Frontiers of Entrepreneurship Research
1997 Edition

SUMMARIES

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STRUCTURAL DEVELOPMENT OF NEWLY-FOUNDED COMPANIES, OR:  HOW TO BECOME WELL-ESTABLISHED

Peter B. Freier
Stephan Schrader 1

Ludwig Maximilian University in Munich
Ludwigstrasse 28/RG, 80539 Munich, Germany

Telephone: 49-89-2186-2239
Fax: 49-89-2180-6284

(1 Deceased)

Principal Topics

A new framework for the structural development of newly-founded companies is proposed.  Structure is defined in a very broad sense.  In this process, newly-founded companies transform into established firms.  Two constructs and one criterion describing this process are presented.  Companies need to become independent from constituting elements after the founding stage.  Several features of this establishment process based on two samples of high-technology companies are discussed.

Method

With the help of a biological analogy, two constructs and one criterion are set up to develop terminology and logic of a new conceptual model.  The constructs are operationalized and tested in two different settings:  A cross-sectional survey of the US biotechnology industry and a longitudinal archival data analysis of newly founded companies in East Berlin are conducted.

Major Findings

The founding of a company is based on a specific resources-opportunity mix.  This mix is called the nucleus of a company.  Following the founding stage, the company builds structure around this nucleus in several dimensions such as people, products or clients.  Through this structural development the company becomes an system on its own right and de-couples itself from initially determining factors.  A company is defined to be fully established when it has become independent of all element of its former nucleus.  It is shown how the concept can be operationalized, first evidence is give.

Implications

Contrary to conventional wisdom, many so-called established (in terms of financial data) companies may be classified as being not fully established in terms of their dependence level upon dimensional nuclei.  Short term financial health and becoming established may display a different relationship.  However, in terms of strategic venture planning, the assessment of dependencies in all relevant dimensions is imperative in order to prevent a company from developing in a wrong manner.
 

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