Sustaining the Entrepreneurial Spirit Over Time

Transcription

efmd 35th EISB Conference
Entrepreneurship, Innovation, and
Small Business Conference 2005
Sustaining the Entrepreneurial
Spirit Over Time:
Implications for young companies,
family businesses, and established companies
Barcelona, September 12–14, 2005
Book of Abstracts
Sustaining the Entrepreneurial
Spirit Over Time
Book of Abstracts EISB 2005 Conference
Sponsors
Track 1: Family Business
Indian Family Businesses: Their Survival Beyond Four Generations
Ramachandran, Kavil
Indian School of Business, Gachibowli, Hyderabad, India
Interest in family businesses is recent, and most often knowledge creation in this field is limited to Western
academics. Although stray outputs have started appearing on developing countries or Asia in general, no
comprehensive picture is still clear on most aspects of family business. It is in this context that this
exploratory research is undertaken.
Family businesses constitute most businesses in India, as anywhere else. Economic liberalisation and rapid
expansion in the industrial base in recent years have not only created growth opportunities for many but
also have tested their resource capabilities to respond to them; some have chosen to follow the role of a
custodian of their existing wealth and followed the preservation route, while some others have followed
more of an entrepreneurial route of exploiting opportunities with or without relevant resources, with mixed
results. One of the key resources for all of them is their family, and their prime concern is wealth and
welfare of their family. A major dilemma many of them have faced particularly in the last decade since
economic liberalisation began is to choose between combinations of risks and returns of business growth
and conservation of wealth of the family. This, of course, is intertwined with the missions of their
businesses and families.
Family businesses are fascinating because of the mutual dependence of two ecosystems (family and
business) that have inherently conflicting characteristics. Some of the key dimensions that determine the
cohesiveness of both the family and business are: succession planning, remuneration and rewards planning,
recruitment and rewards for non-family professionals, retirement and estate planning, induction and
grooming, ownership structure, preserving wealth, resolving conflicts, business vision, strategy and
governance, family vision, strategy and governance. Research evidence suggests that these come under
strain especially when their operating environment comes under pressure. Growing interest in corporate
governance has its positive effects on family governance too especially in introducing greater level of
professionalisation in business.
The six Indian case studies analysed in this paper have been carefully selected: all fourth generation family
businesses with diversified portfolios, and managed jointly by family members and outside professionals.
However, they are different in terms of leadership quality across generations, response to environmental
forces, family unity and business performance. Families with a unified command and harmonious
relationship have responded well to the economic liberalisation process that started in early 1990s. We
conclude that the quality of family leadership reflected in the level of Compassion Orientation nurtured in the
families is found to be critical for building Competitive Orientation in the group’s business. Also, the nature
and characteristics of Competitive Orientation required in business and Compassion Orientation required in
families are influenced partly by the stage in their life to which they belong and the impact of environmental
forces existing. Families with high quality leadership have been able to transcend from early to later stages
in their life cycles smoothly.
Effective Knowledge Transfer in Family Firms
Trevinyo-Rodríguez, Rosa Nelly
Tàpies, Josep
IESE Business School
One of the most critical organizational changes family businesses deal with at some stage in their lives is
the succession process. When evaluating it, two main targets are sought: quality and effectiveness. To meet
these quality-effectiveness standards three elements should be transferred from the predecessor to the Next
Generation Member(s): 1) Ownership/power, 2) Management responsibility and 3) Competence/Knowledge.
We focus on the third element: Knowledge, since most of the times, it is “the taken-for-granted” factor.
How effective intergenerational knowledge transfer in family firms takes place –under which conditions and
through which variables— is the heart of this writing. And, although this is a conceptual writing, we hope it
may drive future empirical research projects in order to provide support for the proposed interactions
(relationships).
A Knowledge Transfer Model in Family Firms (KTFF) which sets on stage several internal and external
relationships in the Family-Enterprise-Next Generation System has been developed. The model relates The
SUBJECT/Person, the OBJECT/Focal Target and the MEDIATED ARTIFACT/Subsidiary Particulars (unconscious)
in the following way: First, the SUBJECT/ Person, who is represented by the NEXT Generation Member(s)
must learn/ acquire knowledge (ACTION) about how to run the family firm, which is represented as the
OBJECT/Focal Target. In order to do so, the SUBJECT/Person needs an artifact or tool that helps her carry on
the human activity (Knowledge Acquisition). This mediating artifact is represented by the FAMILY. Thus,
knowledge transfer (acquisition) takes place in and through a social context.
This paper is organized as follows. First, we analyze if knowledge transfer in family firms is different from
knowledge transfer in other firms, and having established so, we proceed to examine the concept of
individual learning and how is it related to knowledge acquisition and transmission. Second, we develop a
knowledge transfer model applied to family firms exposing the variables and conditions that interact during
knowledge transmission processes.
The Sustainability of Asian Wealth in the UK
Dhaliwal, Spinder
University of Surrey
The continued success of Asian entrepreneurs in the UK testifies to the sustainability of the Asian business
community which appears to combine the dynamism of the free market with the dynamic, risk taking
heroism of the entrepreneur. Asian wealth in the UK has become more diverse in terms of the type of
entrepreneur and the types of business. It now crosses from first through to second and third generations.
It spans manufacturing and services, entertainment and fashion, hotels and property, food and
pharmaceuticals. Asian enterprises have attracted the attention of academics, policy makers and
practitioners and are increasingly enjoying a higher profile in the popular press. Whilst recent studies
highlight this growing importance, when charting the success of the Asian entrepreneur they tend to focus
on the transformation from ‘rags to riches’ and the majority of studies concentrate on the characteristics of
the owner, start up and the barriers to accessing finance. This study analyses the longer established, more
successful enterprises of the Asian business community and seeks to draw out trends within this
increasingly important sector of the economy and consider their economic sustainability.
The study draws on data provided by the annual Asian wealth index which focuses on the 200 richest
Asians in the UK. It analyses the wealth-generating capacity of this upper spectrum of the Asian business
community through a comparative economic and sectoral analysis. The analysis suggests that the Asian
business community has delivered significantly higher than average growth and that this growth has been
driven by a shift towards higher value industrial sectors, questioning the extent to which the traditional
stereotypes of the Asian entrepreneur, portrayed in the academic literature, maintain their value.
For policy makers and the business support community the paper offers new insights into the economic
nature of this growing business sector. The originality of the research process and data raises new issues in
research into Asian entrepreneurship not just the UK. It thus offers significant challenges to the academic
community.
Operationalising A Network-level Performance Measurement System
for SME Networks
Varamäki, Elina
Järvenpää, Marko
Kohtamäki, Marko
University of Vaasa
University of Jyväskylä
University of Vaasa
During recent years, authorities have actively attempted to promote inter-firm cooperation by trying to
persuade small and medium-sized enterprises (SMEs) to enter different alliances. Nevertheless, the results
are not very flattering. Different promoters of networking have had limited knowledge about how to
contribute to successful development in cooperative groups. Evidently, practitioners do not have effective
tools at their disposal when trying to form networks. There has been hardly any research about the
management tools and the holistic performance measurement systems which are very important when
managing SME networks.
The present study is based on two different perspectives to produce added value to discussion on
networking. These perspectives are a system view and a view that considers networks as entities. Previous
performance measurement systems have mainly focused on the level of single enterprises. In the present
study, the objective is to create a network-level performance measurement system by presenting a
theoretical framework for a network-level performance and by operationalising different parts of it. In
addition to the framework, we present concrete measures of different parts of a network level measurement
system. A network-level performance measurement system emphasizes win-win situations in the network
between the leader enterprise and the other members of the network.
The suggested framework is composed (a) of the factors that enable action and success, (b) of the
processes, and (c) of the productivity and profitability of activities. The issues enabling success in the
network are (1) the values and culture, (2) resources and competences, as well as the (3) modes of action.
The profitability of activities can be divided into (4) the profitability of internal processes, into (5) the
customer perspective and into (6) the financial perspective of the network. The values and culture describe
the mental state of the network through trust, commitment, partnership values and communication.
Resources and competences are connected to the ability and capacity of the network to produce core output
to the business effectively, and to develop new modes of action. The recourse base is comprised of the
tangible and intangible resources of the individuals and the companies in the network. Modes of action refer
to the quality of relationships in a network through three different aspects: organizational links and
strategic links between a leader company (a customer) and suppliers,
as well as bilateral vs. multilateral relationships between all the partners.
In the network, these enabling elements are the structural and operational choices, achievements and
capabilities, which are the seminal value drivers creating the base for the financial performance and
profitability of the network. This performance could be evaluated by using the logic of the Balanced
Scorecard (BSC) as follows: 1) a learning and well-being organization is able to make innovations, and
furthermore, 2) effective and high quality processes. Moreover, if these innovations and processes are
customer-driven, the firm or the network will achieve 3) satisfied and profitable customers. This customer
satisfaction and profitability will be also reflected in the overall 4) financial success (profitability, solvency
and liquidity).
We employ a constructive research approach developed by Kasanen, Lukka & Siitonen (1993), by working as
an exceptionally large research team, which includes 13 researchers representing different disciplines of
managerial research, such as accounting, management and entrepreneurship. The research project started in
2002 with a pre-study. This part was funded by Sitra (The Finnish National Fund for Research and
Development) and during the project, a theoretical framework for the network measurement system was
created. The project is now continuing with the financing and steering by Sitra, Tekes (National technology
agency in Finland) and case firms. There are four case networks in the study. All of them are so-called
leader-driven networks, including one strong leader firm. So far we have carried the theoretical pre-work
needed, conducted case studies in network companies, operationalised different measures and tested them
with our case networks. We have conducted 75 interview sessions, lasting approximately 1.5 to 2 hours per
session. Additionally, we have conducted phone interviews, meetings and e-mail queries. We have gathered
plenty of documents and detailed information from the case networks. Four networks actually include 20
different companies as case sites of this study. One of the biggest challenges in developing and applying a
network-level performance measurement system is the level of analysis itself. By network level analysis, we
mean in this study a vertical network including a leader company and first-level suppliers. Naturally, there
are second-level suppliers, third-level suppliers and so on, but they have been left out of the analysis.
Developing a performance measurement system for a network headed by a leader company is important
from both a theoretical and a managerial perspective. These results are needed in order to understand the
successful and the unsuccessful development and performance of vertical networks, and in order to develop
an analyzing, designing and measuring tool for managerial needs in regard to SME networks.
The Role of Corporate Identity in Polish Companies – 15 Years after the
Turning Point
Nikodemska-Wolowik, Anna Maria
University of Gdansk, Poland
Undoubtedly Corporate Identity and Corporate Image1 play significant role in contemporary business, as a
mainstream management activity, particularly in developed and emerging economies. Owing to CI the
stakeholders can realize why companies behave in the way they do and how their behaviour relates to their
appearance. Moreover, it is increasingly difficult for both service and manufacturing companies to
differentiate themselves from each other. So the distinctive function of CI is one means of achieving a
unique positioning for a company. Many authors adhere strongly and rightly to an opinion that the market
environment changes faster in the new century than ever before. The strategic concern of management is no
longer the preservation of a fixed identity but the ability to manage and balance a flexible identity in light of
shifting external images.
1
Here: the synonym of organizational identity and image. The acronym CI refers to both corporate identity and image.
The article examines the meaning of corporate identity in creating entrepreneurial spirit in the postcommunist reality. It traces in brief the history of one of the most traumatic transformations in the region
that Poland had endured. The “cure” programme that was launched in 1990 had touched off an economic
revolution with its key turnaround elements: explosion of profitable private companies, surging exports,
trying to benchmark against Asian Tigers, vigorous border trade, restructuring state corporations and
attracting foreign investments. Since 1989 the business environment has undergone substantial and rapid
change, which has altered both the structure and the direction of a large number of companies in Poland.
Next the article provides an overview of Polish managers’ problems who had to review their firms’ identities
to create a powerful image, relevant to the corporate strategy. Nevertheless at the first phase of
transformation, some companies spent millions creating and maintaining their identities, but failed to
understand that it was pointless building a new image without a fundamental change in internal corporate
culture. Although we are many footsteps ahead in comparison with the first years after the turning point,
there is still a lot of to do in the CI area. Some serious challenges that have emerged in the dynamic
economic environment in the new millennium are discussed. These circumstances are presented from
contrary points of view, as they can be perceived as chances or threats by different groups of interest. In
this context, a prospective danger and actual loss of Polish companies’ identity is then considered. Thus
mergers & acquisitions are taken as a characteristic example. The changes always lead to an assessment of
a company’s actual identity. When the companies have long histories, strong cultures and a large number
of long serving employees, it is better to create a new entity with new visual attributes, not allowing one
company to dominate the other. Instead, they demonstrate the best of both identities, brought together to
form a new organization. But there is another scenario: one party emerges as the definitive senior partner.
Finally, alternative ways of maintaining Polish identity in firms and their influence on creating competitive
advantage is analysed. Among other cases, the role of Polish family enterprises, particularly those that have
survived the communist era, is highlighted. Such companies can be a brilliant example how to maintain an
identity and how it influenced the entrepreneurial spirit.
Entrepreneurship as a Creative Industry within the Cultural Sector in a Small
Society
Einarsson, Agust
University of Iceland
In the paper entrepreneurship is described as a creative industry within the cultural sector by analysing the
economic role of cultural activities in a small society, with Iceland as the prime example.
Section 1 includes a description of the contribution of cultural activities to GDP, emphasizing the role and
importance of entrepreneurs and small and medium sized enterprises (SMEs) within the cultural sector and
showing some illustrations of public expenditures on cultural activities. UNESCO has defined culture for the
purpose of international economic statistics. Culture can be regarded as a positive externality, because
increased cultural activities result in a more diverse society and offer more possibilities for a happier life.
Public initiatives in support of cultural activities for the purpose of increasing positive externalities are often
very effective.
There are numerous enterprises within the cultural sector in Iceland, most of them SMEs. The role of
entrepreneurship is extremely important in cultural activities in most societies. Of cultural enterprises in
Iceland, 79% have 1-5 employees, 16% have 5-20 employees and 5% have more than 20 employees. The
business activities of artists are frequently conducted in very small units or organizations. The cultural sector
attracts entrepreneurs, and new enterprises in culture are very common. Public expenditures on cultural
activities have increased substantially in Iceland, both in nominal terms and as a proportion of GDP.
Cultural activities are an important factor in most economies, and in the case of Iceland their contribution
to GDP amounts to 4%, which is considerable in comparison with other industries.
Section 2 describes how the music sector in Iceland, as an example, with quite many entrepreneurs fits in
with the ideology of the creative industries, where creativity is a process that is engendered at the limits of
three factors: culture, personal background and society. In the music industry, creativity often occurs in
clusters, where a number of entrepreneurs come together at the same time and changes occur. It is
important in any creative process that individuals should have access to a fertile environment where other
individuals are engaged in comparable activities in the immediate vicinity. This is evident within the cultural
sector, as it is in the discipline of academic research.
An account is given of the share of music in the creative industries and a particular account is given of
studies of the Nordic music industry, which has been characterised by growth in the number of jobs and
size of turnover in recent years. The Nordic states possess a great deal of expertise relating to the music
sector and musical education is extensive, although there appears to be a lack of co-ordination, particularly
between trade policy and education policy. Even though the music market in the Nordic countries is relatively
small, some nations have achieved considerable success in exports, Sweden being the third largest exporter
of music in the world.
In Section 3, Porter’s five forces model is employed to describe the competitive position of enterprises and
entrepreneurs in the music industry in Iceland. This section reveals, among other things, that the position of
consumers is strong, the position of suppliers is weak, but the barriers of entry and exit are low. This
analysis is applied to the competitive position of Iceland in the music sector by the use of Porter’s Diamond,
whereby it is revealed that the small domestic market in Iceland gives it a special position, which can be
exploited, however, to achieve a competitive advantage owing to the extensive domestic awareness of the
mainstreams of music in the world. The music schools play a key role in the strong position of music in
Iceland, and the people employed in the sector are generally very well educated; this is offset, however, by a
weak financial market.
Music has a significant impact on exports from Iceland, particularly by indirect means, e.g. through the
tourist industry. Numerous tourists come to Iceland as a result of the influence of famous performers and
entrepreneurs, such as the singer Björk and the band Sigur Rós. Currency revenues from foreign tourists have
increased substantially in recent years, partly as a result of cultural activities, including musical activities, as
reflected, for example, in the numerous music festivals held in Iceland.
In Section 4 there is a description of numerous ways within cultural policies to encourage the activities of
entrepreneurs. Increased cultural activities as a part of the creative industries, especially by entrepreneurs,
can be achieved by strengthening the school system in the field of culture, especially fine arts. This has a
twofold effect. First, it increases the knowledge of culture among the population and, second, it expands the
interest of young people who will later participate actively as professionals in cultural activities. The school
system is often used as a means of securing equality as regards the art and artistic work of young people
with different economic backgrounds. There are also ways of using the tax system to encourage private
initiative, both by granting general incentives to companies operating in the field of culture and also by
focusing particularly on entrepreneurs and SMEs.
In many places the establishment of a separate ministry of culture has given good results, and such
ministries can be entrusted with the responsibility for the design and implementation of special programmes
for entrepreneurs and SMEs. A successful method is to implement public initiatives and support for the
export of cultural activities. This has been done with good results in the motion picture industries in Ireland
and Iceland, which have benefited from a system of public support. Entrepreneurship and SMEs are
extremely important in this context.
Section 5 contains conclusions and discussion.
Transgenerational Views on the Success and Future Development of Family
Firms
Glas, Miroslav
Coh, Marko
Vadnjal, Jaka
University of Ljubljana
University of Ljubljana
GEA College of Entrepreneurship Piran
Background
The founding and succession generations in family firms might differ substantially in their views on the
current success, the strategy and future development of the firm due to their differences in education, life
and work values as well as the experience with the respective business environment. These differences could
largely influence the process of the succession since the founding generation could trust or mistrust the
merits of potential successors in the case of largely different views. The (in)consistency in values of both
generations might act as an important promotor / inhibitor of the succession process, even beyond the
formal succession planning process.
In Slovenia, where the research will be implemented, following the transition from the socialism to a fully
fledged market economy, a great number of family firms were founded in early 1990s. Quite a number of
these firms are currently approaching the critical stages of the succession process. However, the breakup
with the old tradition of family businesses after 1945 has left the business community without well
established rules and policies for the succession to guide both the founding and successor generation. These
entrepreneurial families are therefore very sensitive for the differences in their expectations. While according
to some findings Slovenians generally highly value the conformity and obedience with their children, such an
attitude might suggest an inclination to an excessive control over the next generation, its activities and
behavior that does not well suit the need for autonomy and self-respect of young generations.
Aim
The study will inquire into the differences in personal values and goals as well as in the views concerning key
business aspects of the family firms’ operations between founders and (potential) successors:
-
the evaluation of different financial and non-financial measures of firms’ performance,
the relation between family and its business,
the attitudes towards growth and external financing of the firm,
the planning of the succession process.
Hypotheses
Since the founding and succession generations have quite a different history and experience with the
business environment, we expect significant differences in their attitudes and beliefs, assuming:
H1: There exist different subgroups of family firms concerning the family and business concepts of founders
and successors.
H2: Values, attitudes and beliefs differ significantly between the founding and succession generation in
family firms.
H3: Extensive differences in values, attitudes and beliefs between generations act as an impediment to the
smooth succession process while small or moderate differences help to build the necessary trust and
support the succession process.
Methodology
A combination of methods will be used to collect and analyze data. A survey of 120 family firms with an
extensive questionnaire for the founding person and the (potential) successor interviewed separately will be
implemented, with further 10 family firms studied more in-depth, as case analysis to enhance the
understanding of family firms’ cultures and the succession process. Data collected will be analyzed using
discriminant and factor analysis to identify key factors of differences between groups of family firms.
Organizational Learning and Knowledge Development Peculiarities in Small
and Medium Family Enterprises
Basyl, Sami
Université Montesquieu-Bordeaux 4
The objective of this contribution is to analyze the processes of organizational learning and knowledge
development within the small and medium sized family firm. Due to its founding characteristics, family SME
seems to be a closed, hermetic and rigid organization. Besides, the specificity of mechanisms of learning
and knowledge management, in general, within this entity are justified by:
- First, the overlapping of "family" and "company" spheres: the family sphere realizes a unique contribution
because it constitutes a supplementary source of knowledge inbound to the company compared to a firm
without family involvement,
- Then, the frequency of the exchanges within the organization: the processes of exchange of piece of
information and knowledge take place not only in the organizational context but also and especially in the
family context. The family meetings constitute, for example, supplementary occasions for exchange and
sharing of knowledge.
Schematically, two major characters inherent to this entity constitute obstacles to organizational learning:
conservatism and independence orientation strongly influence the processes of learning and knowledge
development.
The literature suggests that the family system attempts to create and maintain a cohesiveness that supports
the family "paradigm" which is described as the core assumptions, beliefs, and convictions that the family
holds in relation to its environment. Information that is not consistent with this paradigm is resisted or
ignored (Davis, 1983). The search for security, conformism and tradition are characteristic of conservative
organizations. Particularly to the family firm, the conservative posture could be studied through three
dimensions (Miller and ali., 2003). First, on the governance level, the conservatism is exhibited by the
plateauing and the growing rigidity of the owner-manager and by the inefficacy of the board. Second, on
the strategy level, conservative family SME favorites its actual markets, customers and products and globally
is unwilling to change and adopt new paradigms. Then, on the organization and cultural levels, this entity
tends to be closed and introvert. These three components have an impact on the mechanisms of knowledge
development as the conservatism tends to limit the variation and the exposition to new environments. In
short, within this entity the level of organizational knowledge would be weak.
The second variable influencing the processes of development of knowledge within family SME is the
independence orientation. This orientation is a consequence of the family long-term commitment to the
business. Paradoxically, this commitment has two contradictory effects on growth. First, it implies the
pursuit of future development and continuity of the firm to make sure that the family heritage is passed on
to the following generations. On the other hand, commitment implies a strategy of conservation of the
heritage which passes by a strong seek for the independence. Aiming to guarantee its continuity, the (small
and medium-sized) family firm establishes an independence orientation of three different types. First, from
the financial point of view, it avoids as much as possible turning to outside partners (Hirigoyen, 1985).
Then, on the human plan, it would be favorable to the appointment of family members or individuals
belonging to the close relational circle to the posts of direction and would be reluctant to the recruitment of
professional directors. Finally, to maintain the decision-making in hands of the family, the family firm tends
to avoid the inter-organizational relations, cooperative investments, and tries to limit the sharing of the
control of its investments. The contribution of outsiders (financiers, directors or partner organizations) can,
however, be precious to the company. And the introversion would be a major obstacle to the perpetuity of
the firm because it inhibits growth. As a consequence, independence orientation limits the accumulation of
knowledge because, on one hand, the horizons of the company will be limited and little varied, and on the
other hand, the potential valuable knowledge contribution of outsiders is excluded.
The study of these variables raises questions about the efficacy of the organizational memory within the
family firm. This organization runs particular risks because of the peculiarity of its knowledge management
mechanisms. Because of its founding natural characteristics, the family firm nurture mechanisms which
reinforce the causal ambiguity (Neslon and Winter, 1982) by strengthening the voluntary effort to avoid
either a too fast imitation or the loss of knowledge-based resources if the individual or the group holding it
leave the organization (Arrégle, 1995). In short, family firms show an inclination to concentrate the
processes of knowledge management around its tacit dimension by encouraging its formation contrarily to
the explicit element. However the weak externalization of knowledge coupled with the avoidance of sharing
outside the family causes serious risks. First, an obvious risk of deterioration is present because of the weak
importance of the organizational protection mechanisms and the strong reliance on individual memory.
Even if the family firm exhibits a weak erosion of knowledge because of the weak rotation of directors, an
important risk is inherent to the eventuality of a sudden loss of a key member of the family and the
company. The organizational memory of the family firm is fragile. Moreover, we suggest a risk of erosion of
knowledge due to the fragmentation caused by successions that do not preserve the unity of the firm. There
is risk of "fragmentation" of the strategic knowledge if the company is shared between the potential
successors. This risk would be less pronounced if a prior sharing of knowledge with outside directors had
been engaged.
Another particularity of family firms is about the intergenerational transmission and transfer of knowledge
(Cabrera-Suarez and ali., 2001). Mechanisms inciting to intergenerational transfer of knowledge must be set
up because of the negative impact of conservatism and independence on organizational knowledge and due
to the fragility of family firm organizational memory. The process of transfer of knowledge through
generations is thus crucial in order to maintain the competitive advantage of the firm. The modes of
appropriation of the strategic knowledge, on one hand, and the operational knowledge, on the other hand
are different. Initially, the successor has to be able to acquire and use the operational knowledge which
encompasses the founding know-how of the company. But the learning of the successor is more
importantly about the strategic knowledge stemming from the experience of direction acquired by the
predecessors.
