Frontiers of Entrepreneurship Research
1997 Edition

SUMMARIES

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ENTREPRENEURIAL GROWTH STRATEGIES AND VENTURE PERFORMANCE IN THE SOFTWARE INDUSTRY  

1Richard T Harrison
2Colin M Mason
 
1School of Management
University of Ulster
Jordanstown
Ireland, BT37 0QB

2Department of Geography
University of Southampton
Southampton, UK
SO17 1BJ

Telephone: 144-1232-368986, 244-1703 -92217
Fax: 144-1232-366868, 244-1703-593725

Principal Topics

The range of financial and non-financial techniques used by software entrepreneurs in Northern Ireland to start-up and develop their venture were studied.  Financial techniques were defined for this study in terms of access to equity finance (from private investors, venture capital and corporate venturing).  Non-financial techniques were identified  under the headings of bootstrapping?access to resources not controlled or owned by the entrepreneur?and business alliances?formal arrangements for resource and expertise sharing along or across the value chain. Comparison with the results of an equivalent study in Massachusetts was also undertaken.

Method

A sample frame was drawn up, comprising all member companies of the Northern Ireland Software Industry Federation, together with other software ventures trading in Northern Ireland identified from industry and government development agency contacts. This register was edited to include only independently operating ventures which were currently trading (subsidiaries and branch operations of national or multinational ventures,which often concentrated on sales, support and maintenance functions, were excluded from the study). All identified companies were contacted by letter and telephone and 40 usable returns were obtained (a response rate of over 25%) in the survey period in late 1996.  The respondents are representative of the population as defined in terms of size, product/market orientation and performance.

Major Findings

First, the Northern Ireland software sector is a recent development?60% of companies have been formed in the past five years and only 23% have been in business for  over  10 years.  Second,  here  is  a  strong  orientation  to  the  regional  (Northern Ireland) marketplace, which accounts for 50% of annual sector sales revenues, and only 10% of sales are outside UK/Ireland.  Third, these companies are  small, employing 13 persons  on  average, and  are growing at 20% per  annum  in employment terms.  Fourth, ventures have on average 4?5 revenue generating products, and only 17% do not plan to add to this in the next year.

Bootstrapping techniques (creative ways of acquiring the use of resources without borrowing money or raising conventional equity finance) are used by 95% of ventures.  Such techniques  are more commonly used for business development than for product development, and are more commonly reported by small firms (employment under 10) than large firms within the sector.  Small firms are more likely to use ad hoc and cost reducing techniques (spare time product development, public domain development tools, consulting); large firms used more formal exploration of value chain relationships (customer funded R & D, research grants, resource sharing, access to hardware on favourable terms).  Reduced, delayed or forgone compensation  is not reported by entrepreneurs in the sample.

Business alliances (co-operative agreements to use complementary resources for market benefit have been established by just over half of these ventures, and no venture has established more than one alliance.  Market development, opportunity exploration, credibility enhancement and resource acquisition dominate as reasons for entering the alliance.  At peak, the alliance represented over 50% of annual sales for one third of companies and for two thirds over 20% of sales come from this relationship.  Despite this, almost 70% of ventures had no or only limited documentation or a memorandum of understanding.

Implications
By contrast with the Massachusetts sample, Northern Ireland software ventures are small (13 vs 32 average employment), slower growing (20% vs 40% pa) and less dependent on products (44% vs 58%).   These performance differences in part reflect the different regional market conditions facing the sectors.  They are also reflected in differences in resource acquisition strategies. Northern Ireland software entrepreneurs use fewer bootstrapping techniques, and in  particular do no use deferred compensation strategies which are almost universal in the Massachusetts sample, suggesting that there is a form of 'consumption entrepreneurship' in the Northern Ireland software sector which provides an additional constraint on growth and on the identification and exploration n of informal and formal techniques to support venture growth.  They are, therefore, less likely both to form business alliances (57% vs 77%) and to form multiple alliances (1 per venture vs 4 per venture) and are also less likely to have received injections of  external funding (17% vs 29%).
 

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