spreadsheet software for the PC. Because the founders and the general manager they selected did not know each other, they had to build their relationship at the same time they were building the business. They did this cautiously, working first on a clearly stated six month contract which gave them all a chance to test the waters.

    After the initial trial period, they agreed to proceed together but still considered their relationship subject to frequent periodic review. The new president took responsibility for assembling management and technology resources and shared with the co-founders in securing the first 2 rounds of external funding -- $500,000 seed capital and then $3 million in venture capital during 1993. There were strong network ties between the co-founders and the capital providers, just as there were industry ties between the president and several of the senior managers. However, at least at the outset, the relationship between the founders and the operators has been contractual rather than relationship-based. The financial partners were attracted to the venture because of their belief in the product concept and their prior experiences with the co-founders. The investors committed to the co-founders and the venture concept rather than making their choice on experience-based confidence in the management team.

    Palm Computing. Palm is in the Survival stage of its development. The 1992 venture was created to develop handwriting recognition applications software for handheld personal computing devices. It first shipped product and began booking royalty revenues from Casio (its OEM) customer supplier in Fall 1993. The product's introduction to the market followed on the heels of Apple Computer's highly touted, but poorly performing Newton. The product category suffered "Newtonian" repercussions and Palm's first software products had to be shelved when Casio refused to work on the second generation hardware.

    Palm has subsequently developed software products that it sells directly to end-users. It avoided a financial resource crisis by raising a third round of venture capital ($5 million) substantially ahead of its needs -- and before product sales levels were apparent. From the outset, the company founder planned to try to maintain an 18 month operating reserve to provide slack for strategic adjustment.

    Palm's founder Jeff Hawkins developed and owned the patent for the venture's basic technology. He had managerial and related industry experience at GRiD Systems where, as VP of Research, he developed similar applications for commercial customers. He was well-known in the computing industry and, as a result, in the Silicon Valley venture world as well. He also had strong ties with GRiD's parent company, the Tandy Corporation.

    Hawkins chose to be actively involved in the new enterprise, serving as its Chairman and Chief Technology Officer. He was the primary resource assembler, though once he agreed to let Tandy invest as a corporate partner, a Tandy executive took a very active role in bringing together the development and manufacturing alliances necessary for product development. Hawkins also hired a CEO/president to begin building the management team, to continue building external financial relationships, and to run the business.

    Though all the partners believed in and committed to the product concept, in this case it was clearly Hawkins in whom they were investing. When the initial product concept failed in the marketplace, there was no discussion of replacing him, but only of how to replace the product and redirect the firm's energies along more productive avenues.

    Lokring Corporation. This fluid (pipe) fitting venture was founded in 1988 to re-engineer an existing technology with the goal of serving a broader range of commercial and industrial markets. Lokring purchased the licensing rights to the patents in 1988 and began shipping product in 1989. Though it has had an occasional profitable period, it continues to struggle for success and must be classified in the Survival stage.

    Initially funded with $2.5 million in venture capital, Lokring was able to raise a second round of $5.3 million on the strength of its first year of operations. Subsequent difficulties in penetrating the marine and industrial markets have taken a toll. When additional funds were required to support unanticipated product and market development problems, Lokring was forced to sell shares at a reduced price and to include some of its distributors among the investors. As a condition of their participation in the financing, the venture investors required that the president relinquish his post as CEO. The firm is now in need of additional resources and finds that the current investors have no interest in extending their position. Alternatives under consideration include a corporate partnership or sale.

    Lokring co-founders and operators, Benson and Dietemann, had related industry and managerial experience at the Raychem Corporation, but neither was an entrepreneur. The two were personal friends as well as business associates, and both had a longstanding personal relationship with the venture's first financial partner, Lucien Ruby.

    While many of the seed round investors knew the managing founders personally, the subsequent venture capital investments were made on the strength of Ruby's recommendation. Both the founders and their financial partners believed that the technology development and product marketing presented a low risk and that a worst-case scenarios would include the sale of the venture to an existing competitor at or above their costs. The investment represented a commitment to the product/market concept. Though investors believed the entrepreneurs were competent to execute the plan, there were no existing personal or professional relationships among them. In Lokring's case, the financial partners committed to the venture concept rather than to the individuals behind it.

    Arbor Health Care, Inc. Arbor has reached the Success stage. Founded in 1985 with an investment of $5 million, this health care venture operates 24 nursing homes and sub-acute care facilities. It raised an additional $7 million in 1987 and was valued at $83 million at the time of its initial public offering in 1993. Continued growth in revenues and income throughout 1994 have made resources readily available to Arbor as it continues an internal growth and acquisition strategy.