Mapping Innovation and Entrepreneurial Spirit in Small and Medium-sized
Enterprises: Inputs, Process and Management
Durden, Geoffrey
Thyil, Vijaya
Truche, Marcel
La Trobe University Australia
La Trobe University Australia
ESC Dijon France
Entrepreneurship and innovative Small and Medium-sized Enterprises (SMEs) have been acknowledged by
academics and policy makers as playing a critical role in promoting economic growth. Recently, researchers
have emphasized the inseparable nature of the relationship between entrepreneurship and innovation and
extended their combined role to include society, industry, public service and business due to the
combination’s ability to impart flexibility and self-renewal to any activity. In this context, an understanding
as to where individual SMEs with little or no R&D in comparison to the large scale enterprises get their
knowledge inputs from, and the ways these firms manage innovation, is vital to gauge the extent of
sustainability in the entrepreneurial spirit. Given that SMEs account for a large proportion of the total
businesses in many countries, including Australia, the findings will provide a platform for potential public
policy framing and targeting of support. This paper presents the findings on innovation inputs, its process,
and management in two Australian manufacturing SMEs and is part of a larger study. The importance of
innovation to the firms, the nature and source of knowledge inputs (internally from entrepreneur/ family and
employees, or externally where even customers and suppliers played a role), whether innovation is important
at the process level and/or at the product level, the evolutionary nature of the innovative process and the
different ways that SMEs manage the innovation process are examined and the implications to
sustainability of entrepreneurial spirit discussed. Twenty three independent manufacturing SMEs in the
twenty different manufacturing sectors weighted by their marketing orientation as Business-to-Business
(B2B) and Business-to-Consumer (B2C) were interviewed. The semi-structured interviews were taped and
transcribed, and a qualitative analysis conducted using QSR N6. For this paper, one SME from each
category is used to highlight the similarities and differences that may arise in B2B and B2C firms. Findings
indicate that continuous product innovation or ‘intellectual manufacturing’, has been a necessity for the B2C
SME to maintain its niche. Analysis of the innovation process from the start of the firm’s operations
indicates that the knowledge inputs are internal and originate solely from the personality and motivation of
the entrepreneur. Innovation management is completely controlled by the entrepreneur who imposes a limit
on the extent of innovation that can occur in a given time. This deliberate cap on innovation, entrepreneurial
spirit and potential economic growth explains the SME’s resistance to domestic expansion and
internationalization. Small business literature acknowledges that not all SME owner- managers have the
desire to grow their business due to a personal choice of life-style, with comfortable survival more often
being an overriding objective. From the analysis, it can be inferred that the entrepreneurial spirit of this SME
is not sustainable over time. The B2B SME is a pioneer in moulding technology in Australia offering high
quality castings and perfecting its products and processes and setting standards in the industry, resulting in
old and new customers seeking the company. Despite this competitive edge, it constantly innovates and the
importance of innovation is repeatedly emphasized by its owner. For this firm, thinking of new ways to do
things is a ‘hobby’. The inputs for innovation arises from both internal and external sources and is
embedded in the firm’s culture, with the family members, employees and customers contributing to new
ideas. Several instances prove that innovation management is integral to the firm’s operations. The firm
aggressively seeks domestic growth and is not averse to internationalization. From the analysis it can be
inferred that the entrepreneurial spirit of this SME is sustainable and will be carried through to the next
generation. Sustaining the entrepreneurial spirit of individual SMEs including family firms is a significant
and primary step in building a successful and strong entrepreneurial culture and spirit for regions and
nations, and this paper contributes to this important area of knowledge. Implications for public policy and
future research directions are discussed.
Track 2: Growth Process
Why do some firms engage in international activities while others remain
strictly on the domestic market?
Arenius, Pia
Chantrain, Diego
University of Lausanne (HEC)
University of Lausanne (HEC)
Principal topics
Why do some firms engage in international activities while others remain strictly on the domestic market?
This is a question the traditional Uppsala internationalization model does not give an answer to (Andersen
1993). The international new venture literature proposes four elements necessary for a sustainable
international venture (Oviatt & Mc-Dougall 1994), but does not offer any explanation for why
internationalization begins. In a small and open economy, such as Finland, one could expect that
internationalized technology ventures would be more common than non-internationalized ventures.
However, research has shown that only a minority of Finnish technology ventures internationalizes (Autio,
2001). In this paper we will seek to look at some of the factor that may explain why some firms choose to
internationalize. We will look at factors such as product and customer characteristics, and sales channel
characteristics.
Sample
This paper reports on a longitudinal study of the software products industry in Finland. Focusing on one
industry group permits better control for variation in industry and demand conditions that might influence
the pattern and speed of internationalization (Reuber & Fischer 1997). We selected the software product
industry, which is conducive to the study of early internationalization as it is a high-velocity environment in
which small, entrepreneurial ventures are common. This industry has also an important role in the Finnish
economy today and presumably also in the future. The software products industry is also an industry in
which one would expect firms to internationalize, since the domestic market in Finland is hardly large
enough to recoup the development costs. It is also an industry in which the Internet is likely to have an
impact on the internationalization likelihood and process, since the Internet is a cheap and easy distribution
channel for software products.
In 2001, we identified 700 software product companies in Finland. These companies
received our mail survey in April 2001 and 278 of them responded to our survey (40% response rate). Out
of the 278 companies, 121 reported having international operations. In this paper we will focus on the 156
companies that did not have international operations at the time of the first survey. We tracked these firms
longitudinally over four years. We carried out annual surveys to find out whether they had engaged in
international activities since our last contact, and to collect data on their first market selection, entry mode,
international breadth, international depth and international goals.
Implications
This paper aims to contribute to the literature on international new ventures by looking at why some firms
engage in international activities. The findings provide important guidance for policy-makers supporting the
internationalization of new ventures. It helps them to identify those firms that have an increased likelihood
of engaging in international activities.
Attribution of Success as a Factor of Development
Gladys-Jakobik, Jolanta
Warsaw School of Economics
The development of a society is not an unequivocal concept. There is a tendency now to move away from
purely material criteria measured in Gross Domestic Product (GDP), towards balanced and lasting
development that takes into account social organization aspects as well as people’s living conditions. Thus,
development means not only a drive towards economic growth or political democracy, but also equality on
a socio-economic level2. Important conditions determining a given society’s development understood in this
way include the values and beliefs shared by that society, in other words elements of culture in a broad
sense. This means it becomes necessary to give more consideration to non-material factors related to
2
This is the understanding proposed by researchers from Harvard University‘s Academy for International and Area Studies project.
(Harrison L., Huntington S., 2003, Kultura ma znaczenie. [Culture Matters, Polish ed.] Poznan, Zysk i S-ka)
development, including people’s perception of themselves and others, what they strive for, and what they
fear. Therefore, it is worth asking: In what degree is the mentality of today’s Polish people a barrier to a
pro-development culture that is so important for shaping enterprise attitudes? Which resources and values
are conducive to success, and which are not?
A re the Poles pro- development minded?
Evidence that the level of a country’s economic development is linked to how widespread certain
psychological qualities are, including achievement motivation, and how far they enjoy social approval, was
provided by David McClelland as early as the 1960s. Despite earlier criticism, new analyses of data collected
within various research programs, carried out in many countries around the world, uphold the theory that
there is a link between intensifying achievement motivation in a given culture and the level of attained
economic development (Varga, 1977; Doliski, 1995; Tyszka, 1997; Landes, 2003).
What are the features of an individual and a community with strong achievement motivation, and to what
degree is this model present and accepted in the Polish awareness?
As we know, achievement motivation involves perceiving the world in terms of success and failure, or in
making comparisons with standards of perfection - in other words, striving to do better, constantly
upgrading one’s skills and efficiency, noticing ever new challenges or creating them. People who have high
achievement motivation display substantial activity in various areas of life, a drive for success, and faith
that success is possible to achieve.
A factor that is extremely important for explaining the relations between an individual’s achievement
motivation and their community’s prosperity, is the achievers’ ability to forgo immediate reward in exchange
for rewards that are more distant in time, but more substantial. Pursuit of profit is not conducive to
individual material and professional success (Conniff, 2003; Skarzyska, 2003), neither does it contribute to
economic development on a macro scale, while blocking the progress of democratization (among other
things, by decreasing the activity of voluntary organizations, or by weakening social bonds). Moreover,
strong motivation for economic success in countries where the resources allowing it to be achieved are
relatively poorly accessible (a small percentage of well educated people, a low level of income and wealth), is
corruption-inducing, as shown by the high corruption indices in such countries as Russia, Turkey or Poland
(Lipset, Lenz, 2003).
What, then, is the position of achievement motivation in the system of values of contemporary Poles and in
their culture?
Multiple examples are provided by works of fiction and mass media. Literature, and also films, seldom
include content showing approval of achievers and successful people. Fictional characters are usually
failures, not people who have made it. Popular culture as well makes stars out of people whose success is
accidental, attained quickly and easily, where the people themselves have little ambition. One could even
venture to say that success is valued the more the easier it was to achieve.
Importantly, David McClelland and David Winter (1969) showed that economic success is achieved by those
social groups who not only have strong achievement motivation, but who also share a drive for a common
and not just personal good, and a sense of public responsibility.
A country’s economic development and progress in its democratization is also related to the prevailing
attitudes to rivalry. The comparative analyses carried out by Grondon (2003) suggest that negative views on
competition and rivalry are characteristic of societies that are “against development” and do not modernize
themselves. Polish research shows that in our country, rivalry is not viewed favorably; it is more often seen
as a form of expressing aggression than a means of mobilizing people to effort and achieving
professionalism in some field.
M oral and legal rigorism
There are also clear differences between rapidly developing societies and those dominated by economic
stagnation in the way people think about morality and the existing legal rigorism. In continually developing
societies, neither the social norms nor the binding law are excessively restrictive. In countries where long
periods of economic stagnation are observed, on the other hand, there is a perceptible lack of connection
between extremely lofty ideals and declarations, and the norms that are enforced on an everyday basis.
Polish research confirms the existence of a substantial divergence between publicly declared values and
everyday practice, both in the moral sphere and in the call for greater legal rigorism.
Observed beliefs and values shared by a society have an impact on the nature and form of institutional
changes. From the point of view of development, therefore, can one say there are “better” and “worse”
culturally consolidated values and beliefs? Does economic progress require us all to be the same? Or will the
scale and pace of Poland’s development largely depend on what values and whose views will be better and
more loudly expressed by opinion-forming circles? Is the Polish conservatism permanently depriving
individuals and social groups of the possibility of being pro-development minded and enterprising in the
sense represented by more advanced countries? These are the questions I will be seeking to answer.
The impact of the Knowledge Transfer Scheme on the Development of
Marketing Capability in Small and Medium Sized Enterprises
Harris, Robert
University of Wolverhampton
A major factor in business success is the extent to which marketing is understood and applied within
businesses. According to Carson (1985), there are three broad constraints on marketing competency by
small firms. They are limited resources; lack of specialist expertise; limited impact on the marketplace. The
lack of ability to think strategically is a major hurdle for many SMEs even though it should be the first
priority for the small business owner. There are no substitutes for strategic thinking. Improving quality, price
or service is meaningless without knowing what kind of adjustment is relevant in competitive terms.
Entrepreneurship unguided by strategic perspective is more likely to fail than succeed. Wai-sum Siu (2000) in
a study of small firms in China found that higher-performing firms placed a greater emphasis on prior
analysis of market needs and used a proactive approach to marketing planning to achieve growth.
There is evidence that distinct marketing capabilities can be identified and linked to superior business
performance (Vorhies and Morgan, 2005). These capabilities can be effectively used to transform resources
into valuable outputs, based on the classic marketing-mix and to orchestrate marketing-mix capabilities
and their resource inputs involving marketing information management and marketing strategy
development and execution (Capron and Hulland, 1999; Morgan et al. 2003)
Gilmore et al, (2001) stated that SME owner/managers "behave and think differently from conventional
marketing decision-making practices in large companies." The reasons for this are unclear, but could be
attributable to the inherent lack of awareness of the benefits of marketing in achieving business growth.
Many managers continue to lack an understanding of the advantages of adopting the broader view that
marketing provides (Fuller 1994).
Increasingly, it has become evident that the difference between success and failure of all businesses is
dependant on their ablity to develop marketing plans that are effective in serving their marketplace better
(Brooksbank 1999). A barrier to effective planning, however, is that many SME owner/managers have not
had any formal marketing training and are thus not even aware that they may already be implementing the
marketing concept (Meziou 1991). Knowledge transfer is, therefore, a critical factor in improving the growth
prospects of many smaller businesses
According to Hogarth and Scott (1996), "There is evidence that small business failures can result from a
lack of marketing, or poor marketing practice, including planning and implementation." Fuller (1994) puts
this down to the management style of the firm being such that marketing is by no means a priority.
Nevertheless, SMEs are generally considered to have behavioural advantages that may justify their
significant share in innovation, despite their resource based disadvantages. (Freel, 2000). Small businesses
are often forced to utilise product innovations as a means of competitive strategy to a higher degree than
their larger counterparts (Fritz, 1989). Radical product and marketing process innovations may take a more
prominent role in the efforts of SMEs to compete with larger firms. Knowledge transfer support
mechanisms are important interventions for maximising the opportunity for small businesses to innovate
and further engage in entrepreneurial marketing, in order to strengthen their performance.
Market-based learning has been recognised as an important source of sustainable competitive advantage
(Hult, 1998). Organisational learning theory indicates that for market-based learning to form a sustainable
competitive advantage, a firm’s market surveillance must be more alert, timely, and accurate than that of its
rivals (Teece, et al. 1997). In addition, excellent marketing planning is an important capability. In order for
firms to appreciate the importance of marketing and to consciously and successfully implement the
marketing concept through planning, they need to overcome the regular problem of lack of marketing
expertise. There are many methods that firms can use to gain knowledge and improve marketing capability
in these areas. Networking, for example, can be an end in itself according to Gilmore et al (2001) and has
proven a successful tool for smaller firms.
Carson (1993) suggests that there are three levels of marketing technology transfer that firms and their
owner-managers may receive. These are self-help information transfer; appreciation-level marketing
education input, and in-depth marketing education/support specific to the company.
The difference between the success and failure of small firms can be the availability of and access to the
relevant information and support services that have become increasingly common (Summon, 1998).
Todays business support infrastructure is highly valuable to struggling SMEs (Sparrow, 1999). The benefits
of this form of knowledge transfer are not sufficiently emphasised. In numerous cases, however, outside
help is often sought too late - i.e. at the stage when firms are almost beyond help.
The true effectiveness of external support is difficult to measure and is ever changing (Sparrow 1999). It is
also difficult to accurately measure its impact on growth (Summon 1997). So far, consultancy from
government-led schemes has received some bad press and it remains unclear which type of help is most
effective in improving the marketing capabilities of SMEs. There appears to be a gap between what SMEs
really need and what is currently on offer to them.
There is an effective government led initiative, however, which involves a K n o wled ge Transfer
Partnership (KTP) between smaller firms and education institutions that brings mutual benefits to
businesses and graduates. K n o wledge Transfer Partnership s, formerly known as Teaching Company
Schemes (TCS), are successfully helping SMEs to implement the marketing concept and achieve business
growth.
This paper investigates the effectiveness of the K no wled ge Transfer Partnership Scheme (KTP) in
supporting business growth, through a case analysis of a small business based in the West Midlands, UK.
The firm operated a two associate KTP programme that recruited a design and a marketing graduate in
order to support its growth objectives. The extent to which the initiative successfully enabled knowledge
transfer to take place, and the ultimate effect on the businesses marketing capability will be reported.
Research on Small Firm Growth: A Review
Davidsson, Per
Achtenhagen, Leona
Naldi, Lucia
Queensland University
of Technology &
Jonkoping International
Business School
Business School
Business School
Studies of small firm growth are no longer short in supply. On the contrary, as demonstrated by recent
reviews, dozens and dozens of empirical research studies on this topic can be compiled. This does not
necessarily mean that we know everything we want to know about small firm growth. In fact, as all of the
authors of recent review articles complain that a coherent picture is not easy to distil from the material. This
is likely due to differences in theoretical and epistemological perspectives and interpretations;
operationalizations; empirical contexts; modelling and analysis approaches, as well as the inherent
complexity of the phenomenon itself. Thus, not only a superficial but also a rather deep reading of the
extant literature easily leaves the reader confused and wondering.
Admitting that, we will focus in this paper on the fact that significant progress has been made and that we
do actually know quite a bit now about the phenomenon of small firm growth; its antecedents and effects,
and how it can or should be studied. It is not possible within the confines of a conference paper—and
possibly outside the capacity of these authors—to give a complete account of that knowledge. What we will
attempt is a summary of points of convergence within some key themes. We first discuss the nature of the
phenomenon and its relation to entrepreneurship. Here we discuss the fact that the concept ‘growth’ is used
both for ‘change in amount’ and for the process that leads to that change. We also note that part of the
reason for lack of coherence in previous research is the heterogeneous nature of growth; firms can expand
along different dimensions and show many different growth patterns over time. As regards the relationship
between growth and entrepreneurship we conclude that at least early growth of new ventures is part of the
entrepreneurship phenomenon.
We then move on to how growth can best be assessed. This involves decisions about number of time
periods; choice of specific indicator(s) and growth formulae, and the like. We conclude that ideally, growth
should be assessed as size changes over multiple periods, preferably in a concurrent, longitudinal design.
While sales growth is the most generally applicable measure theoretical and industry-specific concerns
should also influence the choice of indicator.
A major section is devoted to the long list of internal and external factors that have been hypothesized and
shown to influence firm growth. It is probably the case that every theoretically reasonable suggestion for a
growth determinant has been shown to have the predicted impact in some context. We argue that the
problem is to develop better knowledge about the relative and combined effects of the many predictors
under different circumstances. One way to deal with this problem is to increase the level of abstraction and
regard the many particularities as aspects of more over-riding factors, some of which influence growth
directly while others only have an indirect impact. Another is to give up ambitions of approaching full
explanation but instead enhance our understanding of the interplay among a smaller set of specific. A third
is to limit the study to a more homogenous empirical context and generalize only to that context until
replications have shown broader generalization is warranted
We then turn to how small firms grow, if at all. This concerns issues of organic vs. acquisition-based
growth; internationalisation; integration; diversification, etc. One striking result here is the very marked
difference between young and small vs. large and mature growing firms in that the former mainly grow
organically while the latter achieve the bulk of their growth through acquisitions. This has some overlap with
the next topic, which is ‘growth stages and transitions’, but as the latter is a relatively separate stream in
the literature we keep it as such. We note that the critique of this literature seems to have led not to better
research but to no research at all in this stream more recently. This is unfortunate because it represents the
type of knowledge small firm managers typically need and demand.
Before concluding, we also treat the effects of growth, especially in terms of profitability and job creation.
Surprisingly few studies, have investigated the crucial relationship between growth and profitability. Recent
findings indicate that firms that grow successfully do so by first securing profitability, and then go for
growth. This is strong reason to caution against a universal and uncritical growth ideology. Firms that grow
at low profitability apparently often end up in the undesirable state of low growth and low profits instead.
This also puts small-firm managers’ widespread reluctance to pursue growth in a different light. As regards
job creation, while small firm growth no doubt is a very important source of new jobs the general truth of
the notion that this is attributable solely to a small minority of fast-growing ‘gazelles’ should also be
questioned. This may be different in different economies, and method artefacts may also have led to
erroneous conclusions regarding this issue.
We conclude the paper with a summary of what our review implies for the design of further studies on
small firm growth.
Creating IT Industrial Clusters: Learning from Strategies of
Early and Late Movers
Ramachandran, Kavil
Ray, Sougata
Indian School of Business
Indian Institute of Management Calcutta
Interest in industrial clusters as a means to accelerate regional development has attracted renewed attention
in recent years, particularly after the boom in the Information Technology (IT) industry in the Silicon Valley.
The Indian IT industry has emerged as a major player in the global scene with a significant place in the
Indian economy. At the same time, efforts by several countries and Indian states to recreate Silicon Valleys
have had mixed results.
Therefore, it is important to understand why successful IT clusters have been formed in some cities such as
Bangalore and what needs to be done to sustain and replicate the success. Unfortunately, though many
scholars have tried to explain why India could emerge as an IT super power, little has been said on how
these IT clusters emerge and what role the entrepreneurial leadership of government can play in IT cluster
formation in a country like India. A small contribution is made here to fill this void.
This paper is based both on primary and secondary data and a theoretical model on cluster formation is
developed based on case studies of three cities in India; one already established (Bangalore), another in the
early growth stage (Hyderabad) and third an established industrial and commercial city trying to revive its
fortunes through IT (Kolkata).
Availability of economic infrastructure and manpower of high quality are necessary for the location to
facilitate growth of a cluster. Knowledge based industries are influenced by a different set of location factors
compared to traditional manufacturing based industries. It is proven that a shift in the mix of location
factors from economic to social takes place as a region develops its economic infrastructure, on lines with
the Maslowian hierarchy of needs argument.
Bangalore, with inherent strengths such as abundant supply of economic infrastructure including trained
manpower, and non-economic social infrastructure, was an entrepreneurial choice and early leader.
Hyderabad, a late entrant, has been trying to catch up with a clear strategic intent and implementable
strategy. It faced typical challenges of a late entrant that too as a follower in a fast growing market. It has
demonstrated the role of the state as an entrepreneurial leader through a mix of innovative policies and
their effective implementation, and carve a place for itself as an important player.
The need to have a local pool of entrepreneurs is very important; both at the early stages to kick start the
growth of the cluster and at a later stage to sustain the momentum. For entrepreneurs, ‘home proximity’ is
the most important location factor, particularly in societies such as India with strong cultural bonding
among family and community members. In case the relative factor advantage of the cluster goes down
temporarily, a capital flight is bound to happen. However, the local entrepreneurs are more likely to continue
and work for the revival of the cluster advantage because of their greater stickiness to the location. This is
evident in case of all the three locations studied here.
In essence, we observe that at least three local level critical factors - relative factor conditions,
entrepreneurial leadership of the state government and a pool of entrepreneurs are needed for the successful
evolution of a location in to an industrial cluster as a late mover, provided the overall attractiveness of
industry is high. For an early mover like Bangalore, these location factors evolved over a long period of time,
on most occasions not by design, but by chance. Therefore, the role that the local government there had in
the past and has even now, to maintain the supremacy of Bangalore cluster, is qualitatively different from
that of other state governments, which have to take a more direct role in shaping the formation of IT
clusters as late movers.
While the literature has identified the role of industry attractiveness and factor conditions as two ingredients
for cluster formation, the role of the state as an entrepreneur and the pool of local entrepreneurs, and the
synergistic effect provided by these factors have not been discussed so far. This will be a notable
contribution of this research, among others.
Growth Orientation among Academic Entrepreneurs
Paasio, Kaisu
Turku School of Economics
and Business Administration
Tommi, Pukkinen
Turku School of Economics
and Business Administration
Traditionally, enterprise growth has been taken for granted both among academics and policy makers.
Many of the studies attempting to explain growth start with this deterministic pre-assumption that
intention to grow exists and only external factors prevent that from happening (Autio et al. 2000). However,
there are also clear indications that many entrepreneurs deliberately choose not to grow at all or want to
grow only in a relatively modest scale (Wiklund et al. 2003; Mäki and Pukkinen 2000). Merely staying in
business and bringing a daily living for the family can be quite sufficient. Therefore, it seems that focusing
on an entrepreneur her/himself is relevant, when researching growth in a small business context. Indeed,
several studies indicate that entrepreneur’s intention to grow is related to actual company growth (Wiklund
and Shepherd 2003; Kolvereid and Bullvåg 1996; Bellu and Sherman 1995, see also Orser et al. 1998).
In this paper we will approach the concept of growth from two points of view. First, we will illustrate
growth orientation among academically educated entrepreneurs. From an economical or public policy
makers’ point of view academic entrepreneurship is seen of particular interest, as it has been stated that
highest potential for growth and survival is among entrepreneurs with university level degree (Arenius et al
2001; Arenius and Autio 2000; Ristimäki 1998). Second, we will explore various conceptions and values
behind growth orientation, since it has been found out, that there is a connection between growth
orientation and conceptions of growth (Wiklund et al. 2003; Heinonen and Pukkinen 2004). In the end, we
will increase the understanding of academic entrepreneurship by drawing a picture of growth orientation
among academically educated entrepreneurs.
The study is a part of a larger research project, which sheds light on transference from salaried employment
towards entrepreneurship among academically educated people by recognizing various individual paths to
entrepreneurship and describing success factors and future as an entrepreneur as well as by outlining
images and entrepreneurial motivation among people in salaried work. In this paper we concentrate
especially on academic entrepreneurs, i.e. we have excluded academic wageworkers and entrepreneurs
otherwise than academically educated.
Theoretical framework and conducting the study
Many typologies have been suggested to capture the antecedents of motivation or intention in the context
of enterprise start-up and growth (Ajzen 1991; Shapero and Sokol 1982; Davidsson 1991; Krueger 2000 et
al.; Wiklund et al. (1997; 2003); Wiklund and Shepherd 2003). Common to most of them is that they
involve three aspects, desirability, resources (skills) as well as opportunities for acting, and individual’s
perception of the existence or lack of these antecedents. Moreover, each of these determinants is collective in
nature, in that they consist of several unique attitudes attached to desirability, resources and skills (e.g.
human, financial, social) etc. It has also been suggested that there are numerous exogenous factors
affecting individual’s perceptions and finally intentions and actual growth (Krueger et al 2000). These
influences include various personal and business demographics, which have been listed and tested to be in
association with growth orientation (Storey 1994; Davidsson et al 2002).
