Frontiers of Entrepreneurship Research
1997 Edition

SUMMARIES

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LEVERAGING RESOURCES:
BUILDING AN ORGANIZATION ON AN ENTREPRENEURIAL RESOURCE BASE.
 

1Myra M. Hart
2Patricia G. Greene
3Candida G. Brush

1Harvard University, Graduate School of Business
Boston, MA 02163

2Rutgers University
Newark, NJ 07102

3Boston University
Boston, MA 02215

Telephone: 1617-495-6904
Fax: 1617-496-5305

Principal Topic

While entrepreneurship may be defined as the pursuit of opportunity without regard to resources currently controlled (Stevenson, 1983), nothing really happens until resources are engaged (Stevenson and Gumpert, 1985; Starr and MacMillan, 1990; Vesper, 1990; Bygrave and Hofer, 1991). This paper addresses the question of how entrepreneurs acquire the resources necessary to start a new enterprise.  Building on strategic management's resource-based theory (Penrose, 1959; Wernerfelt, 1984; Barney,1986), we investigate how entrepreneurs leverage personal resources to acquire or create a new organization's resource endowments. This empirical research explores the use of the entrepreneur's human and social capital (Becker, 1975; Pennings and Lee, 1995; Brush and Greene, 1996) to engage the physical, financial, and organizational resources necessary to launch and sustain a new enterprise.  This is part of a larger body of work intended to develop a resource-based theory of entrepreneurship.

Methodology

Data was collected  from 95 entrepreneurs who presented business plans at 13 US chapters of the MIT Enterprise Forum in the years from 1988 through 1993. (Response rate = 45% of 213 mailed surveys.)  Using years of education, experience in the same (or a related) industry, and start-up experience as proxies for human and social capital, we examine the relationship between these variables and the entrepreneur's ability to gain access to sufficient and appropriate resources at start-up and at subsequent stages of development (Churchill and Lewis, 1983). Using a 7 point Likert scale, entrepreneurs were asked to rate their success in  performing each of five key tasks in start-up resource assembly:  1)specification of needs;  2) identification of potential providers; 3) attraction of provider/partners to the venture; 4) setting terms of the partnering deal; 5) selecting among the alternative providers and deals available (Hart, Stevenson, Dial, 1995) at each of  the first three stages of the company's development. An additional measure of success in securing resources was the percent of the organization's physical, technological, and financial resources provided by institutions or individuals other than the entrepreneur.  Entrepreneurs were asked to rate the importance of functional, technical, general management skills, knowledge, and experience and their professional reputations, networks, and personal friendships in gaining access to resources.

Major Findings

The research indicates that the entrepreneur's industry-related human and social capital are instrumental in providing access to necessary physical, financial and additional human resources for the new enterprise.  These human and social resources also provide the platform for the creation of unique organizational capital. Both depth (measured in years) and breadth (measured in number of founders) of experience were important contributors to success in garnering and maintaining access to resources.  However, the statistics indicate that too much experience may be a bad thing.  While the mean number of years of experience was 11.2, entrepreneurs with more than 15 years of related experience were far less likely to rate their venture's performance as successful.

Implications for theory and practice

The work addresses the "resource gap" that currently exists between entrepreneurship and strategy management theories.  While the former addresses the challenges of creating new organizations with a dearth of resources, the latter assumes the existence of resources and focuses on how these endowments provide competitive advantage and influence the direction of the company.  The theory of leveraging a resource base to create new and more complex organizational assets contributes to a general management theory of dynamic capabilities.  The findings provide additional insight into how management can create the invisible assets so critical to innovation, adaptation and growth (Itami, 1987; Teece, Pisano, and Shuen, 1990) and, in so doing, further the development of  intrapreneurship theory.

On a more practical level, the relationship between entrepreneurs' venture-specific human and social resources and success in developing appropriate physical, financial, and organizational resource bases for the new enterprise has implications for entrepreneurial choice of industry and strategy.
 

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