    Arbor's founder planned to replicate the strategy hehad pursued before as president of Health Care and Retirement Corporation (HCR) from 1980 to 1884. When HCR was sold in 1984, Borra began assembling the key resources he would need for his new venture and he did it on the strength of his own reputation and relationships. He hired 3 senior managers from HCR, recruited 3 former HCR board members to Arbor's board, and arranged the venture financing with the help of an analyst (turned-venture capitalist) who followed the health care industry and was familiar with Borra's successful leadership in the field.

    Several of Arbor's board members and investors attracted additional partners to the venture, but the founder played a very important part in all the decisions to participate. His success in an identical business was firsthand knowledge for most of his resource providers. Their commitment to Arbor was premised on his demonstrated capabilities in the health care field. The strategy was important because it grounded their expectations, but the overriding ingredient for success was Borra himself. When changes in health care regulations and reimbursement made the original plan impossible to achieve, Borra was able to maintain all his key resource relationships and to redirect the company. Like Hawkins, he helped avoid a resource crisis by husbanding cash and maintaining financial independence during the change period.

    Ceramics Process Systems. The fifth case study, chosen to test the replicability of the resource-based theory, provided an opportunity to examine founding resource decisions and outcomes in a venture in which none of the founders had related business experience and consequently lacked unique industry knowledge or relationships. CPS was founded in 1984 by an MIT professor in ceramics technology and 2 venture capitalists with technical backgrounds. Each had established a reputation for excellence in his own field, but none had directly-related business operations experience.

    Since none of the 3 founders was employed in the venture full time, this omission might have been overcome by the selection of a president/CEO with such experience. However, that was not the case. The general manager for the new venture was a management consultant chosen for his skills in developing strategic plans. He had no network of industry associates from which to draw management talent or to build customer and supplier relationships.

    Initially very successful in raising capital and creating strong research alliances, CPS started with $2.5 million in venture money. Subsequent equity investments of $2-4 million each were made by Alcoa, Celanese, and Cabot in conjunction with research contracts with CPS. In 1987, the young firm made an initial public offering of $18 million on the strength of its basic research contracts and corporate partnerships, though it had yet to deliver a marketable product.

    By 1989, the company still had not developed a sustainable product and was cash-poor. In order to get the capital for continued operations, the original venture firms and a new investor from Germany bought additional shares at approximately $2 each. They also replaced senior managers and became more actively involved in daily operations. Some additional cash was raised by the sale of licenses, and a ceramics packaging system has been developed for the market. Operations have been consolidated and cost-cutting provisions implemented. The company is currently facing a new cash crisis and is likely to be sold if additional funds are not forthcoming from its war-weary investors.

    FINDINGS

    Palm, Lokring, and Arbor provide examples of how short-lived initial resource specifications may be. Each of these companies made strategic changes within their first two years of operation because market conditions or government regulations changed. As their strategies changed, so did their resource needs. At BMI, strategic change has not yet become an issue but falling behind on a development schedule created the need for additional resources that were not originally specified.

    When the entrepreneurs chose their resource partners, they considered candidates on the basis of their ability and willingness to make an immediate contribution, but they were also careful to insure that their partners could provide access to additional resources, either directly or through connections to other providers. Business Matters Inc. founder looked for seed investors who could ante up $50,000 without difficulty, then qualified them as to their ability to provide a link to consumer markets or managerial/technical talent or other financial resources. Hawkins chose Tandy as a corporate partner for Palm Computing to secure cross-licensing agreements, to pave the way for a retail distribution agreement, and to enlist its cooperation in building the requisite team of suppliers and manufacturers. The cash provided was far less important than the other benefits the relationship promised.

    Lokring co-founder Ruby used his Quest fund to introduce venture capitalists to the enterprise and to provide an enticement for additional financial investment. Borra selected Arbor board members who could lend the venture credibility and provide access to capital markets. He also knew from experience that they represented significant managerial resources. Ceramics Process Systems' venture capital partners believed that the technology partner's assets included not only his technical expertise, but also his relationships with some of the largest potential corporate partners in the industry and his access to the leading research technologists in the field.

    Though none of the entrepreneurs or their resource partners cited the terms of agreements as paramount in their decision to join the venture or as an important determinant in subsequent organizational decisions, ownership and control were important issues for all of them. Founders or co-founders of BMI, Palm Computing, and Arbor each retained more than 20% ownership in their respective ventures. Though holding a significant stake assured the rights to participate in the distribution of financial rewards, it did not assure control.