The theoretical framework of this study relies on the abovementioned growth ‘triangle’ and particularly the
model suggested by Krueger et al. (2000), which is applied in the context of academic entrepreneurship. We
see growth orientation to consist of intention, perceived desirability and skills to grow. Next,
operationalisation of these theoretical determinants is discussed in brief. Growth intention is captured by
asking how probable is it that the respondent will grow her/his company substantially in the next five years
(0–100 scale). Perceived overall desirability of business growth is measured by asking how attractive it
would be to a person to grow her/his company (0–100 scale). Similarly, perceived overall feasibility of
business growth is captured by asking the respondents how simple it would be for them to grow their
company (0–100 scale). Furthermore, besides measuring overall attitude, a set of individual statements were
designed to explore more thoroughly the various aspects of these overall perceptions. For this, four different
sets of statements were asked from the respondents concerning their personal values, social norms,
personal skills and market opportunities (Likert scale, 0–5). Finally, a number of background variables were
introduced to control the model, but also to explore, how academic entrepreneurs growth orientation may
differ according to such demographics as founder(s) age, gender, type of education and previous work
experience in the field, as well as company age, size, industrial sector, location and number of founders.
The data was collected by conducting a survey among approximately 1.000 academic entrepreneurs,
especially economically and technically educated ones. The data was gathered via e-mail and Internet in
February and March in 2005. The response rate was approximately 35 %.
Results
The study shows that growth orientation among academic entrepreneurs is not uncommon, but rather
intensive. Tentative analysis of the data also indicates that it is possible to classify both companies and
entrepreneurs in terms of growth orientation and a number of demographic factors.
Furthermore, our preliminary findings suggest that there are certain conceptions and values that can be
identified behind the growth orientation. For example conceptions related to perceived autonomy, success,
market opportunities, and situational factors of life have a clear connection to growth orientation.
A Factor Analytic Study of the Determinants of Success in
Manufacturing SMEs
Wijewardena, Hema
De Zoysa, Anura
University of Wollongong, Australia
Although there has been a sizeable amount of literature on the causes of failure as well as the determinants
of success in small and medium enterprises (SMEs) in developed countries, empirical investigation into such
factors in developing countries is extremely sparse. Therefore, the purpose of this study is to examine,
through an empirical investigation, factors that would contribute to the success or growth of SMEs in a
developing country. The data for the study were obtained from a questionnaire survey conducted on a
sample of manufacturing SMEs in Sri Lanka.
The chief executive officer of each firm was asked to indicate his/her perceptions on 25 variables listed on
the questionnaire according to a five-point Likert scale. The scale for each variable ranged from 1 = Least
important to 5 = Most important. A total of 262 CEOs responded to the questionnaire, giving a response
rate of 26.2 per cent.
The statistical analysis of data was carried out in two stages. Firstly, the technique of factor analysis was
utilized to reduce the number of variables from 25 to a few meaningful factors, each representing separately
identifiable characteristics that could be considered as a set of principal components or determinants of
success in manufacturing SMEs. Before using the factor analysis, a number of initial tests were conducted
to determine the suitability of our data for such an analysis. Secondly, descriptive statistics were used for
ranking the factors in their order of importance.
When the original 25 variables (as shown in Table 1) were analysed by the principle component factor
analysis with varimax rotation, a six-factor solution emerged in 26 rotations, with an eigenvalue of 1. Then,
two variables were dropped from the analysis because of their low loadings and difficulty of interpretation.
The analysis of the remaining 23 variables yielded six significant factors which explained 61.1 per cent of the
total variance. These factors were also considered satisfactory according to the reliability test of Cronback’s
alpha with a value greater than 0.6. These six factors and the variables loaded against each, along with the
relevant statistical values, are given in Table 1. The factor loadings have ranged from 0.787 to 0.450. The
higher a factor loading, the more its test reflects or measures a factor.
The literature on factor analysis shows that loadings equal to or greater than 0.40 are considered large
enough to warrant interpretation. Thus, only factor loadings greater than 0.4 are shown in Table 1.
Table 1
Principal Components Factor Analysis – Varimax Rotation
Factors Contributing to the Success of Manufacturing S MEs
Factor 1
Factor 2 Factor 3 Factor 4
Efficient
Marketing Customer Supportive
Variable
management strategy orientation environment
Efficient team of management
0.728
Production efficiency and productivity
0.708
Strong and exemplary leadership
0.703
Systematic planning for the future
0.702
Acquiring high-calibre workforce
0.657
Good relations with employees
0.533
0.516
Effective cost management
0.507
Advertising and promotional activities
0.761
Use of external advisory services
0.731
Emphasis on specialised markets
0.614
New product development
0.569
Commitment to customer satisfaction
0.786
Good relations with customers
0.758
Good service and delivery system
0.472
Competitive prices of products
0.450
Open economic policy of the government
0.703
Political stability and peaceful
environment
0.678
Government assistance/tax incentives
0.574
Availability of capital
Availability of bank loans and other
credits
Availability of quality raw materials
Use of new technology and automation
0.535
Maintaining high quality of products
Eigenvalue
3.99
2.88
2.66
2.13
Proportion of Variance Explained
15.9%
11.5%
10.6%
8.5%
Cumulative Variance Explained
15.95%
27.4%
38.1%
46.6%
Alpha
0.85
0.75
0.77
0.72
Factor 5
Factor 6
Capital
Product
accessibility quality
0.787
0.777
1.95
7.8%
54.4%
0.69
0.739
0.568
0.534
1.68
6.7%
61.1%
0.59
The results of the factor analysis show a set of six separately identifiable factors that have positive and
significant impact on the success of manufacturing SMEs in Sri Lanka. They are efficient management,
marketing strategy, customer orientation, supporting environment, capital accessibility, and product quality.
Table 2
Ranking of Factors according to their Importance
Factor
Factor 1: Efficient management
Factor 2: Marketing strategy
Factor 3: Customer orientation
Factor 4: Supportive environment
Factor 5: Capital accessibility
Factor 6: Product quality
No. of
variables
7
4
4
3
2
3
Mean
S.D.
Rank
4.2777
3.3814
4.4781
3.5924
3.5603
4.3264
0.6491
0.9547
0.6487
1.0578
1.0834
0.6418
3
6
1
4
5
2
Ranking of the above six factors in order of their importance, along with mean and standard deviation, is
shown in Table 2. The importance of these factors, as perceived by the respondents, has been ranked on the
basis of their mean values. The closer the mean to 5, the higher is the importance of the factor. Accordingly,
the ranking followed the following order: (1) customer orientation, (2) quality products, (3) efficient
management, (4) supportive environment, (5) capital accessibility, and (6) marketing strategy. Their means
ranged from 4.4781 to 3.3814.
Although efficient management and marketing strategy emerged as the first and second most highly loaded
factors respectively, customer orientation has been ranked by our respondents as the most important factor
for the success of their enterprises. Similarly, product quality (Factor 6) and efficient management (Factor 1)
have occupied the second and third highest levels of importance, while supportive environment (Factor 4),
capital accessibility (Factor 5), and marketing strategy (Factor 2) have been perceived as the fourth, fifth and
sixth important factors respectively. However, since the means of these factors have dispersed within a short
range (3.3814—4..4781), the differences between ranks are quite small. Nevertheless, the study reveals that
all these six factors positively and significantly contribute to the success of manufacturing SMEs.
Despite a few shortcomings such as the small sample size and the limitations commonly associated with
all mail surveys, the study provides some useful insights to owner-managers of SMEs and policy makers in
Sri Lanka and other developing countries on some factors that may be considered as important
determinants of success in their enterprises.
The Impact of Owner/Manager’s Mentality on the Financial Performance of
SMEs: The Case of Sri Lanka
Wijewardena, Hema
De Zoysa, Anura
Financial performance of small and medium enterprises (SMEs) depends on numerous factors that are both
internal and external to the enterprise. Among them, the abilities and other personality characteristics of
those who manage the enterprise are universally regarded as one of the most powerful set of factors having
either positive or negative impact on its performance and ultimate success. Accordingly, many studies have
examined how different personality characteristics of owner/managers in SMEs affect the financial
performance of their enterprises. However, although the mentality of owner/managers is an important
aspect of their personality characteristics no prior study has made any attempt to examine its possible
impact on enterprise performance. Moreover, even the studies that focused on the relationship between
personality characteristics and enterprise performance have confined their investigations to a single period of
time. Nevertheless, the literature shows that usually performance of enterprises varies dramatically during
different stages of their growth. Similarly, the impact of personality characteristics or mentality styles of
owner/managers on enterprise performance may also vary from stage to stage depending on the nature of
those factors. Therefore, our study attempts to shed some light on these aspects of the mentality styles of
owner/managers and their possible impact upon the financial performance of a sample of SMEs operating
in Sri Lanka.
In attempting to do so, this study concentrate on two distinctive mentality styles of owner/managers, with
a view to identifying their impact on financial performance during different stages of enterprise growth.
Since no similar research has been reported in the past this study takes its own independent approach and
presents its analysis and findings as a novel addition to the small business literature. Moreover, the findings
of this study can be useful to SMEs in any country as they provide some insights into owner/manager’s
mentality styles and their impact on financial performance during all stages of enterprise growth.
As the initial step in this study, a conceptual model was developed for visualizing and testing the
relationship between owner/manager’s mentality style and enterprise performance as depicted below:
Basic Relationship between Manager’s Mentality and Enterprise Performance
Owner/
Manager’s
Mentality
Entrepreneurial
Mentality
Administrative
Mentality
Managerial
Policies,
Strategies and
Decisions
Financial
Performance
The above model is based on the assumption that although numerous internal and external factors impact
upon performance it is the combination of managerial policies, strategies and decisions that fundamentally
drives a firm towards high performance. Unlike in large companies where functions and authority are
shared by a large body of managers, their counterparts in SMEs are either owners or managers with high
executive powers. As such, owner/managers’ personal values, attributes and operational approaches, which
are henceforth referred to as ‘mentality’, seem to exert a tremendous influence on their managerial policies,
strategies and decisions. The model assumes that an owner-manager’s mentality can be either
‘entrepreneurial’ or ‘administrative’ in nature. Thus, it is expected that through the above process the
owner/manager’s mentality significantly affects the firm’s financial performance.
To empirically test the impact of owner/manager’s mentality on financial performance of firms as portrayed
in the conceptual model, a mail questionnaire survey was conducted on a sample of manufacturing SMEs
in Sri Lanka during October 2004. One thousand copies of the questionnaire along with a letter of request
addressed to the chief executive officer of each firm were mailed to the sample firms. The questionnaire and
the letter of request were provided in both Sinhalese and English. The total number of useable responses
received was 248, giving a response rate of 24.8 per cent.
Because of the difficulty of obtaining reliable data on the profitability of small and medium-scale firms
operating as sole proprietorships and partnerships, the changes in sales revenue were used as the basis for
measuring financial performance in this study. Accordingly, for the purpose of identifying the level of
performance in each sample firm, the respondents were asked to select one of five given situations that
described the changes in sales revenue over the last three operating years. Similarly, in order to gain an
understanding of the current stage of growth in each firm, the respondents were asked to use their
knowledge of the firm’s historical development and personal judgment and identify the development or
growth stage applicable to their firms from the four stages specified in the questionnaire: Introductory
Stage, Growth Stage, Maturity Stage, and Decline Stage.
Based on the existing literature, ten special questions were included in the survey questionnaire for the
purpose of measuring the nature of owner/manager’s mentality as ‘entrepreneurial’ or ‘administrative’. These
questions were based on personal traits and values such as innovation, intuition, risk-taking, challenging
mind, self-confidence, unique personal values and attitudes towards work and life, alertness to new
opportunities, self esteem, adaptability of leadership style to the needs of people, and flexibility which are
often referred to as characteristics of entrepreneurs. The respondents were asked to select one of two
alternative answers given for each question. One of these two answers would signify entrepreneurial
mentality while the other representing administrative mentality.
Following the procedure outlined above, the mentality styles of owner/managers were measured under each
growth stage on the basis of their responses to the questions. The initial results indicated that
owner/managers with an entrepreneurial mentality have achieved higher performance in sales growth than
those with an administrative mentality. However, this relationship is seen to be strong only in the
introductory and decline stages. The results of a chi-square test indicated that the differences of
performance between the two mentality categories are significant at the 1-percent level (X2 = 29.334, p =
0.000).
A detailed discussion of the results and statistical analysis with supporting data, tables and references will
be given in the complete paper expected to be presented at the conference.
When Public Policies Catch Up with Entrepreneurship
Vargas, Braulio
ESAN, Graduate School of Business Administration
In recent years, Peruvian government initiated a decentralization process for which several competencies and
policy making prerogatives are being transferred from the national government to regional and local
government levels. Among them, social and local economic development are the main competencies in
process of implementation through strategies and programs led –in most cases– by local governments.
However, due to the novelty of such challenge, all local governments are conducting programs with no
impact and no policies that can support their efforts to stimulate entrepreneurial spirit as well as the
growth and competitiveness of SMEs as a means of local economic development. Moreover the lack of
enough financial funds and public budget makes difficult to implement and sustain public interventions
focused on entrepreneurs and SMEs. At the moment there seems not to be room for initiatives other than
paternalistic interventions.
It is argued, nonetheless, that a particular type of entrepreneurs –referred as innovative entrepreneurs– have
already discovered and successfully implemented a “creative path” to leave survival concerns behind –which
usually overwhelm SMEs– and make good business in difficult scenarios –even in economic downturns.
Thus, the creative path might provide a unique opportunity to learn from successful entrepreneurs how to
create the best possible conditions to reach significant achievements in terms of growth and sustainable
competitive advantage.
To that extent, the purpose of this article is to provide meaningful insights to design a framework of public
policies, which combined with potential synergies with private and social organizations, might have the
highest impact on the promotion of entrepreneurship and SMEs on a local economic development basis.
The assumption behind is: “It is good to have innovative entrepreneurs, yet it is better to have many more”.
Thus in order to catalyze the virtuous cycle of creating richness and interrupting the poverty cycle that
affects both developing countries and rural communities in developed countries, it would be useful to take
advantage of the practical experience accumulated by successful entrepreneurs.
It is also argued that developing countries need to assign a prior concern to promoting the articulation of
clustered SMEs, in order to stimulate the kind of competitiveness that may best take advantage from
conventional facilitating mechanisms such as enterprise development services, public infrastructure, public
purchases and fiscal incentives. Moreover, more evolutionistic approaches do need to focus on the
deliberated promotion of innovations (e.g. new, diversified products, services and processes), market
imperfection conditions, higher entry barriers to low-cost competitors, higher shifting costs to customers,
commitment within the firm, and higher negotiation power that allow SMEs to build linkages with larger
companies.
Furthermore, in order to build a solid base for this study, the findings and contributions of this article are a
direct result of two preliminary studies conducted within the last four years.
The first study (2001-2002) succeeded to find out concrete evidence about the potential characteristics of a
particular type of entrepreneur, referred as the “innovative entrepreneur”. The study focused on monitoring
the particular way in which some entrepreneurs manage to disrupt with their innovations, and rapidly
generate market imperfection conditions that allow them exert higher negotiation power, build closer
linkages with customers, capture higher market share, and shorten the life-cycle of their businesses. Findings
were grouped under the notion of the “creative path”.
The second study (2003-2004) had the purpose to expand the applicability of the first study’ findings to a
larger sample group of SMEs 3. A two-year monitoring period took place at the industrial district of Villa El
Salvador –Peru’s main conglomerate of manufacturing SMEs located 21 km. south the city of Lima, which
accounts more than 1200 clustered SMEs. The evidence found confirmed the existence of a number of key
factors that explain the particular success of innovative entrepreneurs.
Subsequently, the third study is aimed at expanding not only the understanding on the kind of trajectory
that may best allow SMEs succeed in the marketplace, but also the applicability of innovative entrepreneurs’
essence of success to a larger number of SMEs. Both aspects might contribute to the design and
implementation of public policies whose purpose is to stimulate entrepreneurial spirit and local economic
development through the deliberated promotion of innovative SMEs.
To that extent, part one provides a general view of small business organization in Perú. Also identifies the
key elements that constrain and facilitate both the emergence of innovative entrepreneurs and the
consolidation of SMEs as a means of promoting local economic development, specially in a developing
country.
Part two describes the steps and implicit elements of the “creative path”, with a strong emphasis on
explaining the “what”, “why” and “how” of innovative entrepreneurs’ success.
Finally, part three discusses a number of guidelines to take advantage of real-life entrepreneurs’ learning, in
order to enrich public policies and intervention programs designed to stimulate local economic prosperity. A
general framework of public policies is also presented. In that sense this article is aimed at providing inputs
to policy analysts, local leaders, public authorities, and academicians in their efforts to truly assist SMEs in
their growth efforts over time.
Planning and Growth Characteristics of Small Business Owner-Managers
Mazzarol, Tim
University of Western Australia
The relationship between formal business planning and growth within small firms is recognised as
important but past research has not demonstrated clear causal effects between the possession of a formal
written business plan and success. This study draws upon a sample of 137 small business ownermanagers in Australia who were enrolled in a twelve month management development program designed
to assist them with business growth. Each owner-manager was sent a questionnaire comprising 180 items
measuring their perception of how their business was being managed and their strategic thinking in relation
to internal and external environmental issues. All items were measured using a series of 5-point Likert type
scales. Following completion of the questionnaire results were returned to the respondent owner-managers
and a workshop held to discuss the findings.
3
In the second study, there were detected up to 30 small firms that featured exactly the same patterns as the company named
“Acrimetal”, which served as subject of the first study.
While the majority of owner-managers did not possess a formal written business plan at the time of the
survey, significant differences were found between those who did and those who did not. A principal
component analysis generated 36 factors associated with the management of their business that were used
for subsequent examination.
Significant differences were found on 26 factors. A step-wise discriminant analyses was undertaken to
assess the differences between owners who possessed a formal written business plan and those who did
not. The model correctly classified 71 percent of cases. The findings suggest that owner-managers who
possessed a formal written business plan were more likely to have a stronger performance on strategic
vision and the formal benchmarking of their venture’s performance. Enhanced benchmarking orientation
was also found to be associated with above average growth rates in annual turn over.
Within the model “Vision” comprised both the personal vision of the owner-manager and their ability to
communicate this vision to their staff. Also encompassed were the owner-manager’s environmental
scanning ability and their ability to change the beliefs and attitudes of their employees. “Benchmarking”
comprised the owner-manager’s ability to engage actively with their support network partnerships (e.g.
banker, accountant, and government support), whether they have formal quality assurance and embrace it
as a useful tool (e.g. ISO/ASA 9001), their possession of effective information systems, whether they adopt
a premium pricing policy within their markets and whether they saw networking as a key function of senior
management.
A step-wise linear regression analysis was also undertaken to assess the differences between owners who
had experienced above average growth in annual turn over against those who had lower annual turnover
growth. This model produced an adjusted R-square of 0.46 and a single beta coefficient “Benchmarking”
comprising the same characteristics as describe above. The relationship between above average annual turn
over growth rates and benchmarking suggests that the owner-manager’s capacity to map their firm’s
performance against industry standards and seek to secure premium prices and access to external resources
where possible.
Further bivariate analysis using t-tests indicated that owner-managers with high growth rates were found
to have superior levels of performance in at least six key areas:
1. the ability to undertake environmental scanning
2. a strong personal vision for their business
3. the ability to respond flexibly to change and to lead change among staff
4. a commitment to innovation
5. the willingness to take action if environmental change requires it
6. possession of an effective business generating system
These findings suggest that owner-managers who prepare formal business plans are likely to have an
enhanced sense of where they are going and be able to articulate that to their employees. Having higher
than average environmental awareness and the capacity to influence the behaviour of their staff also
suggests a visionary leadership style with a heightened level of strategic orientation. The creation of a
formal business plan would be a part of this process of communication. Being well benchmarked also
makes sense, as those with high benchmarking characteristics would be expected to possess greater levels
of formalization in their firm’s systems. The significant relationship between enhanced benchmarking and
above average annual growth rates (as measured by turn over) may be explained in terms of the need for
better control over a rapidly expanding business. However, it also demonstrates a link between more
strategic management orientation and enhanced growth within the small firm.
Economic Growth in Health Care in Montenegro Using Leadership and
Technology as Tools in the Entrepreneurial Process
Syvertsen, Carsten
Oslo School of Management
Introduction
The increasing global competition and the speed of new technology development has exerted concurrent
pressure on knowledge-based firms to improve their competitiveness (economic return). In the extreme form
this of competition is called hyper-competition (D’Aveni, 1994), a situation in which knowledge4 has
4
We define knowledge as ”systematizing and structuring information for a specific purpose” (Johannessen et al. 1997). Knowledge can
be categorized in two different categories: Explicit and tacit knowledge (Nonaka and Takeuachi, 1995). Explicit knowledge can relatively
easily be formulated by means of symbols and can be digitalized. This knowledge can thus with relative ease be transferred to others by
e.g. the use of information technology, Tacit knowledge is (Polanyi, 1962; 1966) is engained to action and linked to concrete contexts.
emerged as the most important resource (Prahalad and Hamel, 1994; Grant, 1996; Leonard-Barton, 1995;
Nonaka and Takeuchi, 1995). Research on strategic management suggests that firms can meet these
challenges by taking an entrepreneurial strategic posture, implying a strong risk-taking propensity, frequent
and extensive commitment to innovation, and a proactive competitive orientation (e.g. Coven and Slevin,
1991; Zahra and Covin, 1995). Taking an entrepreneurial strategic posture can allow the firm to be
responsive to lucrative product/market opportunities, as well as quickly acting on environmental changes
(Zahra, Neubaum and Huse, 2000). Moreover, it the can give the firm considerable advantage in the ability
to spot and quickly respond to opportunities while repressing environmental treats (Zahra and Covin, 1995).
However, despite the reported benefits of an entrepreneurial strategic posture we need more understanding
of factors than can discipline and support managerial commitment to encompass a strategic posture.
Innovation projects are characterized by high failure rates (Markman et al, 2001), and faced with the risk
that failures will erode the reputation of managers and reduces future income streams may lead to the
tendency to exploit existing knowledge at the expense of developing new ones. This can lead to an overemphasis on short-term cash generation as the returns of exploiting the organizations current knowledge
base is more certain and closer in time than are the returns of exploring new alternatives (March, 1991).
Based on these arguments, it might be fair to argue that certain leaders of knowledge-intensive firms can
be tempted to make decisions that do not maximize the long-term value of the firm, and instead choose to
divert resource to projects and goals with shorter payback periods (Jones and Butler, 1992; Markman,
Balkin and Schjoedt, 2001).
A growing body of research suggests that a firm’s ability to innovate can help to create and maintain
sustainable competitive advantage (Drucker, 1993: 173, Drazin and Schoonhoven, 1996; Kanter, 1985). By
innovation we mean the application of knowledge to produce new knowledge (Drucker 1993: 173).
Innovation is also increasingly seen as as main source of economic growth. This is also unambiguously
expressed in The EC Commission’s “Green Paper in Innovation” (1995) and in a OECD report (1992). In
defining innovation we follow in the footsteps of Zaltman et al (1973) who define innovation as “any idea,
practice, or material artefact perceived to be new by the relevant unit of adoption” (1973: 10). We suggest
that innovation can be grouped into six types of activities: 1. New products, 2. New services, 3. New
methods of production, 4. Opening new markets, 5. New sources of supply, and 6. New ways of organizing.
The variables are adopted and deducted from Schumpeter (1943, 1939, 1942) and Kirzner (1976, 1985), but
have also been used separately by a number of researchers (e.g. Utterback and Abernathy, 1975;
Domanpour and Evan, 1984; McGrath et al, 1996; Damainpour, 1996). The type if innovation we are
interested in are new ways of organizing, i.e. organizational innovations, particularly, those pertaining to the
transition to process organizing (see Johannessen et al, 1997). Organizational innovation has been found to
play an important role for firms in competitive markets (e.g. Chandler, 1977; Williamson, 1983), an
argument will support in this article.
Building a conceptual model for value-creation in kno wled ge-intensive firms. A large body of
research has addressed the challenges and opportunities inherent in the management of knowledgeintensive firm, from such different perspectives as organizational design sociology and strategy. At the core
of these research streams is a collective effort to gain insights in the concept of knowledge, how knowledge
is created and sustained, and the role of knowledge in creating value (see for example Leonard-Barton,
1995, and Nonaka and Takeuchi, 1995).
We focus on value-creating processes, i.e. how a specific health care firm can sustain the entrepreneurial
spirit over time by creating potentials of the knowledge base of a firm. The reasoning behind our effort is a
need to focus on the role of knowledge in creating economic value, moving away from the conception of
knowledge as useful per se. Thus, we have a clear applied economic orientation, with top management as
our target.
For this purpose we build a simple and parsimonious model of knowledge-intensive firms, paying attention
to how innovation and entrepreneurship can be used combined. We distinguish between tacit and explicit
dimensions of knowledge on one dimension (X-line) and individual and collective level (Y-line) of analysis
(i.e. Spencer, 1996). We are interested in the individual level as it can tell how a department in our case can
function, while we focus on the collective level because it can give top management guidelines as to how
they best can do a good job in a more complex and turbulent environment.
