Back to Index96
Order hard copy editions of Frontiers of Entrepreneurship Research by mail
THE DECISION TO START A NEW VENTURE: VALUES, BELIEFS, AND ALTERNATIVES
Raphael H. Amit
Kenneth R. MacCrimmon
John M. Oesch
Faculty of Commerce and Business Administration
The University of British Columbia
2053 Main Mall
Vancouver, B.C. CANADA, V6T 1Z2
Telephone/fax:(604) 822-8481/(604) 822-8350 ; (604) 822-8477/(604) 822-9516
The central question addressed in this theory-based empirical study is "Should I initiate a new venture?" To gain a deeper understanding of this question, we focus on factors that affect the decision making-processes of individuals considering initiating the venturing activity. We develop a decision-making model, anchored in decision theory, which incorporates behavioral and economic elements. The framework considers three main alternatives: (1) a continuation of the individual's situation at the time of making the decision, (2) the new venture opportunity, and (3) the next best available alternative. The model assumes that individuals make the best choice among these alternatives. The decision is based on specifying and applying values and beliefs over relevant dimensions (such as wealth, challenge, vision, power, etc.).
The theory development and the empirical components of this study were conducted in three phases. The first phase focused on identifying the potentially relevant set of values among entrepreneurs, managers, and students. This phase of the study, which involved various types of interactions with over 150 individuals in different settings over an 18 month period, resulted in establishing a robust set of dimensions (values, motives, or goals) relevant to the decision making of the individuals. These results formed the foundations of a multiple-attribute utility theory model which is based on the dimensions relevant to the person who makes the decision, the desired levels of attainment of each of these dimensions, the salient dimensions, and the person 92s beliefs about future outcomes for each of the alternatives that is being considered. In the second phase, we surveyed the entire membership (1821 persons) of the B.C. Technology Industry Association to establish the frequency of venture creation among the members of the Association. As well, this survey, which yielded a response rate of 35%, allowed us to develop
the target sample--those individuals who worked at a company and decided to leave to establish their own, and the control sample--those individuals who considered venturing but chose to remain as employees. In the third phase we developed and refined, through a series of detailed pilot interviews, a comprehensive survey instrument that is based on the decision making model we developed. We elicited detailed information about the new venture decision, including measures of values and measures of beliefs about the potential of various opportunities, including value functions over each dimension and information about the tradeoffs a person is willing to make on one dimension in order to do better on another. In addition we obtained general background information on the career paths of the decision makers and descriptions of the decision process as they perceived it.
The first phase of the study established eleven major dimensions used by individuals in when considering initiating a new venture. These dimensions are (1) Wealth (becoming wealthy, making money, meeting any financial needs), (2) Vision (realizing one92s ideas about how the organization should evolve, determining goals and capabilities that the organization should pursue), (3) Stability (certainty of ensuring a paycheque every month, avoiding risk, maintaining current lifestyle), (4) Power (being able to influence outcomes, making things happen, having an impact, exerting control), (5) Lifestyle (dual career considerations, time with family, recreation opportunities), (6) Leadership (ability and opportunity to motivate and influence others), (7) Innovation (doing something new or different, introducing original ideas about products or processes), (8) Independence (having flexibility, being one92s own boss, working when, where, and with whom one chooses), (9) Ego (standing out from the crowd, winning, creating a legacy, making a name, outdoing others), (10) Challenge (using full range of talents, self-actualization, assuming more responsibility, dealing with a wider range of issues), and (11) Contribution (helping others, making a difference to your organization and community, creating opportunities). Ninety percent of the respondents to the survey administered during the second phase of research indicated that they have considered venturing activities. Of these, 77% decided to leave their employers and initiate venture activity (our target group), while, 23% remained with their employers. In phase three of the study, we determined that the model provided a sound basis for obtaining information about the new venture decision. Specifically, we found, for both the target group and the control group, that: (1) the eleven dimensions covered the factors on which the decision was based, (2) detailed trade-off assessments among these factors could be feasibly obtained, (3) a distinction should be made between dimensions having long-run importance in career decisions and those that are salient for particular decisions, (4) opportunity cost, in terms of the next best alternative to venturing, was a key element, and (5) the model provides an effective framework within which people can tell their start-up stories.
To the extent that our model is valid, it could be applied to predict outcomes of venture activity. That is, an outside investor, attempting to size up the venture team, could use the individual92s values and beliefs as a predictor of outcomes. Furthermore, using a formal model allows us to identify deviations from the model, especially ones that represent systematic biases that could be corrected, such as wishful thinking. Since research to date suggests that personal characteristics of individuals are poor predictors of ultimate performance, a study of the decision making process offers a viable alternative.