    As became apparent at Lokring and CPS, when additional resources were needed for survival, decision-making control shifted to those who could provide them. Both Hawkins and Borra were acutely sensitive to this possibility and deliberately managed to husband internal financial reserves to provide greater flexibility in the event of crisis. In contrast, Lokring and CPS general managers became, at least to some extent, casualties of a resource shortfall when the providers of capital demanded concessions.

    As Borra's partners demonstrated in Arbor's crisis of 1988, the fact that they knew him well and trusted in his capabilities, his work ethic and commitment - based on his prior work experience - provided additional tolerance and time to work things out. The president of CPS, who lacked industry experience and the relationships that such experience might engender, was not given the same latitude when his company experienced its first cash crisis. The Lokring founders had industry experience but it did not provide the primary link with their investors. They were able to ride out the first financial crisis, but they did so only at significant costs in terms of ownership (sale of shares at reduced price), partnership selection (found new lead investor only by bundling several of their distributors as investors), and for Benson, reduced responsibilities.

    CONCLUSIONS and HYPOTHESES

    The founding resource choices were important in providing the necessities for start-up activities, but they were even more so in establishing the platform for future resource access and continuing organizational relationships. Though each of the three categories of founding resource choices being investigated -- specification of needs, partnership selection, and terms of agreement -- was important to the enterprise, their impact varied over time.

    Specification of needs was most important at the start-up and through the early development stages. As strategies were modified, resource needs changed and built-in flexibility became far more critical than the precision of founding "specs". The partners selected had a greater impact on organizational capacity for change and flexibility. The entrepreneurs we studied foresaw the likelihood of change and concluded that planning for multiple resource contingencies was essential to meeting the medium and long term needs of the organizations.

    Though their abilities to do so varied, all the entrepreneurs attempted to build resource flexibility by choosing partners on the basis of breadth and depth of capabilities rather than on willingness to respond to the immediate needs of the organization. Because the new ventures did not yet have internal resource reserves, the entrepreneurs attempted to build resource slack in their partner's untapped capabilities. Experience-based relationships informed entrepreneurs' choices and cemented partners' commitment. However, it is interesting to note that the two most experienced entrepreneurs hedged their bets, sacrificing some equity for the safeguard of building their own internal cash reserves as well.

    The terms of agreement represented the inducements to the resource partners to participate in the enterprise and so were of particular importance during the organizing stages. They included benchmarks, limits and rules for resolving disputes and distribution rights -- all of which influenced daily operations. In these venture capital funded enterprises, the financial investors described their terms as "boiler plate." The VC agreements did not vary dramatically from one venture to another, but the relative importance did. The reliance on contractual terms was far more pronounced in those ventures in which there were no prior personal or professional relationships among the partners.

    At BMI, for example, the co-founders hired a candidate for CEO/president on the basis of his resume. Since they lacked personal knowledge of his capabilities and style, they structured a short term agreement with specific performance criteria with him and they used a similar approach with the senior technologist. In all the ventures included in the study, the terms of agreement became most important in times of crisis. When crises did occur or strategic direction changed, trust -- based on firsthand experience -- dominated legal contracts in providing organizational flexibility and cooperation among the partners.

    A comparison of these ventures indicates how industry-related experience can inform initial decision-making and influence continuing operations. The experience provides unique advantages to the entrepreneur on the paired dimensions of "knowing" and "being known."

    Industry knowledge or intellectual capital was an important asset that experienced entrepreneurs used in specifying resources, selecting partners, and engaging resource providers. That knowledge informed specification of the physical and financial resource requirements, but was even more valuable in enabling the entrepreneur to identify the intangible needs of the venture. Entrepreneurs with related experience were not only able to specify resources more precisely and in greater depth than could industry newcomers, but were also able to envision and access "invisible" assets.

    Industry experience also contributed to the entrepreneur's ability to identify the full range of capabilities and potential contributions of partners and facilitated the selection among the possible providers. Tacit knowledge informed experienced entrepreneurs of the benefits that could be derived from putting two or three of the individual resources (or resource providers) together and provided the understanding of the synergy that would be possible. It also informed the tasks of balancing, sequencing, and relationship building.

    Experienced entrepreneurs were able to locate resource suppliers quickly because much of the search and qualification work was already done. Their choices of partners were based on long term observation and evaluation. This deeper knowledge provided a basis for judging both the individual merits of each and the ability to function well as a part of the venture team. By first specifying and then building unique combinations of resources that resulted in a whole larger than the sum of its parts, the experienced entrepreneurs created "core competencies" for their new firms that could not be easily replicated by the inexperienced.