We go further than Spencer (1996) in the way that we distinguish between two distinct organizational
processes: knowledge exploration or development, i.e. fostering innovation, and knowledge exploitation as
the equivalent to the production process of outputs, i.e. how we can use entrepreneurship to support value
creation. We call tacit knowledge at the individual level “wisdom ”, individual explicit knowledge “knowledgein, -action”, collective tacit knowledge “institutionalized mind-sets”, while explicit collective knowledge is
called “configured knowledge”. We argue that a “genertic” model capturing the main features of
knowledge-intensive firms can help an established firm
as Igalo to take wise steps so that economic growth is sustained through the use of innovation and
entrepreneurship.
A im of study. We try also to build theory in the border between knowledge management, entrepreneurship
and innovation. We also attempt to try to help top management in a specific case in order to achieve value
creation in an economic sense from different parts of the organization. We will test out the mentioned
model with a health centre in Montenegro. The individual level focuses on various departments, and we will
in this way gain insights with respect to innovation processes. When we study the collective level we are
more interested in entrepreneurship, seem from the point of view of top management.
Our research question is: How can kno wledge-intensive firms secure future economic
gr o wth through the use of value-creating entrepreneurial processes.
The case study: Igalo Health Centre (M ontenegro ) . In conducting our case study, the Igalo Health
Centre in Montenegro is chosen for a number of reasons: 1. Entrepreneurship and innovation are mentioned
in the company’s mission statement, 2. by the time we started our research in fall 2004 the company had
no clear idea how it has possible to use the knowledge base in a strategic way, 3. the firm seemed to be
too short-term orientated to making an economic contribution, 4. the company tries to find a foreign
investor partly due to economic pressure. Igloo has a strong international position in selected segments, for
example traditional medicine, well-being and sport activities. Igloos pursue a targeted strategy focused on
organizational innovation paying attention to how the knowledge base can be used to generate economic
value to the firm. However, we are of the opinion that there is room for major improvement.
Metho d. The aim of the research is to generate a theory from the case study (Gersick, 1988; Harris and
Sutton, 1986). As recommended by Paaton (1990) and Eisenhardt (1989), data from multiple sources were
utilized in the study being conducted from November 2004 until June 2005. The primary mode of data
collection is through personal interviews. The interviews took place of leaders and other professionals of the
firm in November 2004 and May 2005. Observation, workshops and document analysis are used as
secondary sources of information.
Our contribution. The paper gives clear guidelines as to how top management in an emerging market
can use knowledge in a systematic way through a use of a conceptual model. Our objective is that the
model can help the firm to focus on value creation processes and in this way secure the financial position
through economic growth. Conceptually the article sheds light on how knowledge exploration and
knowledge exploitation can take place in knowledge-intensive firms as we present a model that might be of
value for a larger body of firms. The article uses literature from both entrepreneurship and innovation for
this purpose, and tries to this way to combine research steams from different fields. Through a qualitative
research design are both interested in helping top management at the same time as new theory is supposed
to be developed.
Track 3: The Entrep reneur / Others
Making Entrepreneurs
Harmeling, Susan
The Darden School, University of Virginia
In this paper, I use a unique research site, The National Foundation for Teaching Entrepreneurship (“NFTE”),
to empirically investigate the key elements of a transforming entrepreneurship education. Through an indepth qualitative study that is both unique (Yin, 2003), and instrumental (Stake, 1995), the aim of this
research is to discover how NFTE program participants experience entrepreneurship education and how
certain key program elements may lead participants to “re-author” their life narratives (White and Epston,
1990) in some meaningful, and measurable way.
The paper is organized as follows. I start with a brief literature review that includes a discussion of the
particular “constructed contribution” of the paper, namely a synthesized coherence between literature
streams in entrepreneurship education and experiential learning. This is followed by a discussion of the
research site and methods. I then offer a short primer on the development of grounded theory and its role
in this project. Finally, I will present the idea of a constructed entrepreneurial self. This notion will be
supported with theoretical foundations from pragmatism, experiential learning and narrative philosophy. I
conclude with implications for both theory and practice and opportunities for future research.
The Entrepreneur as a Source of Sustained Entrepreneurship: The Role of
Business Ownership Experience
Ucbasaran, Deniz
Westhead, Paul
Wright, Mike
Nottingham University
Business School
Business School
Business School
Kno wled ge Gap, Research Questions and Contributions
There has been a heightened interest in fostering and promoting entrepreneurship in Europe and beyond.
Traditionally, this has been in the form of encouraging new firm start-ups. However, there is some concern
over how ‘entrepreneurial’ new firm start-ups are in the long run. Given high start-up failure rates, these
concerns appear to be warranted. This suggests the need for an alternative way of examining and
sustaining entrepreneurship over time. In this paper, we propose that taking the individual entrepreneur as
the unit of analysis and focus of policy attention may represent a viable alternative to the firm. By focusing
on the entrepreneur, we may be able to identify a key driver of entrepreneurship over time.
Opportunity orientated conceptualizations of entrepreneurship are attracting attention as researchers seek to
understand why and how some individuals identify business opportunities (Ardichvili et al. 2003; Shane and
Venkataraman, 2000). While some entrepreneurs may identify and pursue a single opportunity throughout
their lifetime, others may identify and pursue multiple opportunities. Heterogeneity amongst entrepreneurs
with respect to opportunity identification is now being recognized. A key aspect of this heterogeneity, which
has important implications for sustaining entrepreneurship, concerns the difference between novice
entrepreneurs (i.e. those entrepreneurs with no prior business ownership experience) and those habitual
entrepreneurs (i.e. those who own or have owned two or more businesses). McGrath and MacMillan (2000)
suggest that habitual entrepreneurs with business ownership experience have an ‘entrepreneurial mindset’
that prompts them to seek and pursue opportunities with enormous discipline, and to pursue only the very
best opportunities. Nevertheless, there is a scarcity of empirical evidence relating to the relationship between
prior business ownership experience and entrepreneurial behavior. This study seeks to address this gap.
The study utilizes a human capital framework (Becker, 1975), whereby business ownership experience is
considered a component of entrepreneurship-specific human capital. By controlling for various dimensions
of general human capital and other dimensions of specific human capital, the study explores the relative
importance of prior business ownership experience with regard to the following behavioral outcomes:
information search intensity; the number of opportunities for creating or purchasing a business identified in
a given period; and the proportion of identified opportunities that are pursued.
The article seeks to make the following contributions: First, the study provides fresh empirical evidence
relating to key aspects of entrepreneurial behavior identified in the current literature (i.e. information search,
opportunity identification and opportunity pursuit). This evidence is based on the responses by the owners of
a large representative sample of private independent businesses in Great Britain. As such, the study focuses
on the entrepreneur as the unit of analysis as opposed to the firm. Second, unlike other studies in the area
that have viewed opportunity identification and opportunity exploitation issues separately, this study
considers these aspects of entrepreneurial behavior together within the same study. This allows us to
identify whether the human capital factors associated with opportunity identification differ from those
associated with opportunity pursuit. Third, the study seeks to make a theoretical contribution by building
on and developing human capital theory to apply to the context of entrepreneurship. In particular, the role
of business ownership experience is assessed within the context of entrepreneurs’ human capital. Fourth,
the study sheds light on the continuing debate on the role of information search in opportunity
identification. We explore whether information search is associated with the identification of a greater
number of opportunities in a given period. Finally, we offer insights into the policy debates surrounding how
policy-makers can encourage and sustain entrepreneurship and an enterprising culture (Wennekers and
Thurik, 1999).
Research Method ol o gy and Data Collected
Data were collected using a structured postal questionnaire sent to a stratified random sample of 4,324
independent firms. The questionnaire was mailed during September 2000 to a single key respondent in each
of the selected businesses who was a founder and / or principal owner and also a key decision-maker in the
business. After a three-wave mailing, 767 valid questionnaires were obtained from a valid sample of 4,307
independent firms, producing a 17.8% valid response rate which compares favorably with similar studies. A
number of checks were carried out to ensure that the evidence from the study could be deemed
‘trustworthy’. Accordingly, tests for representativeness, common methods bias, validity and reliability resulted
in confidence about the quality of the data. Hypotheses are tested using a series of ordered logit regressions.
Results and Conclusions
Contrary to expectation, we found no significant relationship between business ownership experience and
information search intensity. However, there was a strong positive association between business ownership
experience and the number of business opportunities identified. There was also a strong positive association
between business ownership experience and the proportion of these opportunities that were pursued. Taken
together, these findings suggest that habitual (experienced) entrepreneurs are more efficient in their use of
information to identify and pursue business opportunities. With a given amount of information, habitual
entrepreneurs appear to be more likely to identify and pursue an opportunity. An interesting finding is that
business ownership experience and information search intensity are both positively related to the ability to
identify opportunities. Novice entrepreneurs with limited experience may, therefore be able to identify
subsequent opportunities by searching for information. While information search was associated with
greater opportunity identification it was associated with the pursuit of a smaller proportion of these
opportunities.
Overall, this study utilized a novel approach by examining the links between general and entrepreneurship
specific human capital, notably prior business ownership experience, and information search intensity, the
number of business opportunities identified, and the proportion of opportunities pursued. Our findings have
general implications for the development of a human capital perspective on entrepreneurship, and contribute
to understanding key aspects of the entrepreneurial process.
We offer a number of interpretations for the above findings and focus on their implications for a variety of
stakeholders (i.e. entrepreneurs, financiers and policy-makers). For example, for policy-makers interested in
developing and sustaining an entrepreneurial spirit over time, it may be worthwhile examining in greater
depth the role of habitual entrepreneurs. As intimated above, controlling for human capital and the amount
of information sought, habitual entrepreneurs demonstrate superior opportunity identification and pursuit
intensity. Finally, we identify the limitations of the study and offer a number of avenues for future research.
Holistic Decision Making and the Sustainability of the Entrepreneurial Firm
Ariño, Miguel Angel
Vázquez-Dodero, Juan Carlos
Velamuri, S. Ramakrishna
In recent years, scholars have dedicated a great deal of attention to the determinants of new venture
creation (for example, Shaver and Scott, 1991; Amit, Glosten and Muller, 1995) and new venture success
(for example, Ibrahim and Goodwin, 1986; Sandberg and Hofer, 1987; Åstebro, 2004). These two
phenomena have been tackled at multiple levels of analysis: micro (the entrepreneur and the firm); meso
(industry structure); and macro (national and regional economic systems including fiscal policy, regulatory
mechanisms, infrastructure availability, and others). While determinants of venture creation and success are
very important, we explore a construct that has received relatively little attention in the entrepreneurship
literature: the sustainability of the entrepreneurial firm over time.
Although we recognize that the construct of sustainability has considerable overlap with those of survival
and success, we believe that sustainability as an entrepreneurial outcome also offers some novel insights. In
particular, there is the element of continuity in sustainability that is missing in survival and success, which
tend to be seen more in dichotomous terms (i.e., survival vs. closure, success vs. failure). Further,
sustainability implies the ability of a firm to endure beyond the life cycles of the first products or services it
introduces, to weather sharp changes in the external environment, to regenerate itself when faced with
stagnation in revenues and profits, and to resolve the issue of management succession (both in family and
non-family firms).
Our paper differs in another important respect with the mainstream entrepreneurship literature. Rather than
examine the more tangible factors that have traditionally been studied as determinants of venture
outcomes, such as the quality of the opportunity, the human capital of the founding team, financial capital
endowments, etc., we explore a construct that we refer to as the holistic decision making ability of the
founding team. By holistic decision making ability, we refer to the ability of the founding team to recognize
the three impact dimensions of any decision.
The first impact dimension of a decision is the extent to which it solves the immediate problem it was
meant to solve. This dimension refers to the effectiveness of a decision. The second impact dimension of a
decision is the extent to which it enhances or diminishes the capacity of the organization to solve problems
in the future. We refer to this dimension as the capacity for organizational learning that results from the
decision in question.
The third impact dimension of a decision is the extent to which it enhances or diminishes the willingness of
the stakeholders to collaborate with the firm in the future. We refer to this dimension as the stakeholders’
motivation to pursue the organizational goals that have been defined by the founding team.
Most day-to-day decisions taken by the founders are effective in solving a problem, and leave the other two
dimensions largely unchanged. The more far-sighted entrepreneurs consider the effectiveness and the
stakeholder motivation dimensions. In our experience working with entrepreneurs, we find that they almost
never consider the organizational learning dimension. A decision that resolves a problem at hand, but at the
same time diminishes the capacity for organizational learning or stakeholder motivation, will lead to a
progressive loss of organizational capabilities and unity amongst the stakeholders, which in turn will impact
the sustainability of the organization. Thus, the research question that we address in this paper is: how
does the holistic decision making ability of the entrepreneurial team influence the sustainability of the
entrepreneurial venture over time?
Our thesis in this paper is that holistic decision making ability is an important component of managerial
skill. Sausser, Jr. (1987) emphasizes the importance of managerial skill,: “Many bright, creative
entrepreneurs produce dazzling plans and ideas, but fail in implementing them because they are unable to
direct the work of other people. Motivating people, selecting, training and directing them, communicating
with them and resolving conflicts are all essential skills for managerial success, yet many entrepreneurs lack
them and consequently fail miserably as administrators” (p. 34).
We extend managerial skill to be a characteristic that helps a founding team manage not just internal
stakeholder relationships as outlined by Sausser, Jr. (1987), but also external ones such as investors,
customers, suppliers, the government, the community, etc. Indeed, managerial skill or competence is
considered more important for firm outcomes than external environmental factors. For example, DiPietro
and Sawhney (1977) provided empirical support to the proposition that an increase in managerial
competence over time has resulted in a decline in the importance of external economic factors as
determinants of firm failures. Further, we believe that managerial skill can help an entrepreneur overcome
many of the other causes that undermine sustainability such as undercapitalization, poor planning, lack of
credibility, poor money management, and failure to follow regulations.
Through examples, we will not only illustrate how holistic decision making ability impacts the sustainability
of the firm, but also suggest how this ability can be developed within organizations.
Why Does Understanding the Entrepreneurial Process Triggering Phase
Matter?
Degeorge, Jean Michel
Fayolle, Alain
ESC Saint Etienne
INP Grenoble
The past few years have seen an important awareness related to the challenge of the new venture creation.
Entrepreneurship is currently a very important topic in France. Promoting new business start-ups is at the
heart of the public policy and the results of recent measures are encouraging. Since a couple of years, the
creation of new firms and the creation of related jobs in France are dramatically increasing.
Moreover, a large part of French individuals of 18 and older having something like an entrepreneurial idea or
project expects to launch it in the next five years.
Unfortunately, we notice that in spite of these optimistic trends an important gap remains between the new
business start-up intentions and the year by year entrepreneurial behaviour. Since we can assume that
intention is not sufficient to predict new venture creation, what can thus be the various explanations of this
phenomenon?
This paper proposes to study a first track of answers through a literature review on the trigger events of the
entrepreneurial process. Indeed, anchored in the heart of the entrepreneurial process (we distinguish 3
stages: trigger, commitment, failure/survival), we anticipate that this first stage will reveal factors
accelerating or inhibiting this trigger.
In this perspective, we have to refine our definition of the entrepreneurial process trigger. We define the
process triggering when an individual seriously considers creating, i.e. he dedicates time and means to his
research. However, evaluating the possibility to create a new firm (the trigger) does not necessarily lead to
the individual’s commitment in the process. The individual can give up his project, definitively or not. Our
analysis is concentrating on the pre-decision stages. This allows to explain how the phenomenon begins;
reflect of how individuals make decisions and take actions. Our approach allows us to explain the trigger by
endogenous and exogenous factors. The endogenous ones correspond to the individual’s perceptions. They
can be the result of internal dynamics (individual’s perceptions modifications without any changes in the
environment; i.e. contradictions between a given situation of an individual and his wishes; i.e. attitudes
toward the new venture creation, perceived behavioural control, culture, values …) or external ones
(environmental changes which affect the individual perceptions). Both internal and external dynamics can be
resumed by the intentionality concept. We study several models of intention which appear useful to
understand and predict decisions and actions. In fact, absent intention, action is unlikely. Finally, intentions
obviously need not be realized. Intentions can change; we often have conflicting intentions. Otherwise, the
exogenous factors correspond to the displacement notion of Shapero and Sokol (1982). They are stimuli
coming from the individual’s environment. Research also suggests that certain exogenous variables can
serve to facilitate, ‘precipitate’ or ‘inhibitate’ the realization of the behaviour. These various antecedents of
the trigger, endogenous and exogenous, are not independent but, on the contrary, entangled. The stimuli of
the environment are all the more influent that the individual situation has contradictions. In order to
illustrate this pattern, we can consider that the trigger of an entrepreneurial process follows two possible
patterns: The first one, mainly due to exogenous factors, is a pattern of survival, while the second one,
which can be expressed through an intentional process, is one of development.
The objective of our paper is to identify the relevant theories to study the triggering phase and to propose a
conceptual framework to highlight the process. Finally, we also discuss research propositions and present
the future research avenues.
Understanding the Global SME: Feeding the Growth - An Agenda for
Engagement
Reason, Lester-Lloyd
Sear, Leigh
Mughan, Terry
Ashcroft International Business School;
Anglia Polytechnic University
Woodholmes Group
Ashcroft Intern. Business School
Anglia Polytechnic University
This paper draws upon the findings of two major research projects undertaken in the East of England. The
first, commissioned by the East of England Development Agency (EEDA), aimed to identify the key skills and
knowledge needs of small and medium sized enterprises within the eastern region of the UK as they
internationalise their business operations. 1200 small and medium sized industrial and commercial
enterprises within the region were interviewed by telephone to map international activity throughout the
region and to undertake a preliminary needs analysis for those involved in such activity. Targeted interviews
were then undertaken with 80 key companies organised on a cluster-basis. These face-to-face interviews
with the strategic leader of the chosen firms allowed for further exploration of the key issues emerging from
the telephone survey.
The second, undertaken in partnership with UK Trade and Investment, has developed a typology by which to
segment the experiences of SMEs with different levels of engaging with international trade. Through a
telephone survey of over 180 SMEs, we have developed a segmentation framework with five segments,
determined by the level of experience and expertise in managing different international activities such as
importing, exporting, joint ventures and the transfer of intellectual property rights.
This work has afforded us clear insights into the characteristics of internationalised SMEs within the region
in terms of their motivations, challenges, needs and preferred mode of support provision. That is, we
understand why they seek to internationalise, we understand the major challenges they face in attempting
to do so effectively and we understand the ways in which these challenges could be addressed. We also find
clear evidence however of significant gaps in current support provision for these firms. Moreover, we find
very limited engagement between these internationalised SMEs and the appropriate government agencies
and Higher Education Institutions.
Accordingly, this paper seeks to address the following key questions:
1.
2.
3.
What are the reasons for the poor levels of engagement?
What, if anything, can be done to improve these levels of engagement?
In order to address the key issues in an appropriate and meaningful way, what form should this
engagement take?
Accordingly, the paper will draw upon insights from the project work to address these issues from a policy
perspective. The paper should appeal to academics, practitioners and in particular members of the policy
and business support communities.
Strategic Decision Making in Small Innovative Firms – the Perceived
Importance of Other Voices
Mazzarol, Tim
Reboud, Sophie
University of Western Australia
Groupe ESC Dijon Bourgogne
A collaborative study involving Australian and French research groups, the project explored strategic risk
assessment frameworks originally developed within France, and applied them to a sample of 57 firms
drawn from a government database of 550 small innovator firms in Western Australia, the study examined
the strategic decision making of the entrepreneurial owners. Particular attention was given to their decision
to proceed with a new product or process innovation, and their willingness to engage third party
complimentary actors in its development and diffusion. The sample, while small, was representative of
highly innovative smaller firms with strong levels of new product development, investment in R&D, export
behaviour and formal business planning.
The questionnaire was targeted at persons within the firms who could report on behalf of the entire
organisation. Within the final sample 42 percent were owner-managers, 23 percent were executive
managers and principal shareholders, 25 percent were executive manager shareholders and 10 percent were
executive managers without shareholdings. Thus the majority of corespondents were both executive
managers and owners.
Respondents were asked to indicate if they had a new innovation that they were planning to launch within
the next three years. The majority (96.5%) indicated that they did and 64 percent reported that they had
generated this innovation alone, without collaboration from leading customers, key suppliers or third party
strategic alliance partners. The majority of respondents indicated that they had significant personal power
to decide whether to proceed with the innovation and they also indicated that they were highly likely to go
ahead with it in the future. When asked to indicate how much importance they placed on the views of
others in relation to their decision to proceed with the innovation 91 percent indicated that customers were
important, with around 68 and 73 percent considering the views of other senior managers and company
directors important. However, professional advisors such as Accountants and Lawyers were viewed as
important by only 23 percent and financiers including venture capital providers as of little more importance.
Data analysis was undertaken in three stages: i) an initial examination of top line data relating to the
importance placed by the entrepreneur on the opinions of different potential strategic stakeholders in
relation to the decision to proceed with the innovation; ii) an exploratory factor analysis of the items
relating to strategic decision making; and iii) a series of discriminant analysis tests of the relationship
between the factor constructs generated from stage two and the entrepreneur’s perceptions of the
importance of other opinions as measured in stage one.
Preliminary Analysis of Variance (ANOVA) and chi-square tests undertaken in stage one found significant
differences at the 0.05 level between entrepreneurs who owned equity in the business and senior executives
who did not in these responses. This found significant differences between those who were equity holders in
the venture and those who were salaried CEO. In stage two an exploratory factor analysis (principal
components) was used to examine the thirteen items measuring the respondent’s perceptions of the nature
of strategic decision making within the firm. These items measured the respondent’s perception of their
power to make decisions, how they felt other’s within and outside the firm saw the innovation and how
much attention they gave to such views. Four factors constructs were produced with eigenvalues greater
than 1, which explained 66 percent of the variation in data. A final factor structure generated four factors
that related to the external and internal views likely to influence the entrepreneur, as well as their own
personal power and the relative ease with which the innovation could be implemented. These factor
constructs were labelled: i) “External Voices”; ii) Internal Voices ; iii) Ease of Implementation; and iv)
Personal Power. These measured the respondent’s views of external and internal stakeholders, the
complexity of the proposed innovation to implement and their own level of power over the decision.
In stage three discriminant analyses were used to examine the relationship between these factor variables
and the level of influence of key stakeholders on strategic decision making. The importance of the customer
as a source of influence was largely determined by the personal power of the respondent to act. This was
also true in relation to the level of influence of other business people. By contrast the influence of other
senior managers, family, friends and social contact was determined by the level of importance given to
internal views. How much importance was placed on the views of professional advisors such as
accountants, lawyers and bankers appears to be determined by the ease with which the implementation of
the innovation was perceived to be.
These findings suggest that if entrepreneurs within small innovator firms feel the innovation can be
commercialised with relatively few obstacles they will tend to downgrade the importance of external
advisors. Greater value is placed on the views of customers and where the entrepreneur has the power to
proceed with the innovation without recourse to other stakeholders they are most likely to go ahead if a
positive response is received from leading customers. The findings highlight the tendency for small business
entrepreneurs to seek to pursue their business activities alone and without third-party support, following
customer or market opportunities. While not surprising, this behaviour is contingent on the entrepreneur
achieving their goals within a largely benign environment where innovation diffusion can take place relatively
easily.
What Makes the Difference among University Alumni on the Intention to
New Venture Creation? Implications for Public Policy
Izquierdo, Edgar
Deschoolmeester, Dirk
Valcke, Martin
University of Gent
University of Gent
University of Gent
This article examines contextual and endogenous factors that distinguish university alumni on the intention
to new venture creation. Specifically, we explore whether perceived barriers, support factors, individuals’
motivational dispositions and/or entrepreneurial competencies have an influencing effect on the intention to
create a new enterprise.
Building upon previous research, this study includes the examination of entrepreneurial competencies that
fits into recent development to design competency-based curricula. A number of 122 alumni at ESPOL
University, a polytechnic institute in Ecuador, were interviewed. A random sample was drawn from the
target population of engineering sciences, economics and various technology three-year undergraduate
programs who graduated between 1998 and 2003. A stratified random sampling procedure was used with
the purpose of producing estimators with smaller standard errors than those accomplished with simple
random sampling. A multi-discriminant analysis was implemented on the data collected from the target
population. The analysis of the antecedents on intention to new business creation was performed in order
to develop a model that seeks to distinguish university alumni based on the aforementioned factors. By
doing so, the model attempts to predict whether individuals who self-rated high on intention will actually
create new companies in the near future.
Preliminary results indicate that perceived barrier variables are not significant to discriminate between
alumni who self-assessed higher on intention than those who did not. On the other hand, being
independent and possessing the competency to evaluate business opportunities are significant to
differentiate alumni who expressed higher intention to new venture creation from those who did not. A
more advanced analysis is underway, in which full complex model is being tested in order to take into
account the interdependencies of the prediction variables. A better understanding of the antecedents to an
entrepreneurial career is relevant for its implications both from an academic and practical perspective. In
this line, we argue that the findings of this study provide valuable information for educators and policy
makers as to set up directions for enhancing entrepreneurial activity among university alumni. Educators,
on the one side, can benefit since the findings can help adapt their courses and curricula aimed at providing
students with the skills and abilities required to successfully start and possibly manage a new enterprise.
For policy makers, on the other side, the research reported in this paper can help design effective programs
to foster entrepreneurship. That is, if we assume that new venture creation is shaped by an adequate
infrastructure as well as supporting and legal conditions, we expect an increase on entrepreneurial activity
by university alumni. Discussion of the findings and implications for future research and public policy are
presented.
