Frontiers of Entrepreneurship Research
1996 Edition

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Robert G. Schwartz*
Richard D. Teach+

*Mercer University

+Georgia Institute of Technology
Atlanta, GA 30309



Principal Topics

The objective of the research was to provide industry specific insights into the management of entrepreneurial firms and the firms' successes in the marketplace. It was posited that strategy, management, and sources of capital would play a statistically significant role in that success, but the nature of that role would be industry specific. Publicly traded, technology driven firms, brought to market between 1989 and 1991, were analyzed. The research investigated corporate strategies, the changes in the management teams, the sources of capital and their changes over. Factor analysis was utilized to reduce the strategy variables to a smaller set of statistically independent factors. These factors were then regressed against firm size, as measured by total sales, and revenue growth. In addition, changes in the management team and the sources of capital were related to firm size and growth rates.


The records of a set of firms were selected from Compact Disclosure. The selections were based on several criteria. First, a selected firm had to have had an IPO between 1989 and 1995. Second, the selected firms' primary SIC codes were in 35, 36, 38, or 73. A document was produced for each firm which contained a wide variety of management and financial facts, opinions and prognostications, although SEC rules limit the latter. While most researchers who utilize this data set are interested in the measurement and performance of stockholder values, the authors were interested in the relationships which might co-vary or be indicative of future operating revenues (sales) and concomitant growth rates.

From each years' data set the percent of each firms' material ownership by known venture capital firms and economic development authorities were obtained. In addition, the number of officers, changes in officers, the number of board members, changes in board members, and changes in the CEO position for the period reported were recorded. The Presidents' and the Management letters were content analyzed for the presence or absence of a number of strategy variables. For example, if the documents described marketing development efforts, the item was coded a one (1). If there were no explicit references to a variable, it was coded as a zero (0). The strategy variables were: 1) Acquisition of Other Firms / Technology, 2. Cost Leadership, 3. Differentiation, 4. Diversification, 5. Divestiture of Product(s) / Division(s), 6. Formal Planning, 7. Innovation, 8. Internal Growth, 9. Joint Ventures / Licensing, 10. Market Development, 11. Market Focus, 12. Market Penetration 13. Price Leadership, 14. Product Development, 15. Quality Commitment or TQM, 16. Uniqueness, and 17. Use of New Technologies. It was assumed that if a strategy was important to the firm, it would have been discussed in the documents. The result of the content analysis was a series of 17 ones and zeros representing a firm's strategy for each year. The set of ones and zeros were factor analyzed into 7 factors which accounted for 64.8 percent of the variance in the original 17 variables. A factor score for each of the seven factors was derived for each observation. A single firm would have one observation for each year.

The Initial Data Set

In the current study, it was the authors' original intent to include the IPO prospectus data and ensuing data through 1995, but reality reared its head. The IPO documents are just now filtering into the office. In addition, the amount of time needed to do content analysis for each firm, each year is quite long. While it is the authors' intent to complete the data collection and analysis, this paper reports on only the initial findings of a subset of the database. This data set is limited to software firms (SIC 7273 - Prepackaged Software). There are 19 firms within the 57 observations in the reported data set. The content analysis was limited to three years, 1992 through 1994.

Major Findings

Due to the current size of the data set, the results can only be viewed as tentative. Over the three year period, 1992 through 1994, software firms which had material stock ownership by venture capital firms were larger than firms that reported no such ownership. Growth rates were a different matter. The presence of venture firm ownership did not result in more rapid growth rates. Firms which had evidenced management turmoil (changes in officers, and/or directors) were smaller and experienced lower growth than firms which did not. The regression of the strategy factor scores on size and growth of the firms revealed that significant relationships existed between strategies and firm size. and growth. Some firms' strategies appeared more effective than others. The amount of size variances explained by the strategy factors were approximately forty percent and the findings were significant to the 0.0001 level.


It appears that venture capitalists invest in larger firms, but their presence does not result in faster revenue growth. It appears that management turmoil results in lower revenues. By utilizing content analysis of public documents, the risk in predicting growth rates can be reduced.

Future Work

The IPO data is presently being content analyzed and will be subsequently included in the data sets. Additional firms are also being included. As the data sets are enlarged four longitudinal studies will be completed comparing and contrasting firms' behaviors and the relationships among revenue, growth rates, and outcomes. Additional factor analyses will be performed to further elucidate the relationships with strategies.

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