    "Being known" was as important as "knowing." It enabled the entrepreneur to attract and assemble resources efficiently and reduced search and settlement costs. When resource partners could evaluate the business opportunity and the founder's capabilities in the context of relevant experience, the perceived risk of the enterprise was lowered and the risk premium for participation adjusted downward. Resource partners premised their trust in the entrepreneur's competence and made their commitment to the new enterprise on the basis of what they already knew of the individual. Greater trust facilitated "open" agreements with attention on desired outcomes rather than on interim structures and plans. The relaxation of demands for highly specified agreements allowed the organizations the flexibility they needed. As a result, the firms were able to maintain a wide range of options from which to select alternatives as they grew and changed.

    The four case studies suggest a model of the ways in which an entrepreneur's unique experience resource endowments create distinct advantages that can enhance organizational performance in the early stages and can reduce the liability of newness. Though the focus is on the resource endowments of the entrepreneur, the theoretical roots are found in "the resource-based theory of the firm" (Conner, 1991) that has been used to explain "above normal returns and enduring competitive advantage, the fundamental performance incentives, as deriving from unique and costly-to-copy organizational resources" (Barney, 1986; Rumelt, 1988). Figure 1

    (figure 1 could not be electronically opened)

    Analysis of the four initial cases suggested conclusions of the importance of founding resource choices and their effects of new venture flexibility. It also generated hypotheses of how industry experience can be expected to influence new venture performance through its mediating effects on founding resource choices.

    H1 The ability to specify the resources necessary for start-up accurately and to predict the needs of the organization for development is positively correlated to the entrepreneur's industry-related experience.

    H2 The ability to attract and engage providers of management, financial, and technological resources is positively correlated with the entrepreneur's industry-related experience.

    H3 The ability to structure flexible contracts is positively correlated with the entrepreneur's industry-related experience.

    SUMMARY and IMPLICATIONS

    The purpose of the research has been to discover and describe the relationships between founding resource decisions and organizational performance in new ventures. The case studies indicate the importance of the original resource partnerships in determining organizational flexibility. They provide the venture its resource slack through depth and breadth of their own reserves or by providing access to other partners through their extended networks. Their tolerance for change and trust in the entrepreneur also contribute to venture adaptability. The capabilities and the attitudes of the venture's resource partners are significant factors in the survival and performance of new ventures.

    The selection of partners who are both qualified and committed to see a venture through to success appears to be the most critical resource decision an entrepreneur makes at founding. Our research indicates that experienced entrepreneurs are substantially better at this than newcomers and that experience is an entrepreneurial resource that may be industry-specific. While it can be developed over time, it cannot be readily acquired in the open market. These conclusions suggest a revision of the definition of entrepreneurship from which we started:

    Entrepreneurship is the process by which individuals pursue opportunities without regard to resources they currently control (Stevenson and Jarillo, p. 23).

    (Figure 2 could not be electronically opened)

    Clearly Stevenson and Jarillo do not that new ventures are "resource-free," but that their direction is not fixed by a pre-existing resource base. Our findings indicate that though the entrepreneur is "opportunity-driven" rather than "resource-driven," some resources are not readily "trade-able" or "accessible." We maintain that the industry-specific experience an entrepreneur brings may provide a powerful advantage to a new venture. We also propose a minor modification to the definition of entrepreneurship to recognize the importance of experience and reputation resources as a new venture's distinct competitive advantage.

    Entrepreneurship is the process by which individuals pursue opportunities without regard to alienable resources they currently control. (Hart, Stevenson, Dial, 1995).

    (Figure 3 could not be electronically opened)

    ADDITIONAL RESEARCH

    Hypothesis-testing is the next step in this research. A much larger sample of the high growth, high-resource-need entrepreneurial population can be surveyed to test the validity of these propositions. We also intend to look at the importance of other forms of experience - managerial and entrepreneurial - in conjunction with and in contrast to industry-specific experience.

    The importance and level of success in the previous experience is not yet specific. We plan to investigate whether failure is an equally good teacher and attractor. We also propose investigation of, "How much experience is enough?" in order to determine whether or not too much can be a deterrent (creating inertia) or a negative factor (obsolete decision-making frames).

    Is the impact of industry experience greater in some fields than others? Is experience equally important in low tech and high tech industries? What kind of experience matters if the industry itself is emerging? If there was no prior opportunity to gain specific experience, are there proxies that serve a similar function for the entrepreneur and potential partners?

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