Entrepreneurial Commitment Dynamics and Value(s) Creation
Gaillard Giordani, Laura
Bocconi
This paper explores the founding interactions, conditions and decisions of the creation and funding of new
ventures in the preliminary stages until the point of starting or close to it. We consider that new
organizations represent the transformation of “ideas” into “business” that is the passage from knowledge
to action, blending human and financial capital.
The triggering mechanism is catalyzed by the exchange and commitment of knowledge and other resources,
especially financial. The transactions and the relations take place between various players. Two main groups
emerge: they are the resource bearers (investors) and the entrepreneurs (investees). These actors make their
decisions according to calculated strategies and complex cognitive and relational behaviors. The study takes
a grounded theorizing approach in analyzing data drawn from ten cases of entrepreneurial process. The
research uses also multiple level analysis. The events examined support a dynamic view where investors and
investees behavior changes as a consequence of their interaction: the exchange of credible commitments,
until the “lifting of the fog” when commitments attain an appropriate level of irreversibility.
Key prop ositions:
Starting from the basic question: why and how do organizations come into existence - or more specifically:
how and why, in the same environment, and independently of the qualities of the project and competencies
of the teams, do some entrepreneurial processes obtain funds, survive, grow and succeed while other try
and never take off - the research proposes to investigate the following question: are there identifiable drivers
(or predictors) of the success of the entrepreneurial process and is it possible to identify an organizing
principle of such a process?
At the root of the creation of a new organization we find the human factor blending specific competences
and high level intentionality with opportunities of value creation. The entrepreneurial process evolves with the
construction of shared representations. Representations are intended as the knowledge shared, created and
deployed for the purpose of the common project. The triggering of the process, that is the co-construction
of knowledge in a context that requires justice and trust, is positively associated with perceived fairness and
faithfulness. The new (collective) structure emerges from interactions. Our data indicate that the dynamics of
interactions are driven by strategies of cooperation that rest on the exchange of commitments. We suggest
that the concept of entrepreneurial commitment may shed light on some previously unexplained
phenomenon within the entrepreneurship research domain.
Entrepreneurial. We consider entrepreneurship as a process – an organizing, learning, emerging process –
involving the interaction of individuals (or teams) and resources, in an environment of opportunities (and
threats), in a specific organizational context; the outcome of this process is value creation (a new
organization and/or entrepreneurial performance within firms and economies).
Commitment. In the context of our analyze, commitment is viewed as a type of motivating force and a
strategy rather than an attitude or a complex set of behavioral intentions. Commitments can be represented
by formal devices (like contracts and irreversible expenditures) or informal constraints (like norms of
behavior and reputation effects). Commitment means that an actor intentionally restrict options for future
actions by making alternative options more costly or by making irreversible specialized investments.
Entrepreneurial commitment. We define entrepreneurial commitment the actions developed through
exchange relationships and transactions involving economic and non economic resources, until there
progressive convergence gives rise to a new organization. It is represented by acts, mainly specific
investments (or pledges), in a context of reciprocity, as the propensity to commit is affected by the
commitment of other resources holders. Each actor contributes resources in the pursuit of collective success
and in the context of multidimensional motive. Actors can be bound when the gains (economic and non)
from living up the agreement exceed the gains from defecting.
Results:
The data analysis has emphasized the importance of the variety of the resources exchanged during the
process of entrepreneurial commitment: they are tangible and intangible. The resources involved are not only
financial, but (i) because the process is embedded in complex networks, they are social (social capital); (ii)
because of the importance of individuals intentions and competences they are intellectual (knowledge); (iii)
and because the entrepreneurial project is the result of a shared vision, they are symbolic (vision).
The impact of vision on the commitment process is of great importance as commitment integrates two
major concepts: liberty and responsibility. Liberty represents the capacity of decision-making and of
choosing a path to the future; responsibility because entrepreneurship is not searching exclusively for wealth
creation for self-interested individuals, it means creating and delivering values and collective welfare.
Implications:
While classical theories and early research have examined and explained why organizations are coming into
existence and have given interesting inputs on the context in which new ventures emerge, they are less
beneficial in helping to understand the dynamics of the process of organization formation. In recent years,
the question how (do organizations come into existence) has been examined from several perspectives, the
issue of new venture creation has become a central concern across variety of fields and there has been
unprecedented growth in academic research and requests from economic and political actors. Yet many
aspects remain unexplored.
The present research, we expect, responds to the need for a synthesis enabling researchers and practitioners
to better articulate the nexuses between economic and social parameters that underlie the entrepreneurial
process. This refers specifically to (1) the importance of trust and fairness for the communication between
the main actors of the process; (2) communication intensity (“voice” in the meaning of procedural justice)
which enables the creation of common knowledge, the sharing of values, and leads to cooperative
behaviors; (3) proposing that the process is gradually made legitimate by the credible commitment of
actors, transforming intentions into actions and mutual commitment into value creation and sustainable
advantage.
The Strong Poet in Ethics and Entrepreneurship: a Look at the Role of
Contingency
Harmeling, Susan
Sarasvathy, Saras
Freeman, R. Edward
University of Virginia
In business ethics, there is long-running debate between universal and emergent values. In
entrepreneurship, there is a similar debate as to the nature of opportunity—is it “in here” or “out there”?
Each of these debates can be better understood as arising from the notion of contingency. In this paper,
we will show a) how both business ethics and entrepreneurship have underemphasized contingency and b)
how the two fields converge because of it. Like Nietzsche’s Strong Poet, the entrepreneur acknowledges and
appropriates contingency to create new artifacts and sustain innovation over time. This affects both the
teaching and practice of entrepreneurship. And when the entrepreneur capitalizes on contingency, she
creates and shapes values in action, thereby changing the ethical landscape. This in turn has significant
implications for the study and practice of business ethics. The inevitability of contingency renders narrative a
powerful way to understand the emergence of both entrepreneurial artifacts and new values.
Key Prop ositions:
Only poets, Nietzsche suspected, can truly appreciate contingency. The rest of us are doomed to remain
philosophers, to insist that there is really only one true lading-list, one true description of the human
situation, one universal context of our lives. We are doomed to spend our conscious lives trying to escape
from contingency rather than, like the strong poet, acknowledging and appropriating contingency.
Richard Rorty, Contingency, Irony and Solidarity (CIS), 1989, page 28
Why have both business ethics and entrepreneurship given contingency short shrift? And how do
entrepreneurs actually acknowledge and appropriate contingency to “tell the story of their own production in
words never used before,” (Rorty, 1989), thereby shaping the dual landscapes of ethics and innovation? In
this paper, we will examine these questions as follows. In the first section, we will look at the debate in
business ethics over fixed vs. emergent values. In the second section, we will look at the debate in
entrepreneurship between “in here” and “out there” opportunities. In the third section, we use original, reallife narratives to examine four different types of contingency that entrepreneurs regularly face. In the fourth
section, we will use the theoretical background of pragmatist philosophy to compare the entrepreneur to
Nietzsche’s strong poet fusing “private and public need.” Finally, we will look at future implications for the
study and practice of both entrepreneurship and business ethics and for sustaining the entrepreneurial
spirit over time.
I.
II.
The Debate in Business Ethics: Universalist philosophies in business ethics (relying on Kant,
Aristotle, Mill, and other “classic” philosophers), present a fixed view of human ethical
development, i.e. ethics as fixed on the tabula rasa of the young, and largely unchanging
throughout life. Others have a view of ethical development as emergent, as a consequence
of one’s “experienced relationships” (Frederick, 2000). This section will be a discussion of
those two seemingly opposing viewpoints.
The Debate in Entrepreneurship: One of the central debates among entrepreneurship
scholars over the past two decades can roughly be summed up this way: entrepreneurial
opportunity is either “out there” or “in here.” While it is now generally agreed that
entrepreneurship is not the result of a definitive set of psychological traits (Gartner 1988),
III.
IV.
there is still disagreement as to whether entrepreneurial opportunity is already existing in
the world somewhere, waiting to be found and exploited, or whether it emerges from
individual circumstances, the contingent result of an act of creation given the entrepreneur’s
unique set of resources at any given moment (Sarasvathy 2001). This section will be a
discussion of those two seemingly conflicting concepts.
Four Kinds of Contingency: a) Random stumbling, b) Path Dependency, c) Punctuated
Change and d) Unintended Consequences. We will show how each of these types of
contingency arises, through original entrepreneurial narratives.
The Entrepreneur as Strong Poet: In this section, we will present the paper’s theoretical
underpinnings through the work of three modern pragmatists: John Dewey, Richard Rorty
and Nelson Goodman.
Future Implications: Like death and taxes, contingency is a fact of life. But, like Penrose’s resources (1959),
it can either be exploited or ignored. It is the acknowledgement and appropriation of contingency that set
the entrepreneur apart and allow for sustained innovation over time. The aim of this paper is to show how
entrepreneurs exploit contingency to create new artifacts and values and, in the process, change the world.
This will have implications for the teaching and practice of both entrepreneurship and business ethics, two
fields in which universalist and causal theories have eclipsed the role of contingency.
Track 4: New & Youn g Ventures
A Taxonomy of Business Support Services: Critical Success Factors and
Implications for Practice
Tornikoski, Erno
Varamäki, Elina
Veil, Jerome
Seinäjoki Polytechnic Business School
Vaasa University
ESSEC
Together with the belief that entrepreneurship is a solution to many current economic problems and a way
to address future challenges, public policies intend to foster the birth of new businesses. One way to support
the birth of new business is to offer Business Support Initiatives (BSI) to individuals in the process of
starting a business, or thinking about it as a career alternative. For those in practice of carrying out
Business Support Initiatives, the current literature on does not offer detailed information about how to plan
and execute different types of Business Support Initiatives. A literature review was carried out, on the basis
of which two different important dimensions of BSI concepts were identified: the degree of a customer’s
commitment to entrepreneurship and the breadth of services of a Business Support Initiatives. Based on
these two dimensions, a typology of Business Support Initiatives can be formed: Traditional start- up
courses, Entrepreneur training projects, Business accelerators, and Official business incubators. The main
objective of this study is to put forward propositions concerning critical success factors related to different
Business Support Initiatives. In order to achieve this objective, a three-stage approach is adopted.
Metho ds
At the first stage, a qualitative study is conducted to investigate existing Business Support Initiatives in
depth. A convenience sample of publicly funded Business Support Initiatives is located in South
Ostrobothnia, Finland. Seven initiatives had already been carried out in the region, while four were carried
out during the primary data collection period, 2004. In the empirical part of the study, data is
gathered from three target groups: financiers of the projects, project managers, and customer enterprises
having participated in the initiatives. The focus is on interviews in the customer enterprises, of which 62 were
“quick checks” and 25 more profound theme interviews. An analysis is made of the current state and
development needs of these activities, as well as of the critical success factors of each Business Support
Initiatives.
Implications
At the second stage, the empirical experience is used to modify the typology of Business Support Initiatives.
As a result of the re-conceptualization, the following taxonomy of Business Support Services (BSS) is put
forward: Entrepreneur incubator, Business idea incubator, Technology incubator and Accelerator. Each of
these four Business Support Services answers different customer needs. Moreover, common and conceptspecific critical success factors are defined for the four Business Support Services. At the third stage,
propositions concerning the critical success factors of the four Business Support Services are put forward for
future testing. In addition, the practical implications of this study are discussed in relation to the Business
Support Services and critical success factors, and how they can be
utilised when designing and assessing existing and future Business Support Services.
Management Support and the Performance of Entrepreneurial Start-ups
Stubner, Stephan
Wulf, Torsten
Leipzig Graduate School
of Management
Friedrich-Alexander-University
Erlangen-Nurember
This paper analyses the impact and relevance of the management support Venture Capital firms offer for
entrepreneurial start-ups. Based on a research design derived from the resource based view of the firm,
hypotheses are developed and empirically tested using a sample of 225 Venture Capital funded firms. The
results of the study show that management support is seen as an important aspect of Venture Capital
financing by the start-ups but that its actual execution does not meet their expectations. Furthermore it can
be shown that there is an influence on the success of the firms which is differentiated between the different
types of management support.
Entrepreneurial start-ups are newly founded companies that try to enter or sometimes even open up a
market with innovative products or services. Especially in their earliest development stages these start-ups
are often marked by a scarcity of critical resources. Most of all, financial capital and management capacity
are lacking (Köhler, 2003). Particularly the absence of management capacity, defined as a lack of persons
who possess the knowledge, capabilities and experience necessary to handle day-to-day management
problems, is often said to have a negative effect on the development of start-ups (Klemm, 1988; Arndt,
1995; Hellmann/Becker, 2000; Klemm, 1988; Wupperfeld/Kulicke, 1993; Schefczyk, 1999a; Schefczyk,
2000b; Strascheg, 2001). The reasoning is that because of the shortage of management capacity the
founders are forced to take care of all operational tasks like the recruiting of personnel, the setting up of
marketing plans or legal issues themselves instead devoting their time and energy to improving products
and services or developing the market and thus concentrate their energy on aspects where they often are not
sufficiently qualified (Zemke, 1995; Cooper et al., 1991; Schefczyk/Pankotsch, 2002).
Venture Capital firms have for quite some time already been aware of this problem that start-ups often run
into during the early stages of their life-cycle. Therefore, most Venture Capital firms do not only offer their
clients financial capital, but also management support (Amit, R. et al., 1990; Busenitz et al., 1997;
Casamatta, 2001; Jain, 2001). This management support includes knowledge transfer in specific fields as
strategic management, organisation design, marketing or process streamlining as well as networking
activities for the start-up or the coaching of founders and senior managers. (Geigenberger, 1999; Schefczyk,
2000a; Feinendegen et al., 2001; Nathusius, 2001; Brinkrolf, 2002). The Venture Capital firms themselves,
but also anecdotal stories about successful start-ups in the press and consultants’ reports constantly stress
the positive effect that management support has on the performance of start-ups (Barney et al., 1996). As
a consequence, the relevance of management support for entrepreneurial start-ups is widely accepted. Many
start-ups even state that they actively search for both financial capital and management support when
cooperating with a Venture Capital firm. Often, the real benefit is even expected from the latter
(Hausberger/Prohazka, 2001; Mittendorfer, 2001; Stadler, 2001; Strascheg, 2001).
In spite of these common beliefs, no theoretical evidence has been found so far that supports the
hypothesis that management support really does have an influence on the performance of entrepreneurial
start-ups (Virtanen, 1996; Schefczyk, 1999a). A few Venture Capital firms even say that management
support is not necessarily helpful at all (Barney et al,. 1996). The literature on entrepreneurial start-ups,
however, has not sufficiently touched this issue so far. Existing studies rather focus on categorizing different
types of management support offered by Venture Capital firms. Additionally, most research in this context is
not done from the perspective of the start-up but from the perspective of the Venture Capital firm
(Sapienza/Timmons, 1989; Sweeting./Wong, 1997; Schefczyk, 1999b).
Therefore, the main aim of this paper is to present the results of an empirical study that analyzed the
contribution of management support offered by Venture Capital firms to the performance of entrepreneurial
start-ups. Precisely, managers of a sample of 225 start-up companies in Germany were asked to evaluate
the relevance of different types of management support that they received from their Venture Capital
partners. The paper starts with an overview of the theoretical positions that have been used in the literature
to explain the relevance of management support for the performance of entrepreneurial start-ups. It is
shown that the resource-based view is a particularly relevant perspective for the research question at hand.
Therefore, based on the resource-based view several hypotheses on the performance effect of different types
of management support are derived and empirically tested using the above-mentioned sample of 225
German start-up companies.
The results show that management support does play an important role in the entrepreneurs´ decision to
partner with a Venture Capital firm. Nevertheless other factors have a much higher priority for the start-ups.
The perceived quality of the support is very heterogeneous with one third of the start-ups being satisfied
with their Venture Capital firms and one third being totally dissatisfied. Furthermore more than 50% of the
respondents pointed out that they do not think management support had an impact on the success of their
companies, some even mentioned it to be dangerous, especially when the Venture Capital firm influences
internal operational effectiveness. Anyhow, empirical testing showed that management support actually
does have an influence on the success of the start-ups and that in particular the Venture Capital firms´
support with strategy, finance & controlling and surprisingly with the internal research & development
efforts seems to be beneficial. The paper closes with several implications for further research and corporate
practice.
Academic Start-Ups and Other New Technology-Based Firms: Are they
different?
Colombo, Massimo
Piva, Evila
Politecnico di Milano
In this paper, relying on the resource- and competence-based theories of the firm, we analyze differences
between Academic Start-Ups (ASUs) and other New Technology Based Firms (NTBFs) as to their internal
resources and competencies configuration and access to external resources and competencies. We argue
that these differences have important implications for firms innovative and growth performances.
In the empirical section of the paper we compare a sample of 64 Italian ASUs that operate in high-tech
industries in both manufacturing and services with two matched pair samples of NTBFs, with matching
being based on observable covariates and a modified version of the propensity score method, respectively.
The results of the statistical tests show that ASUs and other NTBFs differ in their initial resources and
competencies as a consequence of the diverse origin and human capital of founders. In particular, while the
latter excel in scientific competencies, they lack industry specific, managerial and entrepreneurial experiences.
While we detected no differences between the two categories of firms relating to financing, ASUs were
found to place greater emphasis than other NTBFs on technical activities, to have a more qualified
workforce, and to be more likely to establish collaborative relations with public research organizations and
to participate in international collaborative research projects. As a consequence, ASUs achieve superior
innovative performances in spite of lower growth.
The Determinants of Survival and Growth in the French ICT Sector
Lasch, Frank
Le Roy, Frédéric
Yami, Saïd
Montpellier Business School;
CEROM
Montpellier Business School
ERFI-CEROM
University of Montpellier I,
ISEM / ERFI - CEROM
This paper deals with the crucial topic of survival and growth in the ICT sector, which is characterized by
intense firm birth rates, but also by a high mortality. Five years after the start-up only 38,7% of the firms in
the ICT sector survived, comparing to 46,3% in non-innovative industries.
So, why do certain ICT firms fail while others succeed? And what are the sustainable determinants that can
be linked to survival and growth?
We analyze a sample of 498 ICT firms and discuss the impact of four factor groups on survival and
growth: human capital and working experience, pre-founding activities, initial organizational characteristics,
inter-firm co-operation.
1. Theoretical background
The determinants of survival and gro wth of start-ups
Most authors classify success factors in three groups: entrepreneur, firm and socio-economic environment.
There is agreement in literature that all three of the principle elements of entrepreneurship are interrelated
and differentiate significantly whether the entrepreneurs are more or the less successful. Authors stress that
individual attitude and characteristics have twice the effect upon success as do firm’s characteristics.
Environmental influences are supposed to be relatively minor (Solymossy, 2000: 80).
The impact of individual factors and pre-foundin g activities on survival/gro wth
These factors can be classified in three groups: motivation (Entrepreneurial Orientation), general human
capital, work experience, preparation and pre-founding activities. Human capital, personal networks and
work experience are the most used factors in literature. This leads us to the following hypothesis:
H1: Survival/growth of ICT firms are positively related to the general human capital and the working
experience of the entrepreneur.
Intense pre-founding activities are supposed to increase success, but as for most of the discussed factors,
prior studies present ambiguous findings. We consequently hypothesize a positive relationship between prefounding activities and survival of new ICT firms.
H2: Survival/growth of ICT firms are positively related to the extent and quality of the pre-founding
activities.
The impact of initial organizational factors on survival/gr o wth
In literature, there is agreement that a significant firm size as well as financing increase the chances of
success. Authors stress that the chances of success increase, when the founder is assisted in his decisionmaking process by business partners. Starting with a file of clients may reduce the risks of failure. Authors
emphasize number and type of clients, inter-firm activities. The success of new firms may also depend on
the regional market orientation (local, national, international). Even if most firms are located in proximity to
the founders residence, innovative firms display specific needs, but also a particular interaction with the local
economy, thus the choice of localization may also affect the success (localization and agglomeration
effects).
H3: Survival/growth of ICT firms are positively related to initial organizational factors
2. Metho ds
Database
Dataset collected by the French national institute of statistics and economic studies (INSEE: “enquête SINE”,
first questionnaire at start-up in 1994, second in 1999). Sample: 24.191 firms (all sectors), 498 ICT firms.
Defining the ICT sector
ICT sector is composed by three main branches: high tech industries, ICT services (computer/software
services and telecommunications), other knowledge intense services (non university R&D, technical
studies&analysis).
Measuring the dependent and independent variables
We examine success of new firms in terms of survival and analyze if characteristics of the start-up period
have a sustainable effect on growth. In a first research step, we divided the firms into those who continued
their activity after three years ( survivors) and those who closed down (exitors). We first look at differences
between these two groups in terms of initial start-up conditions (individual/organizational characteristics).
In a second research step, a multivariate analysis is used as a refinement and examines growth of survivors.
3. Results and Discussion
The comparison of survivors and exitors allows designing a first, idealistic, profile of successful
entrepreneurs. Industry specific experience and previous working experience in SMEs appear as most
important factors. To our surprise, entrepreneurs with start-up and management experience, and those
knowing entrepreneurs in their social network, fail more often. Pre-founding activities are also important
success factors. Initial organizational characteristics that can be linked to survival are: Firm size, start-up
capital, number and type of clients. High risks were identified for firms that competed form the start on
international markets, as well as for entrepreneurs that chose the location mainly for personal reasons and
less for economic advantages of the local environment.
But, predictors of survival are in part different from predictors of growth. Significant influence on growth is
positively measured for: Starting with a file of clients, high start-up capital, capital from other firms
incorporated, increasing number of clients. Negatively: a too small number of employees, starting with
business partners, dealing with mainly private customers, competing essentially on international markets.
Finally, inter-firm co-operation increases chances of growth of new ICT firms.
The factors associated with survival and growth of new firms do only conform in part to expectations.
Success factors which are often stressed in literature point out to be of no significant importance in the ICT
sector, this is the case for general human capital and working experience. Preparation is important for new
ICT firms, but human capital and working experience are less crucial than expected. Risks appear over time
when business partners are present. High start-up capital, continuous financing are key success factors.
Conclusion
Implications for management practice are numerous and results may be useful for practitioners who are
involved in new firms, such as venture capitalists, bankers, but also for public authorities.
Our study opens directions for future research. Results from previous researches are heterogeneous; bring
various results and contradicting findings. In order to increase understanding of the complexity of a new
venture’s survival and success, especially in emerging sectors like the ICT, future studies should be based on
broader empirical samples, should integrate not only the examined factor groups, but also regional
environmental criteria; they should deal separately with different types of firms (industry
specific/performance criteria). A distinction between the main branches of the sector would help to detail
our results.
Startup Firms Growth, Management Control Systems Adoption, and
Performance Implications
Davila, Antonio
Foster, George
Stanford University
An important stage in the growth of startup firms is the transition from an informal management style to the
need of professional management tools {Baron, 1999 #23;Hellmann, 2002 #27}. This transition point has
been traditionally associated with the first growth crisis {Greiner, 1972 #57;Greiner, 1998 #56}. Failure to
properly manage this crisis has been associated with constrained growth and even firm liquidation. The
entrepreneurship literature has also documented a common association between this transition point and the
replacement of the original CEO {Chandler, 1992 #33;Willard, 1992 #35}. The proposed explanation for this
empirical regularity is that the psychological characteristics of entrepreneurs are such that while they enjoy the
fluidity of new ventures, they dislike the formality required for growth. In other words, “[founders] are probably
unsuited to be managers” (Greiner, 1998) (page 61). This transition point is most visible in the population of
small growing firms.5
Management control systems—defined as “formal, information-based routines and procedures managers use to
maintain or alter patterns in organizational activities” {Simons, 1995 #115} (page 5)—are important tools to
5
The phenomenon, which is driven by small organizations outgrowing informal management processes, may also be
observed within departments of medium and large firms.
professionalize a company. They help managers leverage their attention, liberating it from decisions that can be
delegated and controlled by exception and supplying information when the informal network is overloaded.
Management control systems are interpreted as a subset of organizational routines {Nelson, 1982 #55}{Zollo,
2002 #140} characterized by being recurrent, formalized, and information-based.
The study of management control systems has focused on cross-sectional variation in large established firms
{Chenhall, 2003 #140}{Cardinal, 2001 #16}; it is only recently that empirical evidence on their emergence in
startup firms is accumulating {Sandino, 2005 #180}{Davila, 2005 #175}. These studies have examined factors
associated with cross-sectional variation on the time-to-adoption of particular management control systems
and how this timing varies with the strategy of startups. However, they only look at a subset of these systems
and, more importantly, they do not address a fundamental question implicit in models of startup firm growth
about the relevance of management control systems to successfully deal with this first growth crisis and,
consequently to organization performance.
We examine the evolution of 78 startup companies from their founding. We analyze how these firms build up
their management control systems in eight different areas: human resource planning, strategic planning,
financial planning, human resource evaluation, financial evaluation, product development, sales, and
partnerships; and how this process is integrated within the broader process of growth. We address two
research questions. The first one addresses the relationship between the adoption of various management
control systems and three different proxies for growth—number of employees, CEO rotation, and company
valuation. The second looks at how different types of management control systems affect each other’s timing of
adoption.
We collect field research data using a multi-method, multi-case research design. The proprietary nature of the
data and the detail needed to address the research questions demanded the design of tailored data collection
instruments. For each company in our sample, we triangulate information from public sources, three
questionnaires to three different managers, and three semi-structured interviews with them.
