An earlier study of ours (Keeley & Knapp, 1994) found that venture capital-backed ("large"), high-tech start-ups are not similar to small start-ups, even if one focuses on the top few percent in performance among the small start-ups. It left unanswered the question whether the difference stems from the large-small distinction or the high-tech vs non-tech distinction. This study provides evidence that both have an influence. It also finds an important qualitative distinction between the venture capital-backed companies and the others. Those backed by venture capital were built around a product/service that, from the outset, appeared to offer a high likelihood of supporting a major company. The "idea" was the key to success, with management execution and an appropriate strategy playing supporting roles. The venture capital-backed companies generally adopted organizational structures and strategies very similar to those of leading companies in their industries.

Most of the small start-ups were simply new entrants into an existing industry, although a few discovered to their surprise, that they were in a fast growing niche with little competition. Only one was similar to the large start-ups in its initial intent to become a major force in a new industry based on the value of its "idea." The higher performers may be viewed as rare events from a large population. The formative processes of all companies in the population were similar, but through various combinations of good execution, timing, and unexpected favorable events a few emerged with performance that compares favorably to the venture capital-backed group. This is not to say that the performance variations of the small start-ups are totally random. As Reynolds' (1993) demographic study shows, the high performers have more experienced managers and enter larger markets. Baum's (1995) work shows mechanisms that explain Reynolds' demographics. Our longitudinal data support suggest that few high performers achieve their results the same way as the large start-ups--on a "killer" idea. Most do so via the processes that appear to operate in Baum's study. That is, they are simply superior in head-to-head competition.

Our results suggest there are two types of entrepreneurs. One group fits Schumpeter's (1942) creative destruction--a single idea important enough to change an industry. This group matches the large start-ups. The second group of entrepreneurs make one or more incremental innovations vis a vis their industries in order to gain a foothold. Thereafter their success depends on the quality of their execution, which may include further incremental innovation, and on the acts of their competitors. This group forms the basis for most of the empirical research on entrepreneurship (if only because over 99 percent of start-ups belong in this group), and it is more accommodating of strategic and organizational research originally developed for large companies.

Gartner's (1985) insight, about the importance of initial processes and intentions, applies to the large-small dichotomy. The large start-ups began with a different intent from the others. Research that focuses on high growth companies, or that looks for the determinants of growth in a linear model, needs to avoid mixing venture capital-backed ("large") start-ups and other companies. A very important determinant of success, the quality of the initial idea, should be a centerpiece of research on large start-ups, and is of much less importance in the others. Studies that look at companies after they become public are mixing high performers of the small start-up group with venture capital-backed start-ups. Some of the unresolved issues of strategy (e.g., Kunkel & Hofer, 1993), or performance (Megginson & Weiss, 1991) may stem from mixing companies built on a single "big idea" with those that succeed incrementally.


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Last Updated 5/1/97 by YuBei Teng.

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