This paper contributes to literature in two distinct ways. First, we provide empirical evidence on the simultaneous
association between the evolution of management control systems and firm size measured using the number of
employees. Figure 1 provides descriptive evidence on this issue. It plots the average firm size over time for three
portfolios. Portfolio (1) is formed with the companies in the lowest third in terms of the level of systems’
adoption in year two. Portfolio (2) is formed with the next third of companies and portfolio (3) is formed with
the third of companies with highest adoption in year two. The plot suggests an association between level of
adoption in year two and company size over time. Means and medians’ tests between the various portfolios are
significant from year two onwards. Similar results are obtained if the portfolios are formed in year one or three.
This finding is consistent with firm growth requiring the management infrastructure that these systems provide
as well as these systems being a consequence of growth.
We further probe a common argument put forward to explain founder’s replacement as CEO; in particular we
document an association between the level of management control systems’ adoption and the likelihood of CEO
turnover. CEOs that adopt fewer systems are replaced sooner; this is consistent with certain founders having
difficulties in moving from an entrepreneurial to a managerial role—as measured by the level of adoption of a
particular set of managerial tools—and being replaced. Figure 2 provides descriptive evidence relevant to this
fiding. For each one of the first three years of the life of a firm, we independently classified firms into three
groups according to level of systems’ adoption in each of the three years. This is we classified firms in their first
year of existence according to level of adoption; we classified them again in their second year and again in their
third year. For each group in each year we estimated the proportion of founders that were replaced during the
years for which we have data.
We also document an association between the level of management control systems’ adoption and company
valuation. This result takes advantage of the visibility that venture capitalists have on management practices
that allows them to price their quality.
Our second contribution documents how the adoption of different types of management control systems
complement or supplement each other. In particular, we examine this relationship for the three types of
planning systems: human resource planning, strategic planning, and financial planning. We find that the
adoption of human resource planning and strategic planning complement each other—having adopted one of
them is associated with faster time to adoption of the other one; in contrast, the presence of financial planning
is associated with longer time to adoption of human resource planning and strategic planning.
Figure 1
Management control systems’ intensity and employee growth
160
140
120
Employees
100
80
60
40
20
0
1
2
3
4
5
Age
(1) Lowest intensity
(2)
(3) Highest intensity
This figure plots average company size over time for three portfolios. Each company in the sample is
assigned to one of the portfolios according to its systems’ intensity in its second year of existence. Each
portfolio has equal number of firms. Portfolio (1) is formed with the 33% of companies with lowest
intensity, portfolio (3) is formed with the 33% of companies with highest intensity, and portfolio (2) is
made up of the rest of firms.
Figure 2
CEO turnover and management control systems’ intensity
Percentage of founders replaced from CEO position
60
50
40
30
20
10
0
Group 1 (highest intensity)
Group 2
Year 1
Year 2
Group 3 (lowest intensity)
Year 3
6
This figure plots the percentage of founders replaced from the CEO position per level of management control
systems’ intensity. Firms were grouped into three portfolios from lower to highest intensity in each of the
first three years. The y axis is the percentage of founders replaced and the X-axis are the three portfolios
from highest (group 1) to lowest intensity (group 3).
Reputational Change in Technology-Based Firms
Reuber, Rebecca
Fischer, Eileen
Deutsch, Yuval
University of Toronto
York University
York University
An organization’s reputation is widely considered to be a valuable resource (Amit & Schoemaker, 1993;
Barney, 1991) and so establishing and sustaining a good reputation is a key task in founding, growing and
sustaining a company. Previous research suggests that organizational reputations are path-dependent and
relatively stable (Podolny, 1993; Schultz, Mouritsen & Gabrielsen, 200), but this research has emphasized
large, established firms in mature industries. In a period of environmental turbulence, current assessments
are likely to become less meaningful (Roberts & Dowling, 2002), there are likely to be new entrants that do
not benefit from familiarity and entrenched beliefs on the part of stakeholders, and these entrants are likely
to exhibit performance variability (Sorensen & Stuart, 2000; Stinchcombe, 1965).
The question of what causes reputations to change is complementary to, but distinct from, the question of
what predicts the valence or value of a reputation at a point in time. To understand improvements or
deterioration in firms’ reputation it is necessary to examine signals that are inherently dynamic. Static
signals (such as start-up resources, which do not change over the life course of the firm) and cumulative
signals (such as alliances, whose value does not diminish, but only increases at a varying rate) are
inadequate for predicting change in reputations. To understand period-to-period reputational change, it is
necessary to take into account signals received between one time period and the next.
We address this issue here by examining two complementary questions: What signals contribute to positive
changes in the reputations of young technology-based ventures? What signals contribute to negative
changes in the reputations of young technology-based ventures?
Metho ds / Key Prop ositions
We study firms in the 3D computer graphics chip industry from 1992 to 2003. The industry is characterized
by rapid innovation, with vendors of PCs, laptops and game consoles demanding ever-increasing
functionality, speed and miniaturization from 3D graphics chip manufacturers. The industry is characterized
by both established and new firms, and all are young at the beginning of the period. Entries dominate
exits early in the first half of the period, but over the period exits come to dominate entries.
We are collecting data on every graphics chip family introduced during this period, as well as firm-level
data. Data sources include internal company announcements, industry analyst reports, press releases,
media articles, and web sites of product reviewers and awarding organizations.
Since the functional role of reputation is to reduce uncertainty about an organization (Shapiro, 1988;
Weigelt & Camerer, 1988), we expect signals that are diagnostic (Skowronski & Carleston, 1987) to be
those related to key industry uncertainties. While product quality is usually a key uncertainty (Milgrom &
Roberts, 1986; Weigelt & Camerer, 1988), it is particularly so for industries of high technological turbulence,
where the meaning of “high quality” changes rapidly and past assessments become outdated. Product
quality signals in successive periods will provide new information. We therefore expect signals that reflect a
firm’s current ability to create product of high quality to result in a positive change to the firm’s reputation:
H1:
Favorable changes in 3-D computer graphics chip makers’ reputations between t0 and t1 are
positively related to product quality signals over the period t=0 to t=1.
A second key uncertainty in industries experiencing rapid technological change is whether particular firms
are able to sustain continuous product innovativeness (Filson, 2001; Storper & Salais, 1997). Two aspects
of sustained product innovation are expected to be relevant to perceptions of a firm’s reputation in such a
context: whether the firm can design new product models quickly and consistently, and whether the firm is
able to deliver the designs of new product models to the market as promised. Unlike product quality signals,
product innovation signals are not, in themselves, likely to improve a firm’s reputation. Instead, lapses in
product innovation are likely to have a negative effect. Stakeholders who learn that a firm has been unable
to design a new product model or to fulfill a product announcement are likely to lower their perceptions of
the firm’s credibility as an industry player, suggesting that:
H2:
Firm-specific signals of lapses in product innovation over the period t=0 to t=1 are related to a
greater likelihood of negative change between t0 and t1 in the reputation of 3D computer graphics chip
makers.
We measure a chip maker’s reputation in a particular year by the number of design wins obtained in that
year. A design win occurs when a particular chip is selected by a computer vendor to be used in a
particular computer (desktop PC, notebook, or game console) model. A reputational change from one
period to another is an increment or decrement in the proportional design wins for the chip maker. We
measure product quality by product awards and benchmark tests. We measure lapses in product
innovation by lags in new product introduction and models that are late-to-market. Preliminary analysis
with the full time period (12 periods) for 10 firms supports the hypotheses. We are still coding the data for
the other industry players and expect to have this data in the data base by May 2005.
Implications
In going beyond start-up resources, this paper contributes to the entrepreneurship field by conceptualizing
and testing a dynamic model of firm-specific resources. In doing so, it focuses on stakeholders
(customers) who make ongoing reputational judgements about firms based on operational signals. It
addresses the issue of whether, in some circumstances, the liabilities of adolescence (Bruderl & Schussler,
1990) might be more consequential than the liabilities of newness (Stinchcombe, 1965) for resource
accumulation. We show that our understanding of sustained competitive advantage in turbulent industries
is enhanced by taking into account the phenomenon of reputational volatility.
The Development of Innovation Strategy in SME Context: A Study Case
Le Roy, Frédéric
Yami, Saïd
Montpellier Business School
ERFI-CEROM
University of Montpellier I,
ISEM / ERFI - CEROM
In new strategic management perspectives, an organization is the better performing since it develops
singular competences leading to singular offer of products and services (Hamel, 1996, 1998a, 1998b,
2000 ; Hamel & Prahalad, 1989, 1995). The essence of strategy does not consist in adopting key factors of
success of an industry but, in the real will to break with usual schemes, to redefine its sector boundaries, to
“change the rule games” at its advantage.
This perspective leads to the development of numerous researches focused on the topic of “disruptive
strategies”, of “strategic innovation” (Charitou & Markides, 2003 ; Kim & Mauborgne, 1999 ; Markides,
1997, 1998, 1999 ; Schlegelmilch & al., 2003). All these works have in common the fact that they give a
great interest to only large organizations and rarely to small and medium-sized enterprises (SME). However,
it is now recognized, in recent literature, that these organizations have their own characteristics which leads
to study them in specific ways (Marchesnay, 1991 ; Torrès, 2000).
So, the main objective of this research is to analyze the development process of a disruptive strategy in a
typically SME context. In this respect, researches on disruptive strategies and on SMEs’ strategies are
relatively apart. The first contributions, close to the works on technology innovation, refer essentially to very
large firms. The second studies assert the specificity of SMEs and the necessity to consider them as
particular research objects. By adopting this last argument, our research poses the following question: are
SMEs organizations which are favourable to the development of disruptive strategies?
To understand this complex process in a dynamic way, we focus our empirical analysis on the case of a
small-sized organization, we call “Alpha”, which reinvented its sector and created a new market in the
furniture industry.
According to study case research principles, the method consists in multiplying data sources until
saturation, then crossing them. Secondary sources were used: articles in general and professional
newspapers and magazines, and internal documents (accounting statements, reports, etc.). The access to
primary sources has been facilitated by a direct and regular contact with one of the workshop managers,
and also student of both researchers. He allows us to interview “Alpha” key actors: the CEO, the director of
sales, an executive, a foreman and three skilled workers. All of them are senior in the firm.
From the study case, we focus on two dimensions. The first aspect deals with the fact that SMEs, because
of their specificities, are organizations particularly able to develop disruptive strategies. The second aspect is
the difficulty for these organizations to renew this type of strategy. The initial success leads at once to the
firm’s growth and to imitation by new competitors. These new competitors exert a strong competitive
pressure on an organization which looses progressively its SME specificities as it grows, and then its
capacity to introduce new strategic innovations.
In fact, the case of “Alpha” reveals an important strategic dilemma to the CEO. On the one hand, by
refusing to remain a small-sized enterprise, he tends to loose the creative capacities of the firm. On the
second hand, he seems to refuse also to be completely outside the SME model: see for example his need for
financial independence and his incapability to keep the high level executives he hires regularly (turnover). So,
the absence of choice between both positions constitutes precisely the origin of the current and future
difficulties of “Alpha”.
However, the results issued from this study case reveal some limits inherent to the method used. Precisely,
they are fully valid only for the case studied and their generalization remains a question posed. We make the
hypothesis that this case is exemplary for small sized organizations, managed by their owners-founders and
situated in traditional industries. We must then, on the one hand, replicate the study in similar contexts, and
on the other hand, analyse cases in other different contexts, for example the sector of New Technologies.
Only these new researches will allow us to rule on the generality of the interpretations developed here.
In a general manner, the case of “Alpha” shows that the topic of disruptive strategies must be approached
in a different and specific way in SMEs. In a first step, the more the organization is near the concept of
SME, the more its specificities will allow to develop innovative strategies. It is probably an explanation to the
high innovation capacity of SMEs, while they have R&D budgets too much smaller than those of large
organizations. In a second step, the more the organization succeeds in its disruptive strategy, the more it
looses its specificities as SME and, therefore, its capacity of innovation strategy. This aspect explains why
SMEs which develop on the basis of a strategic innovation lives at a moment or another problems dealing
with competitiveness. We stress on the importance of the following question: how an organization can
develop and maintain in the same time its strategic innovation capacity?
Consequences of International Experience on New Venture Development
Pulkkinen, Johanna
University of Vaasa
The aim of this paper is to analyze the link between international experience of the entrepreneur and top
management team (TMT) and internationalization of new ventures. The focus is at experience as a mediator
of internationalization degree of new ventures through influence on specific decisions explaining their
internationalization pattern. Combining approaches in international business, management, entrepreneurship
and international entrepreneurship fields, three hypotheses are developed and tested with a survey data of
211 exporting Finnish SMEs. The findings of correlational analysis indicate that from seven experience
variables, four are significantly directly related to more rapid internationalization of the new venture.
Independently of the experience measure, in firms where the management has gained some form of prior
international experience this capital has strongly impacted in the decision to initiate international operations
of the current venture. Furthermore, the use of experience in decision-making is related to higher share of
foreign sales of the new venture. The findings of path-analysis in LISREL support two of the three
hypotheses and reveal the mediating role of experience. Analysis suggests that experience-related factors as
strong motives behind decision to start international operations are partial mediators of the relationship
between actual experience-level of the entrepreneur and TMT and the internationalization degree of the new
venture. The implications of findings for both theory development as well as management and policy
makers are provided.
From Linear to Circular Dynamics in the Promotion of Small Businesses
Incubation in Peru
Vargas, Braulio
ESAN, Graduate School of Business Administration, Peru
This article discusses the relevance of incubation programs as instrumental ways for the emergence of new
businesses led by innovative, skilled, young entrepreneurs, specially those living in a developing nation or a
rural environments of developed nations. This perspective of entrepreneurship-based socioeconomic
development aims to promote the creation of a more systemic and collaborative environment to assist the
youth (youth here is defined as people between the ages of 15 and 35) in their new ventures. In the first
section we provide a general view of the difficulties and constraints faced by young entrepreneurs when
trying to create their own ventures. It is seen how young people's lack of adequate support impedes their
ability to run business. It is also pointed out the lack of both formal training and practical experience that
prevents young entrepreneurs from developing competitive skills that would enable them to start their own
business or improve their chances of finding other employment. In reality, they find themselves forced to
accept the type of work that offers increasing informality and underemployment.
In the second part we describe the extant literature of the incubation process and the advantages involved
in deploying specialized, business-supportive activities. This traditional scheme –very well documented in
Europe and the United States– is described as the linear model for incubators. It is argued that a linear
process is largely ineffective in a developing nation, since it only works at a stage where markets and social
and economic actors assemble automatically. That is, the joint action is feasible only in economies where all
actors, including the government, are aware of their role and expected behavior. Intuitively, this is not the
case in a developing country –not even in rural contexts of developed nations.
In the third part we discuss a systemic approach. This occurs when the incubation process is designed to
receive support from committed institutions, which add value at every stage of the process. This alternative
framework is described as the circular model for incubators. It is argued that that successful incubators
will take place only in win-win scenarios characterized by a sense of community and networking,
competitive pressures combined with technology transfer from overseas, leveraging of young entrepreneurs’
capabilities ad skills due to backward linkages with educational institutions, among other elements that
configure a fertile environment to incubate incubation processes.
The paper concludes by discussing how the circular model is better suited for creating incubators in
developing nations, with a special focus on the promotion of new ventures in knowledge-intensive activities
led by young entrepreneurs. Implications to policy makers, economic development leaders, and academicians
are discussed.
The Entrepreneurial Spirit of the members of European Junior Enterprises
Redien-Collot, Renaud
Jesenovec, Mojca
Tulling, Klaartje
ADVANCIA
JADE
JADE
At first sight, entrepreneurial spirit seems to be the basis that attracts the students who join Junior
Enterprises (JEs) 6. As a matter of fact, promoters of Junior Entrepreneurship movement stress the fact that
its members believe in themselves, recognize possibilities, seize opportunities, engage in change, deliver
results, quality and innovative solutions, care about environment, are aware of the consequences of their
action, and search for new ways by utilizing creativity7.
Not-for-profit
Association
Junior Enterprises as independent not-for-profit organizations entirely managed by students trough project
based work bridge the gap between theory and practice. This is an opportunity for students to develop self
confidence and experience entrepreneurship at an early stage, it adds practical experience to the theoretical
skills and provides private business with state-of-the-art knowledge from universities. Trough their
professional work Junior Entrepreneurs engage in self-development and develop considerably their
entrepreneurial skills.
The main purpose of the study is to observe and analyze the development of entrepreneurial spirit among
JEs' members and its present and long-term effects on students and alumni. In the socioeconomic context
of the acceleration of creation and take over of enterprises in Europe, my original intention was to study
whether or not JEs incite a sizeable proportion of its members to become entrepreneurs (creators of
enterprises) or intrapreneurs (developing entrepreneurial spirit within organizations). As many studies about
6
A Junior Enterprise is a not-for-profit association entirely managed by students. Related to their field of studies the students offer
different consulting services to the market; experiencing unique learning opportunities by doing professional project work on the one
side and managing small- to medium sized enterprises on the other.
7
See ‘Connecting Young Leaders and Entrepreneurs of Tomorrow,’ JADE, European Confederation of Junior Enterprises.
entrepreneurial programmes focus on the way students develop this entrepreneurial spirit and the spirit of
enterprise, I expected to find existing data on entrepreneurial spirit of JEs' members and possibly less about
the alumni because of the known difficulty of follow-up. In fact, a review of literature and existing
databases from the EU and OECD8 on different educational programmes failed to reveal any large
systematic study on the members of JEs' movement in Europe9. In addition, the board of JADE 10
emphasizes that it has not been approached by researchers regarding this issue.
Therefore, JADE's members and I are presently conducting a broad survey in 4 steps that takes place
between January and June 2005. It will:
examine whether and to what extent students who currently work in a JE conceive that they have
developed entrepreneurial spirit.
examine how public and private partners who currently work today with JE members perceive their
entrepreneurial spirit and how they compare them with other students.
follow-up the career of former JE members and examine what they perceive has been transmitted
throughout the JE experience in terms of entrepreneurial spirit and what remains of its influence
today.
examine how people who work with/for former JE members perceive them and compare this with
their perception of professionals who have not had the JE experience.
We will furthermore ask whether past or current participants in JEs perceive themselves as having acquired
competences like ability to believe in themselves, ability to recognize and seize opportunities, engaging in
change and delivering results and quality during their engagement in JEs, what these competences mean for
them and how they acquired them. The work environment (partners, colleagues, line managers) will also
state their view weather past and current JE participants posses these competences.
8
See OECD (2003) Education at a Glance: OECD Indicators, 2003 (OECD N° 53175, 2003), Paris: OECD, Retrieved September 10, 2004,
from http://www.oecd.org and Agaliano, A.S. (Ed.) European Union-Supported Educational Research 1995-2003: Briefing Papers for
Policy Makers (European Commission N° EUR 20791), Brussels, Belgium: European Communities, Retrieved July 23, 2004 from
http://www.pjb.co.uk/npl/index.htm.
9
There are few local surveys on the professional evolution of alumni who worked in the JE of HEC and ESCP in France (personal
communication, Mathieu Théreze -- Head of the French Confederation, september 2004)
10
This is the European Confederation of Junior Enterprises located in Brussels.
Track 5: Venture Finance
Women Angel Investors: A Growing Force in the Angel Market
Sohl, Jeffrey
Hill, Laura
University of New Hampshire
University of New Hampshire
There is a limited amount of research on the business angel market, yet it is well known that angels provide
the majority of seed and start-up equity capital to high growth entrepreneurial ventures in the United States.
More importantly, there is a paucity of research on the role of women as angel investors, even though
women are developing an increasing presence in the angel market. Women have become a significant and
growing financial power within the United States over the past twenty years. Statistics indicate that women
have attained significant financial power, and therefore have the wealth required to become major players
within the realm of equity financing of entrepreneurial ventures. But are women considering membership in
private equity organizations as an investment option?
To address the role of women angels, two data sets were collected. First, data was gathered from angel
organizations based on historical information indicating a membership of at least 25% women, or
organizations which had at least 25% of entrepreneur presentations made by ventures with a female
member on the management team. In addition, data on the angel market, collected every six months by
the Center for Venture Research, was used to offer comparisons between women angels and the general
angel population. The data sets collected information for the 2002 to 2004 time period. Data was
gathered using a combination of postal questionnaires and phone interviews.
The angel organizations surveyed represented 236 women investors in 2002, and 292 women angel
investors in 2003. It should be noted that this research represents the first study of women angel investors
and as such is exploratory in nature. However, the high response rate (58%) and the number of women
investors (292) represented by the organizations both lend support to the potential value of the descriptive
statistics. A majority of the groups indicated that the reason for forming was to provide support to women
entrepreneurs and to encourage more women to become involved as investors. Of the respondent contacts
interviewed, half felt that women face a barrier as angel investors due to their lack of experience and
knowledge as investors in general. It appears that women angel organizations are trying to develop their
members by offering educational opportunities. However this practice only addresses the women who have
already joined the organization and not potential women angel investors outside of the groups.
Investment Activity
The majority of the organizations surveyed note that their primary method for identifying investment
opportunities is networking. This indicates that women use social contacts to learn about potential future
investments. The notion of social capital, or the value associated with a given person’s network, is relevant
on both sides of the angel investment relationship. However, gender may have an impact on this notion to
the degree that women typically have different social networks than men do. The results on this social
dimension are mixed, with 30% of the contacts interviewed indicating that they feel women face a barrier
as angel investors because they are on the outside of traditional social networks, and others believing that
women are at an advantage because they have better access to women entrepreneurs and women-led
deals.
On average, each women angel organization had 32 firms present their business concept to their
membership over the course of 2002, of which 33% were women owned or operated. In 2003, on average
about 28 firms presented and 32% of these firms were women owned or operated. In comparison to all
angel groups, these figures indicate that women angel groups appear to be attracting more women owned
and operated firms than angel groups overall. Specifically, in the general angel population, 12% (in 2002
and 2003) of the investments proposals presented are women owned ventures. Thus, women angel groups
are attracting close to three times as many women entrepreneurs than the general angel population
indicating that women angel organizations are providing an important venue for women entrepreneurs
seeking equity capital. However, the degree to which women angel groups miss opportunities or deals due
to their lack of a presence within traditional networks can not be measured.
Barriers and A dvantages for Women An gels
How are women angels at an advantage or disadvantage as investors? To address these issues phone
interviews were conducted with the individual respondents. A third of these individual respondents
interviewed felt that women are at a disadvantage as angel investors because their sources of wealth are
more often inherited than earned. Women angels who have inherited their wealth may not have the
professional experience or credibility of investors who have created their own wealth. Additionally, individual
respondents felt that women are at a disadvantage as angel investors because they tend to be more risk
averse by nature, leading to missed investment opportunities in riskier deals.
However, respondents feel that women angels also possess significant advantages as investors. Nearly half
of the individual respondents stated that they see women as being better at research and more willing to
ask questions and seek information when considering an investment. Also, many believe that women are
more inclusive and approachable, willing to look at deals that might have been overlooked by other
investors. A number of respondents also felt that women are more patient than men, which translates
positively to deals that have long exit horizons, which are quite common for angel investments. Women are
not expecting immediate results and are willing to nurture the investment over its life. Finally, half of the
respondents felt that women are less ego driven and can work more collaboratively as investors. It appears
that this ability to work collaboratively and in a supportive way would have a positive effect in the area of
angel investing, where much of the skill involves working with and supporting entrepreneurs.
Corporate Governance of Venture Capital-Backed Companies
Mezzour, Samyr
Leleux, Benoit
University of St.Gallen
International Institute for Management Development (IMD)
Several corporations use corporate venture capital (CVC) to expand their innovation capabilities. However,
CVC units have often not met the performances expected by their respective corporations. Prior research
evidences that inappropriate governance is a major reason for this. Indeed, the authority that a corporation
exerts by means of its governance interferes with the activities of its CVC unit, thus its performance.
Interestingly, very little has been done so far to understand the governance issues associated with CVC units,
even less with European CVC units, even more less after the last downturn.
CVC units are arguably some of the most exotic entities within the modern corporations, in terms of their
inter-relationship with the outside world. They often reside on the company fringes, roaming both inside and
outside novel territories. The CVC unit mandates, which usually include a combination of technology
scouting, knowledge development and leveraging, eco-system development or hedging of disruptive
technology risks, require them to operate in the fast-paced, high-technology markets in which speed is of
the essence. To provide the ability to operate in such environments, CVC units are often disconnected from
the corporate core and its bureaucracy. In fact, the CVC unit “architecture” (i.e. how it fits in the
organization) has been shown to affect both its culture and its effectiveness. Furthermore, CVC activities are
very long-term activities that need to survive the natural turnover of their corporation executives, to deliver
on its promises.
But how is proper governance organized and maintained in such long-term, free-wheeling boundary
spanning entities? How do companies reconcile their need for tight control and the natural requirements of
flexibility associated with opportunity-creating activities? Are new approaches of corporate governance in
CVC units emerging after the natural selection of the last economic downturn? Can we associate specific
approaches of corporate governance with the organizational formats of CVC units adopted to perform
outside venturing activities?
This research will offer the first comprehensive analysis of corporate governance practices in CVC units
across Europe after the downturn, focusing not only on the organizational structures and practices but also
on the evolutionary dynamics of such units and the emerging trends in “successful practices”. The research
also revisits the concept of associatedness, i.e. how close should a venturing unit be run from the corporate
core from a governance point of view. Furthermore, this research will combine a comprehensive survey of
both the governance and the CVC literatures with an extensive survey of European CVCs through direct
phone conversations, interviews and questionnaires. The survey will focus on emerging practices in terms of
governance, covering issues such as organization and controls, decision processes, definition and
distribution of responsibilities, management of potential conflicts of interest, etc. The key proposition is that
CVC units of major corporations have developed governance structures and processes appropriate to the
“limit conditions” (in terms of control) in which they operate, and that these systems have broader validity
for companies in search of better governance results.
Our study will extend the current stream of research on corporate governance to the relatively unexplored
confines of the European CVC units after the latest economic downturn. The latter represent in some sense
test environments for control mechanisms, having to deal simultaneously with high levels of uncertainty,
multiple internal and external constituencies, and a fundamental need for speed. The research aims to
contribute to the literature in at least three different ways:
a) by providing a first extensive comparison of governance attitudes and practices of leading
corporations towards their CVC unit(s);
b) by linking such systems to performance and sustainability of the CVC units; and
c) by proposing principles for effective CVC unit governance.
Alliance or Investment? – Exploring the Relationship between Venture
Capitalists and Entrepreneurs
Seppala, Martin
Hanken, Swedish School of Economics and Business Administration
This paper explores the alliance aspect of the relationship between venture capitalists (VC) and entrepreneurs
(E). The paper starts by framing the discussion with the guidance of some established theories according to
which the relationship between VCs and Es could be argued to be close to a pure investment (Jensen and
Meckling 1976, Landström 1993, Copeland and Weston 1992). Following Arthurs and Busenitz (2003), it is
argued that a dominant view of the VC-E relationship, based on agency theory, can be limited in certain
aspects. The paper then moves on to discuss how this approach contrasts with the view of the VC-E
relationship as an alliance between two parties, and specifically an alliance based on pooling resources to
maximize the joint value of the parties (Wernefelt 1984, Das and Teng 2000, Eisenhardt and Schoonhoven
1996). Besides pooling of resources, also learning and evolution (Doz 1996) have been highlighted as key
characteristics of a successful alliance. According to this view, the way in which the two firms will maximize
their joint value cannot fully be predetermined. The facilitation of learning and fairness are also central
concepts in an emerging view on VC-E research (Busenitz et al. 2004). The entrepreneurial subjects could
here benefit from some of the latest views on alliance creation. Central in this view is early creating a shared
vision and an understanding of the other party’s business, while over time also creating an atmosphere of
trust and joint accomplishment between the two parties (Seppälä 2004). This paper presents a preliminary
framework based on early findings from a multiple case study research project. The empirical evidence for
the framework consists of contrasting cases (Yin 1994) from two high-technology clusters which are
considered central in a European context (Spilling and Steinsli 2003) -namely Sophia Antipolis in France and
the Helsinki region in Finland.
The paper proposes that in certain contexts an evolutionary alliance view may be helpful in understanding
the relationship between VCs and Es. The paper further suggests several aspects in which the evolution can
occur and of which the entrepreneur should be aware. As such, the paper may be particularly valuable for
Es while planning and negotiating VC funding, while also extending the scholarly discussion into new areas.
External Private Equity Financing and the Growth of New Technology Based
Firms: The Chicken and Egg Problem Revisited
Bertoni, Fabio
Colombo, Massimo G.
Grilli, Luca
Academics and practitioners agree that new technology based firms (NTBFs) that obtain external private
equity financing (PE) grow faster than their non PE-backed counterparts. This especially applies to venture
capital financing. However, this evidence is compatible with two fundamentally different arguments.
On the one hand, the positive relationship between external PE financing and firms’ growth is generally
interpreted as evidence that this type of financing spurs growth. On the other hand, rapidly growing firms
are also more likely both to demand external PE financing and to obtain it, as firm’s growth signals the
presence of great opportunities for investors to realise a sizeable capital gain. In this paper we analyse the
causality relationship between external PE financing and growth in the number of firms’ employees. For this
purpose, we take advantage of a long longitudinal dataset relating to a sample composed by 537 Italian
NTBFs. We estimate survival data analysis models of NTBFs’ access to external PE financing and fixed effects
and GMM panel data models capturing the effect of access to external PE financing on the subsequent
growth of firms.
The results strongly support the view that external PE financing spurs firms’ growth. Conversely, only weak
evidence is provided that firms’ growth leads to a greater likelihood of obtaining access to PE financing. We
also distinguish between different types of PE investors and find that venture capitalists and corporate
venture capitalists differ both in the types of firm they finance and in the effect on firms’ growth after
financing is granted.
Agency Costs, Reputation and Collaboration: Evidence From Syndication in
the Management Buyout Market
Meuleman, Miguel
Lockett, Andy
Manigart, Sophie
Ghent University
Ghent University;
Vlerick Leuven Gent Management
School
Principal Topic
The private equity market is an important source of funds for start-up firms, private middle market firms,
firms in financial distress and public firms seeking buy-out financing. The private equity market has
sustained the development of new businesses and technologies, boosting innovation and growth. One
striking feature of early stage and later stage private equity investing is that investors often co-invest
through syndicates. An equity syndicate involves two or more private equity firms taking an equity stake in a
portfolio company for a joint payoff (Wilson, 1968). The literature on private equity syndication outlines
several benefits associated with syndication. A problem, however, is that previous studies have mostly
neglected potential costs associated with syndication. The purpose of this paper is twofold. First, this study
examines empirically how agency costs between the investee and the investor reduce the attractiveness of
syndication. As non-lead investors mainly rely on the lead investor to monitor the investee, conflicts of
interest and problems of asymmetric information may impose a cost for the syndicate members and hence
reduce the attractiveness to join a syndicate. These cost are likely to be higher the more important the role of
the lead investor in monitoring the investee so as to reduce agency conflicts with the investee. Second, we
look at the role of the reputation of the lead investor in alleviating agency costs associated with syndication.
In line with Podolny (1994), it is argued that the reputation of the lead investor is mainly important when
the underlying investment is characterized by high agency risk.
Metho ds
This study examines investments by private equity firms in MBO/MBIs in the UK over the period 1993 to
2001 using a unique dataset compiled by the authors. The total sample covers 2,017 individual deals. The
dependent variable is whether or not an investment is syndicated. A logit model is estimated using
maximum likelihood.
Results and Implications
The results of this study consistently show that investments characterized by higher agency costs are less
likely to be syndicated. This relationship is moderated by the reputation of the lead investor. Investments
characterized by higher agency costs are less likely to be syndicated by less reputable investors. In contrast,
more reputable investors are more likely to syndicate investments characterized by higher agency costs. This
study has implications for previous work by highlighting potential costs associated with syndication. This
study further stresses the role of reputation in the private equity market.
Venture Capital as a Pattern for Sustainable Social Enterprise Finance
Harrison, Pegram
European Business School London
The development of the Venture Capital Industry in the 1950s is now fairly well studied, with certain factors
emerging as causal determinants for how the industry developed into its current state. These include
industry structures and information asymmetry in the sectors where most investment opportunities arose,
the need for valuation techniques to estimate return on investment, metrics involving non-financial factors,
the importance of scaleable business models, and the importance of exit opportunities. Intriguingly, some
of the same factors are becoming recognized as important in the development of social enterprise
opportunities into viable and sustainable businesses, and specifically for the rise of capital markets to
support the growth and scalability of such enterprises. Though the specific nature of return on initial
investment for a VC is different from the return required by social investors, the general basis of investment
for growth and return is the same.
Are these factors common to both the Venture Capital (VC) industry in the 1950s and the area of Social
Enterprise (SE) in the early 21st century? Is there a real correlation here? Even if the similarity is merely
circumstantial, can something be learned from the history of the development of Venture Capital markets
that might be applied in the development of markets for social enterprise finance? If so, what?
As yet, no specific correspondence has been made highlighting the similar patterns in the development of
certain industries financed by VC and the developmental objectives of certain social enterprise sectors. This
paper posits various factors as hypotheses to be investigated in future empirical work. The evidence used in
this paper includes secondary historical literature on the rise of Venture Capital in the US originally and in
Europe and Asia more recently, as well as primary sources relating to the factors conditioning these rises.
In addition, the paper looks at the growing body of research on SE finance, especially in the UK, where
consistent mention is made of the developmental limits on such organizations and much stress placed on
the factors mentioned above: sources of capital, valuation techniques, performance metrics, exit
opportunities, etc.
These questions address the concerns of this EISB conference: most notably, entrepreneurial sustainability.
They address the shape of a sustainable future for social-entrepreneurial organizations and their sources of
finance, and investigate this through venture capital—a surprisingly comparable industry that is
demonstrably sustainable itself and also a source of sustainability for entrepreneurial organisations.
Rational and Efficiency of Public Intervention in the Field of Business
Angels: Additional Equity, Loans and Guarantees
San Jose, Amparo
Aernoudt, Rudy
Roure, Juan
ESHAL
Given the latest evolution of the venture capital market, public involvement still seems to be acquired in
order to cope with the market failures. Especially at the lower end i.e. seed and early stage, the market
doesn’t function (“small equity gap”). In this context, business angels were proposed in the mid nineties as
the best placed financial agent to cope with the problems of small and new venture financing and fill the
small equity gap. Nevertheless, the European informal market has not yet delivered the initial expectations,
and investment figures seem to be far below their American counterparts. New policy measures, following
the example of initiatives in the formal/institutional venture capital market, are now targeting the angel
market. Additional finance schemes, providing either equity or loans, and guarantee instruments are gaining
momentum at European level. Are these new measures designed to achieve the goal they pursue? How can
we measure the efficiency of these measures? Are there any conclusions to be extracted from current
initiatives in place?
Reasons for the underdevelopment, or inefficiency, of the informal market come from different sources.
Apart from its very private nature and only recent development of networks, the shortage of angel’s finance
can be related to the increasing size of the equity gap for an individual angel and the inactivity of many
potential angels. Also, authors have brought to light the existence of a large category of angels who only
invest once, and termed them as “one night stand” angels.
Accepting the premise that the private sector provides insufficient capital to new firms, public intervention it
is supported on two assumptions, first, than the government can either identify investments which will
ultimately yield high social and/or private equity returns, - a traditionally popular form of intervention in the
institutional/formal venture capital market has been direct investment by public VCs. Alternatively, it can be
assumed that government can encourage financial intermediaries to do so. The later objective pursues to
demonstrate investors that the early stage market delivers attractive benefits in terms of rewards; eventually,
the public sector should withdraw from continuous intervention.
While policy action in the business angel market seems to be justified in the light of scarce activity in
different environments, and the schemes in place are designed to target the deficiencies of the angel market,
the question arises as to whether they deliver the benefits expected. In particular, we seek to analyse the
impact of the public / private co-investment schemes presented above in terms of:
new entrants to investment activity
- participation of qualified individuals and investors
- size of deals
- cost-effectiveness of schemes
- scalability of schemes
As one of the main measures of the effectiveness of the instruments in place we will look at the conversion
rate, that is, the number of virgin angels that have turned into active, the characteristics of the deals closed
in terms of size, sector and stage in relation to deals with public co-investment, and whether the angels
would have invested without the participation of the deal.
A further challenge associated with the design of programmes to encourage individual investors is how to
insure the involvement of value-added individual investors (Lerner 1998). If the conversion of virgin into
active angels is considered to be positive direction, the question rises as to whether these inexperienced
investors might of assistance to the new business they finance. It has been the case that the involvement of
unsophisticated individual investors can make more difficult for a young firm to attract formal sources of
venture capital. Among the desirable characteristics of an angel investor analysed in this paper are the
entrepreneurial experience and background of first time investors.
These first two measures of public involvement above mentioned have important learning implications. It is
known that many potential investors do not invest due to lack of knowledge of the investment process and
risk perception. In business angel investment first hand experience is the most significant source or
knowledge. Further, investing with other individuals might provide a form of “comfort” and reduce risk
perception. Secondly, investment in the company of other, perhaps more, experienced investors will
significantly accelerate angels’ learning.
Business angels are a heterogeneous population, who can be associated to different networks, clubs or
operate out of this structure. As known, they tend to invest locally. Previous research has confirmed that this
is a difficult to target this population. Are the current co-investment schemes able to address this
characteristic? That is, are the punctual instruments or can they have wider reach? If not, is there a potential
for scalability to other regions and areas without incurring in excessive additional costs?
One of the reported benefits of public encouragement and promotion of individual investment through
networks was the positive cost-benefit analysis face to public venture capital instruments. At the time of
this first discussion co-investment schemes between private individuals and public organisations was not
considered. Nowadays, hence, the question has to be expanded to this context as to whether public policy
involvement through co-investment schemes keeps this favourable characteristic.
In this paper we analysed three of the pioneer co-investment and guarantee schemes for business angels.
The first, London Seed Capital is co-investment scheme which provides additional equity to match business
angel financing. Since 2002 LSC has invested in more than 10 deals. The second BA+ is a Belgian initiative
providing additional finance in the form of a subordinated loan, the scheme also offers a guarantee for BA
investment. The third one is i2, this Austrian scheme is one of the oldest in Europe, and provides additional
equity and guarantees. This paper revies these three initiatives along the above proposed measures.
A Dynamic View on External Financing Choices of Growth Oriented Ventures
Baeyens, Katleen
Manigart, Sophie
Ghent University
Ghent University;
Vlerick Leuven Gent Management School
Young, growth oriented companies often develop products and ideas that require substantial capital,
exceeding the internally generated cash flows or entrepreneurs’ own funds. To pursue their opportunities,
entrepreneurs need to obtain sufficient and adequate funding from external sources. A critical question that
growth oriented companies face is whether to raise new funding under the form of debt or equity and, in
the latter case, from existing shareholders or from new shareholders. We study the new issues of a sample
of 191 venture capital backed start-ups and examine what determines their choice between bank debt and
private equity and if private equity is used, what determines their choice between existing and new investors.
We show that the initial VC participation does not fully cover the further external financing needs of the
young high potential ventures in our sample. A majority of the firms in our sample gets additional external
funding, often on more than one occasion. Forty percent of the firms in our sample gets additional private
equity funding. This is consistent with theories on the staging of VC. Staging of capital infusions allows
venture capitalists to cut their losses, if portfolio companies do not perform as expected. Moreover, it allows
ventures to reconsider which type of financing they want to use when they develop and conditions change:
firms may decide to get bank debt or to seek additional private equity funding, either from existing or from
new shareholders. Firms in our sample rely more often on debt, compared to private equity: about half of
the young, high potential ventures in our sample rely on debt only, while most of the other firms use a
combination of bank debt and equity to finance further growth. Although the total number and the total
amount are considerably larger for debt issues compared to private equity issues, the opposite is true for the
amount of individual issues. Private equity issues are typically substantially larger compared to debt issues,
indicating that private equity plays an important role in the financing of equity issuing entrepreneurial firms.
Firms that obtain additional private equity funding are often financed by existing investors. New
shareholders are sought in only one third of the private equity financing issues.
The results of our study are consistent with the implications of the model developed by Ueda (2004). Low
collateral value, high risk and large projects all drive the entrepreneur to finance his firm through private
equity funding, instead of bank debt. Ventures rely more on equity investors when information asymmetries
are high. Firms use private equity from new shareholders to finance intangible assets and activities that
generate little collateral, while firms with more tangible assets are typically financed with bank debt. This
points at the merits that specialised financial intermediaries, such as private equity investors, have in dealing
with information asymmetries. While financial intermediaries such as banks are able to assess the value of
tangible assets, private equity investors, as highly specialised and well-informed inside investors, are better
suited for assessing the value of intangible assets and growth opportunities. The results suggest that debt
may not be available for young, growth oriented firms, unless substantial collateral can be provided.
We further show that information asymmetries are also important in understanding the choice between
new and existing shareholders. Firms get equity from new instead of existing shareholders when information
asymmetries become more important. This suggests that the choice between existing and new shareholders
is not driven by attempts of entrepreneurs to minimize costs of information production or to avoid the
disclosure of sensitive information. On the contrary, the results are consistent with the resource based
perspective: new investors are sought when specialised skills, necessary to screen and monitor growth
options, are likely to be important. This is in line with previous research on the motives for VC syndication
(Brander et al., 2002).
Risk is also found to be important in understanding the external financing choices of entrepreneurial
ventures. Our results clearly indicate that high-risk firms rely on private equity funding rather than on debt.
Hence, our results indicate that private equity plays an important role in financing firms that are at the
higher end of the risk/reward spectrum. Our results also highlight another important role of private equity in
financing young, growth oriented ventures. Consistent with Mayer and Sussman (2005), we find that early
stage firms with important growth aspirations rely on private equity when the use of debt would push them
to excessively high debt levels. This indicates that private equity investors act as financiers of last resort in
that some firms only rely on private equity funding in case debt capacity is exhausted. Our results with
respect to risk also provide insights in why certain firms are financed by existing shareholders, whereas
others appeal to new investors. We find that especially high-risk firms search for new investors. This result
can be explained in two ways. Either by efforts of existing shareholders to diversify their risks. Or it may also
hint at the existence of adverse selection problems between new and existing shareholders in that existing
shareholders have the incentive to open the capital of especially low quality firms for new shareholders.
The results of this study are important for entrepreneurs. Our findings suggest that for a majority of the
firms staging of private equity funding, and hence the fear of further dilution, is not important: about 60%
of the firms does not get further funding or uses only bank debt after initial VC participation. However,
further equity rounds are important for firms with large information asymmetries and high risk of default
and bankruptcy. Those firms should especially expect follow-on equity investments and hence, take into
account further dilution. The results of this study are important for private equity investors. Our study
suggests that private equity investors may act as financiers of last resort in that firms especially rely on
equity when other, more traditional sources of funding are unavailable. This has important implications for
private equity investors. Our results also suggest that a similar problem may exist for private equity investors
who invest in firms previously financed by other outside shareholders. The results of this study are important
for policy makers. This study shows that private equity plays a crucial role in the growth of young, high
potential firms. This is an important reason for governments to further stimulate the availability of private
equity financing for entrepreneurial ventures. Although private equity may be crucial for the growth of some
entrepreneurial ventures, we also show that bank debt is even more important for these growth oriented
ventures. However, there are important concerns about the availability of credit to small ventures. More
research is needed on this subject.
Unbiased Estimation of Economic Impact of Venture Capital Backed Firms
Alemany, Luisa
Marti, Jose
ESADE – URL
Universidad Complutense
Principal Topic
During the last two decades both academics and politicians have argued that firms financed with venture
capital (VC) grow faster, invest more, are more innovative and create above average employment. However,
assertions were based more on intuition regarding the results of those companies achieving an enormous
success. The piece still missing is solid empirical evidence of the existence of a significant impact on the
country’s economy. Gompers and Lerner (2001) identify this subject as one of the unresolved issues of VC.
Two common flaws in previous studies are: (1) they rely on biased samples of limited scope, only including
successful companies and (2) they do not consider the event of VC financing. Two common reasons can
explain these deficiencies. First, lack of data to identify the population. Second, the difficulty to access the
financial information of privately held firms.
The aim of this paper is to advance knowledge of the economic impact of venture-backed companies,
providing empirical evidence to affirm that: (1) VC-financed companies have a greater economic impact
than similar companies financed by other sources of capital; (2) VC funding has a positive and significant
effect on this greater economic impact. For the purpose of our study, the economic impact is measured
through the evolution of employment, sales, gross margin, total assets, net intangible assets and corporate
taxes.
Metho d
The method proposed is the analysis of the evolution over time of the sample’s variables, and a control
group, considering the event of the first VC financing, and the period around it. Two databases are used,
one to identify the target companies and another one to obtain their individual financial information.
Results and Implications
The results obtained show that, on average, VC-backed companies grow faster than the control group for
all variables analyzed. Furthermore, evidence is found of the significant, positive effect that either the
presence or the amount invested exert on the evolution of such items over time.
This paper has several implications. First, it opens up a new line of research. Second, it provides relevant
data for policy makers to justify the measures aimed at developing an environment where VC activity is
viable. More research is needed to study the factors determining the positive effect found in this paper.
The Export Intensity of Venture Capital Backed Companies
Wright, Mike
Lockett, Andy
Burrows, Andy
University of Nottingham
In this paper examine address the question: how and when do venture capital firms affect innovation in
their investee companies? We examine innovation in terms of a firm’s decision to internationalize. In
particular, we focus on the export intensity of the investee firm as a key strategic outcome and analyze how
and when a VC may affect the investee’s export intensity. In developing our model we synthesize resourcebased, path dependency and governance perspectives to investigate how the VC’s contribution to export
intensity will differ according to the investment stage of the investee and the nature of VC involvement
(independent of stage). To examine the issue of the nature of VC involvement we differentiate between the
nature of the resources that a VC may bring to its investee company, in particular, we differentiate between
those that are financial and non-financial in nature.
As venture capital firms extend funds to entrepreneurs in an environment of asymmetric information and
incomplete contracts there is generally considered to be a need for financial monitoring of investees
(Mitchell, Reid and Terry, 1997). Venture capitalists financial resources may include mechanisms such as:
requirements for the provision of detailed and regular budget information as well as the monitoring of
performance through board representation and regular meetings between the venture capitalist and the
entrepreneur (Mitchell, Reid and Terry, 1995). Non-financial involvement is also important. Indeed,
Rosenstein et al (1993) found that entrepreneurs valued venture capitalists with operating experience more
than those with purely financial expertise. Non-financial resources, which are generally at a more strategic
level, primarily concerns developing new strategies, acting as a sounding board, interfacing with the investor
group, etc. (Gorman and Sahlman, 1989; MacMillan, Kulow and Khoylian, 1989).
Our sample of firms covers all stages of investment, from the earliest to later stage expansion and
management buyouts and is drawn from a wide range of European counties. In order to overcome
problems associated with common methods bias we drew on a range of different sources of information in
developing our database of venture backed firms. First, wet drew on two proprietary pan-European datasets
of venture capital backed firms covering early, expansion and management buy-out/buy-in investment
stages that cover the entire period. Second, The EVCA, Europe Unlimited and CMBOR databases provided
firm-level data on industrial sector, investment stage, geographical location, employment size and time since
first investment of venture capital. Third, data related to export-intensity was gathered from on-line
databases such as ONESOURCE. As requirements for the disclosure of export information by private
companies varies across countries, we also requested this information from respondents in the
questionnaire to enable us to use this information where it was not otherwise publicly available. Fourth, we
obtained the names of the VCs investing in each firm from the EVCA, Europe Unlimited and CMBOR
databases and then used EVCA directories to obtain information relating to the international presence of the
VC firms. The culmination of the data collection exercise resulted in a sample of 407 venture backed
companies across Europe.
To analyze the change in export intensity of firms, over time, and in order to control for potential problems
associated with selection bias, we employed the Heckman two stage procedure. Our findings show that
while in general a VC non-financial involvement is positively related to export intensity, we find evidence to
support a path dependence perspective with respect to export intensity. That is, involvement of the venture
capital firm has a greater impact on export intensity the earlier the stage of the venture. In addition, VC
firms’ non-financial involvement has a significant influence only at the earlier investment stages when there
is expected to be a relative absence within the firm of resources and capabilities to enable high export
intensity. We have also shown that changes in ownership and corporate governance may cut across path
dependencies.
Our findings have implications for both researchers and practitioners. For researchers, our analysis provides
interesting insights into an area of VC activity that has hitherto been neglected. This omission is an
important one given the increasing internationalization of markets. For practitioners, our analysis
emphasizes the importance for early stage investors of having the ability to provide valuable non-financial
involvement that can help investees to intensify their internationalization activities. VCs themselves are
increasingly engaging in internationalization activity. The ability of VCs to provide domestic investees with
the ability to increase their internationalization intensity may also contribute to enhancing the
internationalization of VCs.
Do Business Angels Alter the Risk/Return Equation in Early Stage
Investments?
von Liechtenstein, Heinrich
Heukamp, Franz
Herrera, Ignacio
Interest in the role of the informal investor in the venture capital market has increased steadily since the
identification of the business angel (BA) as a source of capital in the financing of business start-ups. In
particular, BAs and other informal investors reduce the so-called ‘equity gap’ – the range in which most
institutional investors will not fund.
Until now, several researchers have concentrated most of their efforts in identifying typical attitudes,
behaviours and characteristics (ABCs) of a BA in an attempt to better understand the informal risk capital
market. Others have highlighted some of the complementarities between investing by venture capitalists
(VCs) and BAs, including co-investing, the provision of funds (by BAs to VCs) and deal cross-referral.
Additionally, there is a large number of research studies on the investment criteria applied by VCs in Europe.
However, it’s difficult to find a research study in which the rationale for VCs to co-invest with BAs is the
central focus, although some of the existing literature on venture-capital finance does bear on the subject.
In addition, there is a relative dearth of research studies regarding the informal investment market in the
German-speaking countries: Austria, Germany and Switzerland. Indeed, appropriate data on Austria and
Switzerland is almost entirely absent.
This paper attempts to reduce these deficits, by developing theory on the value of co-investing with BAs and
by informing that theory through the provision of empirical data on the informal investment market in the
German-speaking countries.
The study was structured around three hypotheses that help explain the VCs perceptions on whether and
how BAs alter the risk/return equation in early stage investments. The hypotheses are:
Hypothesis 1: Co-investment with BAs does not reduce the VC’s perceived risk of a deal
Hypothesis 2: The principal objectives of a BA in a deal relate to non-monetary benefits
Hypothesis 3: Co-investments with BAs do not generate higher IRRs
The hypotheses were tested by conducting a survey of 173 VCs investing in seed, start-up, other early-stage
and/ or expansion stages of venture capital financing in the German-speaking countries: Austria, Germany
and Switzerland. The overall response rate was 75%, or 129 responses. Those responses included 59 (at
least partially) answered questionnaires and 70 negative replies, representing an effective participation rate
of 34%.
The analysis performed confirmed the first hypothesis, showing that, in general, VCs perceive that coinvestment with BAs does not reduce the risk of a deal even if the BA features certain desired characteristics:
almost half of the VCs indicated that they would not lower the discount rate or multiple applied as a result
of such a BA’s involvement.
However, the second hypothesis was not accepted, as the results showed that the main objectives of a BA
in a deal relate to non-monetary benefits: BA goals relating to money seem to be more likely to lead to
‘deal-breakers’ with VCs than goals relating to “influence”. The most frequent ‘deal-breakers’ arose from the
inability of BAs to afford to participate in follow-on co-investment rounds, multiple liquidation provisions
and the rejection by BAs of valuations for being too low and dilutive. Since VCs are also oriented towards
monetary benefits, it can reasonably be inferred from this finding that VC’s goals and BA’s goals are, to an
extent, aligned. In addition, this supports the view that co-investing with BAs can reduce the risk of a deal
because of their ability to monitor investments and so mitigate asymmetry of information and conflicts of
interests between the inside entrepreneur and outside investors. That their goals are aligned with those of
the VC ensures that VCs are better able to trust BAs to fulfil this important function.
This broad conclusion is supported by other findings in our survey. A small portion of the VCs indicated that
BAs should exit deals as VCs enter them; and, astonishingly, not many more answered that BAs should
provide solely cash when co-investing with VCs on a deal.
Finally, the empirical test developed supported the third hypothesis, as most of the VCs disagreed that deals
with BAs typically generate higher IRRs than deals without BAs. This position is also reflected in the fact
that only a small proportion of the VCs stated that they would increase the BA’s equity allocation. That VCs
do not reward the contribution of BAs is consistent with their perception that BAs do not add value. In
other words, even though BAs share much the same objectives as VCs, it appears that VCs feel that BAs do
not reduce the perceived risk of a deal by “keeping an eye” on the management team, nor do they add
sufficient value to increase the absolute return on the investment.
In sum, BAs are effectively useless as far as the majority of VCs are concerned. Indeed, it can be reasonably
inferred from this that the sole reason that VCs in our sample agreed that BAs should exit deals as VCs
enter them is that this is cheaper than buying the BAs out.
Thus, as far as VCs are concerned at least, BAs may not be the appropriate standard-bearers for the further
development of the informal venture capital market in the German-speaking countries.
The implications of this research study are important, as entrepreneurship constitutes a vital competitive
edge in world markets, and BAs are the primary source of equity financing for start-up and early stage
entrepreneurial ventures. By identifying VC attitudes to BAs in the German-speaking countries, this paper will
help VCs to benchmark their own practices with BAs against industry peers, leading to potential
improvements in the risk/ return profile of their early stage deals. In addition, this paper will test the
assumption that BAs are appropriate standard-bearers for the further development of the informal venture
capital market in the German-speaking countries, with important implications for entrepreneurs, BAs and, of
course, government initiatives in the future.
Track 6: Innovation & Technology
How Much Does Informality in Management Matter
for SME Innovation
Cosh, Andy
Fu, Xiaolan
Hughes, Alan
Cambridge University
This paper investigates the impact of management informality on the innovative capacity of SMEs and
examines its interaction with other managerial factors. These questions are investigated using a recent firm
level survey database for 2130 British small and medium enterprises (SMEs) over the 1998 and 2001 period.
We find that higher degrees of formality in management are significantly positively associated with higher
levels of innovative capacity. Movement from informal to formal management practice brings significant
gains in SME innovation performance. Group involvement in strategic decision-making rather than CEO
personal control of strategic and operating decision-making; formal management structure rather than
informal management structure; written business and human resource plans rather than unwritten plans
and tacit understanding; and formal training rather than no investment in training enhance SME’s
innovative capacity. Their impact is shown, however to be complex and varies across size groups. The
innovative effect of formality is found to be most significant in micro firms and in the high-tech sector.
ICT in Established German Small Businesses: Patterns, Determinants and
Impacts on Firm Development Beyond the High Tech Sectors
Rothgang, Michael
Trettin, Lutz
RWI Essen/Germany
RWI Essen/Germany
Background
During the last decade, a multitude of studies dealt with the application of modern ICT and their impact on
firm competitiveness and growth. Firm level research focussed mainly on SMEs engaged in the more
technology intensive sectors both of the industry and service sector. At the same time, even in highly
industrialized states, a rather high overall share of all firms are established micro and very small businesses
in less technology-intensive sectors11, serving mainly local and regional markets. We analyse ICT use of this
kind of firms which belong to industries such as the construction sector, repair services (automobile
mechanic, electrician), woodwork trades (joiner), textile and leather trades (tailor, shoe maker), foodstuff
trades (baker, butcher), medical trades (optometrist, orthopaedic mechanic), artistically trades (e.g. musical
instrument maker, potter) and others like textile cleaner, photographer or bookbinder. For SME dominated
industries certain studies analyse single aspects of ICT usage, such as e-commerce and Internet usage (e.g.
van Beveren / Thomson 2002, Sadowski et. al 2002, Moodley 2003, Santarell / D’ Altri 2003, Piscitello /
Sgobbi 2004). A few studies focus on the full range of possible ICT applications in micro and small firms
(e.g. Morikawa for Japan, 2004 12; Lucchetti / Sterlacchini for the Ancona Province/Italy, 200413). In contrast,
German studies on ICT adoption mostly focus on firms with more than 5 employees (ZEW 2003) or could
not cover sufficiently small businesses in the industries under consideration (IIG 2000). Studies conducted by
chambers of crafts do represent the relevant trade groups and size classes satisfactory. But they remain at
the level of pure description rather than deeply analysing the determinants and impacts of computer usage
(HWK Düsseldorf, ZDH 2000). Moreover, ICT is a quite young cross-section technology and innovations are
introduced constantly and with a high speed. Therefore, the situation in regard to diffusion patterns,
determinants and impacts changes remarkably in short periods and science face the problem to keep pace
with it (Sadowski et al. 2002). As Dohse et al. (2004: 18) pointed out in a recent study on ICT diffusion in
Germany, there is still a remarkable lack of knowledge about the extent and pattern, the determinants and
effects of ICT in the “old economy”.
A im and Research Questions
Against this background our paper aims at analysing patterns, determinants and impacts on micro and
small firm development in German industries, considered to be beyond the high tech sector. As the findings
of other studies indicate, there appears to be no straightforward connection between the adoption of ICT
and the realization of remarkable increases in sales and employment. In fact, the realisation of economic
benefits depends on the changes in organisational structure that go along with ICT use. Hence, in order to
11
12
13
In our study “1 to 4 workers” and “5 to 19 workers” respectively.
Morikawa (2004): n= 5,245 with 52% for the class “1 to 4 employees” and 37% for class “5 to 49 employees”.
Lucchetti / Sterlacchini (2004): n = 168 with 19 % for the class “1 to 9 employees” and 61% for the class “10 to 49 employees”.
understand the impact of this cross-section technology we seek answers for the following detailed research
questions: (1) What are the differences in ICT usage in different industries beyond the high tech sector,
considering the possible fields of application? (2) What are the differentials linked to business size and in
particular to micro firms? (3) Which factors determine the application of ICT significant? (4) Are there
impacts of ICT usage on innovation activities and firm growth? (5) What type of obstacles and potentialities
do exist for ICT usage in micro and very small businesses?
Database and Methods
The paper presents findings on the situation in Germany which draw on a questionnaire survey in the year
2003 and a set of 35 expert interviews in 2001 to 2004. Both the surveys were conducted by the authors. In
order to represent a wide range of SME dominated industries the survey focussed on the craft sector as
defined by law, the “Act regulating the Craft Sector”. According to the spatial, size and sectoral structure of
the through this defined economic sector, a sample of 4,000 craft firms was drawn in cooperation with an
IT company which runs the largest databank on craft businesses in Germany. Since the response rate was
15.5 %, the random sample finally consists of 619 respondents. In comparison to the latest census the
sample represents the craft sector quite well in respect to the regional and trade wise distribution and in
particular the business size structure14.
In our contribution, we illustrate the patterns of ICT applications in established German small businesses. A
descriptive examination of the survey results helps to answer the first two questions. A multivariate Probit
analysis of the dataset permits to answer question 3 and 4 on determinants and impacts of ICT adoption.
Further, the results of the expert interviews provide valuable clues to explain the results of the statistical
analyses as well as in regard to restrains and prospects related to a stronger diffusion of latest ICT
appliance.
S tructure of the paper
The paper consists of six parts. The first part reviews existing empirical and theoretical studies on ICT
application and factors supporting the diffusion of modern computer technologies. Data base and methods
are briefly discussed in the second part. Thirdly we present the results of the descriptive analyses on extent
and pattern of application. Based on the multivariate evaluation we discuss determinants and impacts of
ICT adoption in part four. The fifth part deals with obstacles of ICT implementation. In the final part we
summarize the findings and draw conclusions on ICT policies aimed at fostering advanced forms of
computer usage in established small businesses.
Capability building and learning through networking: some evidence from
Australian high-tech industry
Mohannak, Kavoos
Queensland University of Technology
Studies of capability building and organisational learning through networking have been growing in recent
years. In high-tech industries, small and medium sized enterprises overcome the problem of their resources
by becoming a part of a knowledge clusters and using localised knowledge networks. At the same time
improvement of the innovation infrastructure for SMEs is one of the main political and economical targets
in many countries today. Therefore it is important to understand the workings of such knowledge networks
in order to improve existing clusters or to set up a new, more efficient system. In this regard, the strategic
behaviour and interaction of firms with research institutes, universities and other institutions are at the heart
of the analysis of knowledge clusters and organisational learning.
This paper focuses on the application of an approach for the development of high- technology small and
medium-sized enterprises (SMEs), based on knowledge clusters and cooperation networks. The study
examines capability building and learning in high tech SMEs by focusing at the strategies employed by
small businesses to learn, adapt to technological change, and innovate. The paper will present some
evidence from Australian high-tech industry and will illustrate how the competitiveness of local high-tech
firms and organisational learning will be enhanced by the presence of collaborative institutions and
organisations, such as cluster organisations, professional networks and entrepreneurial support networks,
and through information exchange and capacity building among local agents.
The framework is centered on the relevance of two key concepts for SME development: knowledge clusters
and cooperation networks, recognizing that both are emerging as significant tools to promote regional
14
class “1 to 4 workers” (incl. owner-manager): 47%; class “5 to 9 workers”: 20%; class “10 to 19%”: 16.5%; class “20 workers and
more”: 16.5%.
development and technology innovation through the activation, diffusion and expansion of locally generated
knowledge. In the cluster/network-based approach, both concepts are joined by a focus on interactive
learning and the diffusion of different types of knowledge: tacit or codified, scientific or practical and etc. in
different spatial and organizational settings. That also implies a focus on the emerging field of knowledge
management, that is, the explicit and systematic management of knowledge and its associated processes of
creation, organization, diffusion and applications to create wealth and promote development.
The capacity building and organisational learning in a cluster depends heavily on the ability of firm to coordinate the acquisition, generation and application of relevant knowledge. This is especially true when the
technology is complex or when there is a high degree of technological or marketing uncertainty. In most
cases, the process of organisational learning benefit from the integration of knowledge from several sources
– ranging from different functional and technical specialism to customers and users. In this context, this
paper examines issues associated with capability building and learning in high tech sector with particular
reference to the Australian biotechnology and ICT sectors in Sydney and Melbourne. For the purpose of this
paper, the research was carried out through a survey of biotechnology and ICT firms within the Sydney and
Melbourne metropolitan area. A structured questionnaire was designed and mailed to a sample of firms in
order to map the perceived importance of cooperative networks, linkages, use of innovation support services
and barriers to innovation and learning within the area. The questions were basically framed in two different
ways: (a) 'factual' questions requiring a dichotomous (yes/no) response; and (b) questions which were
answered on scale-type responses, indicating intensity of the linkages, location and importance of the
information ranging from little importance to very important. In addition follow up interviews were carried
out with senior managers from a selected biotech and ICT firms in order to investigate in more qualitative
detail the nature of the innovation process and clustering within the area.
In summary, sample firms reported that firms regularly carrying out R&D through collaboration and
networking that will bring more new products onto the market, achieve higher average rates of turnover and
make a greater contribution towards providing employment. The findings, however, also suggest that not
only horizontal partnerships with research institutions and universities cooperation plays a distinctly
important role in innovation linkages of the sample firms, also vertical relationships with suppliers and
customers seems are important for these firms.
Overall, the necessity to link and network with outside organisations are considered essential for this sample
group. For the large companies, which have resources, experience, capital backing and established
reputation, this is not a question in order to make these connections a relatively straightforward and
common-place practice. In fact, they have become integral to the way business is conducted. However, the
smaller companies need to develop further their connections with universities, venture capital firms, public
research organisations, funding agencies and training establishments. Local competencies in research
institutions or the knowledge producer services can be important source of innovation and learning for these
smaller firms. These institutions could play a far more important role than they do at present. However, as
the research suggest these high technology firms tend to make use more of locally trained skilled staff in
their business and innovative activities rather than rely on other form of collaboration.
High-Technology Entrepreneurship During the Business Cycle
Kitson, Michael
University of Cambridge
Technolo gical Entrepreneurship and the Business Cycle
Recent advances in the literature have led to a much deeper understanding of the dynamics of the
entrepreneurial process. But one important area has remained on the periphery – macroeconomic change.
The entrepreneurial process takes place in a changing and often volatile macroeconomic environment –
where the rates of economic growth, inflation and unemployment are changing as well as other indicators
such as interest rates, exchange rates and stock market valuations. Yet, the implications of such changes
for entrepreneurial process are largely ignored despite such volatility underpinning Schumpeter’s explanation
of the entrepreneurial process.
The aim of this paper is to consider how changes in the macroeconomy influence the development of high
technology entrepreneurship. By analysing trends in the UK biotechnology sector it considers whether
developments and commercialisation of technology was influenced by short-term economic fluctuations.
Metho d olo gy
The project used ‘real time’ case studies to analyse how companies were responding to changing economic
conditions and shocks. This approach allowed tracking of the behaviour of 14 firms every 2-3 months
using interviews with the companies in the sample combined with other data sources which provided details
on corporate activities and finance. The benefit of such a methodology was that it allowed relevant issues to
emerge and provided first hand information on causality that is unavailable in aggregate data and it
generated a close familiarity with the firms and their circumstances.
Entrepreneurial Responses to the Economic Change
The firms in the study were tracked from early 2002 until the end of 2004. One of the most prominent
features of the period was the depressed state of equity markets. Overall, the valuation of technologybased firms fell by approximately 75% from their peak in 2000 to the start of the study period; they
continued to fall until early 2003 before showing a modest recovery.
All the entrepreneurs in the study reported that one economic variable has had a very important effect on
biotech firms: the change in stock market valuations and the impactions for biotech financing.. The
repercussions of the fall in the stock market were a collapse in exit rotes for financiers (mainly venture
capitalists), a radical fall in the valuations of biotechnology firms (some of the firms in the sample were
valued at less than the value of their cash assets), and limited finance for product development.
What was the effect of the bursting of the financing bubble on the entrepreneurial process within biotech?
A binary distinction can be made between those firms dependent on the capital markets for future viability
and those with other means of cash generation. If a firm had large enough cash reserves and revenue
streams for several years’ worth of cashburn for its development programme, then it felt relatively insulated
from the changes in the capital markets.
Those firms facing prospective liquidity constraints responded in a variety of ways. First, they tried to
generate finance through increasing revenue streams. This was to help finance research but was also
considered important to signal to financial markets that the firm was a revenue generator.
A second approach was to reduce cashburn. The so-called ‘discipline of expensive hard to get money’ was
considered an impetus to improve efficiency. This involved reducing headcount, the number of projects and
attempting to reduce costs from the supply chain. But in some cases it was considered that there were
technological constraints, or a minimum efficient scale, which limited the extent of feasible cost reductions.
A third approach was to alter the business model in response to the demands of the financial sector in
order to obtain finance, albeit on considerably less favourable terms than during the height of the bubble.
The traditional model of private equity funding for biotech was for firms to receive up to four years’ worth
of capital and if the targets for technology development had been successfully met, then further funding
would be allocated for the next development stage. The change in financial markets affected how venture
capitalists (VCs) invested and what firms did in response. With the drastically reduced opportunities to exit
from their investments the VCs needed to conserve the cash burn of their investments. It became apparent
from the firms were responding to the changing needs of the VCs and altering their business models.
The fall in valuations and the lack of prospective exits caused VC to continue financing companies with later
stage technologies that were closer to market. These were perceived to be lower risk with greater potential
for an eventual exit. The private biotech firms responded by dropping their earlier stage technologies to
concentrate on later stage products nearer to revenue. The decrease in appetite for risk in the markets has
skewed the technology value further from early stage towards later stage. Additionally, the changes in
financial markets resulted in VC financing shifting from the less proven model of platform technologies to
the more proven model of drug development.
The difficulties in raising finance resulted in changing labour requirements in the firms in the sample.. The
remaining entrepreneurs all needed to devote much of their time and energy to raising cash from the
markets. Due to the highly capital intensive nature of biotech and its dependence on external financing, the
growth in biotech company formation also created a ‘monster that needed feeding’ with massive shortfalls
at the industry level between the biotech industry’s ongoing cash needs and the capital supply from the
money markets.
Conclusions
The retrenchment in financial markets has created a funding problem for the biotechnology industry. It is
estimated that in 2004 there is a one billion Euro funding shortfall among European bioscience companies,
of which 50-70% lies in the UK. There has been much research highlighting that structural financing gaps
exist for high technology firms. Our research suggests that such financing gaps increased during the
downcycle – and this may have permanent impacts on the commercial exploitation of such technologies.
Sustainability of Regional Initiatives for Technology Entrepreneurship
Phillips, Fred
Maastricht School of Management
Many regions have attempted to emulate Silicon Valley. Some of these efforts have shown good results,
some are ongoing and remain promising, and others have been short-lived. The paper will present cases
drawn on the author's roles in the Austin and Portland (Oregon) technopolis efforts, his consulting
experiences, and the Technopolis Times database, and advance hypotheses concerning the
sustainability/persistence of regional technology entrepreneurship development initiatives. Where other
literature explores the critical success factors for aspiring techno-regions, the present paper focuses on the
initiative process itself, and the mechanisms that keep them going.
Sustaining Innovations through Rites of Passage
Kirk, R David
University of Dundee
How are scientists motivated to become innovators and business entrepreneurs? How is their ignorance of
required fields of competence resolved and how are the resistors associated with the uncertainties of career
change and doing something new overcome? Satisfying industry tests (R. Cooper, 1994) against technical
and market/business criteria are pre-requisites to making resources available to the intending entrepreneur,
more-over they also serve as rites de passage for the individual serving to provide witnessed
acknowledgement of achieved status and a feeling of personal success. In short the tests sustain the
individuals’ endeavour.
This paper explores the networking processes and social mechanisms by which scientists/technologists may
become business entrepreneurs. Of particular interest are the learning processes which equip these
individuals with required understanding of institutional, business and market requirements, and how
normative mechanisms associated with networking processes sustain such individuals drive to re-align their
career focus from that of scientist to the role of entrepreneur. The entrepreneurs who are the subject of
study are active in the biotechnology industry. This is an industry emerging as a result of the new scientific
knowledge and techniques established in life science research. These knowledge advances provide key
resource materials for the emergence of the industry. The industry is defined in the terms of an industrial
community (Van de Ven, 1989). The entrepreneurs studied are active in the context of a regional
development infrastructure, that of the Scottish biotechnology industry. In this dynamic industrial
community, small firms can enter using the learning advantages acquired from pre-commercial scientific
research to realise an innovative advantage. However, the acquisition of additional knowledge is required if
the intending scientist-entrepreneur is to create a new business capable of earning sales and a share of the
market.
In this study entrepreneurship is defined widely – the study “of how, by whom, and with what effects
opportunities to create future goods and services are discovered, evaluated and exploited.” (Shane and
Venkataraman, 2000:218). Accordingly the process of entrepreneurial innovation which these individuals
have undertaken is viewed as an evolutionary journey of personal learning and role-competence
development. The scientist-entrepreneurs have pursued the commercialisation of ideas based on scientific
knowledge. The process has required their acquisition of new knowledge of user markets, business start-up
and their maintaining the motivation to change their primary role-identity and to establish their personal
credibility as start-up entrepreneurs.
The new institutional perspective (Van de Ven,1999, 2002) is used to examine the function of the social
contexts within which the individuals acquire their understanding of innovation processes and business
venturing. The progressive phases of the innovation and commercialisation process (Tidd, Bessant and
Pavitt, 2001) are associated with networks of individuals and organisations (Cooper, 2002) which are
useful to the needs of the participating actors engaged in the mastery of that phase of
innovation/commercialisation. Key phases of initiation, development, and implementation appear
associated with networks of differing specificity and actors.
Collison and Gregson (2003) distinguish three types of network that may be found addressing the needs of
entrepreneurs at differing stages of the innovation funnel. These are:
i.
ii.
Networks that aim to maximise regional connectivity to improve the level of interactions likely
to lead to the formation of new businesses.
Networks of associated ‘experts’ which apply ‘intelligent’ filtering to select the most promising
innovations for further attention.
iii.
Networks of ‘professionals’ which engage to directly mentor and assist the development of the
new business.
These networks serve to put the emerging entrepreneur into contact with sources of required institutional,
resource, proprietary and market knowledge.
The networks have established mechanisms to enable individuals to gain access to such resources and also
mechanisms by which the credibility of the individuals is established and their transition from the status of
scientist, to that of active-innovator, and then to start-up entrepreneur is confirmed. The operation of such
normative mechanisms through which the emerging entrepreneurs gain legitimacy is considered. The
importance of the rites de passage (Van Gennep, 1960) operating within these networks and stages of
innovation not least in re-assuring the individuals of their requisite possession of required competences and
the worth of their endeavours is examined. As such the paper assesses the extent to which the social
context of the industrial community facilitates the entry of new entrepreneurs and the role played by the
rites de passage in the innovation and commercialisation processes in guiding and sustaining the drive of
the emerging scientist-entrepreneur.
The research fieldwork has involved interviewing a number of scientist/entrepreneurs to establish case studies
of their learning journey. Particular interest is given to identifying the particular sets of personal
competences that these individuals view as valuable in their role as entrepreneurs. And to establishing the
turning points in their process of role transition that in hindsight when they recognised that they had
acquired an acceptable level of such competences.
The fitness of a new entrepreneur to be accepted by the industry depends on how the attributes of the
entrepreneur are perceived to correspond to the criteria held by the stakeholders established in the industrial
community. The extent to which the perceptions of key competences are consistent with the perspectives of
the outlooks of key individuals controlling the outcomes of the legitimising mechanisms has been explored,
again through interviews held with a number of such key individuals.
Spin-offs as a University Technology Transfer Strategy: Lessons from
European Best Practices
Bikfalvi, Andrea
Condom Vila, Pere
Universitat Rovira i Virgili
Universitat de Girona
Valls Pasola, Jaume
Universitat de Girona
Introduction
The essential importance of science and its outcomes in a country’s economic competitiveness is widely
recognised. In Europe, in a context of strict public deficit control, emphasis in recent decades has been on
the role of public research in responding to national needs. The role of the universities has changed
dramatically. At the start of the 21st century, the universities are undergoing a second major revolution
exploring a third function: they must now promote economic development through university-company
technology transfer. In addition to providing qualified human resources, the university’s contribution to
knowledge transfer through teaching, through joint university-company research projects, through services,
consultancy work and company or spin-off creation.
Objectives
Study of this area has identified shared mechanisms in which technology transfer management or support
unit plays a central role. We define as main objectives of the present paper: modalities of universitycompany R&D transfer and spin-offs insisting and describing push and pull modalities, the role of the
researcher and the scientific community, spin-offs definition, typologies, factors influencing the success or
otherwise of the spin-off, etc. These aspects are collected and analyzed through eleven case studies of
universities whose technology transfer actively employs the spin-off mechanism. The final purpose is to
draw conclusions regarding the factors that favour spin-off success, the legal framework and lessons for
innovation policies.
Metho d olo gy
Our analysis is based on eleven case studies of European universities which are especially active in the area
of spin-offs. Heads of technology transfer and spin-off support units in these universities were interviewed
in 2002. The interview was supplemented by exhaustive analysis of information provided by the institution
or available on its webpage. There are universities from Sweden, Ireland and the United Kingdom. The main
mechanisms employed by the technology transfer units analyzed are technology patenting and spin-off
creation. These units are assigned specific functions into which their generally limited resources are
channelled.
Proactive in outlook and approach, they focus on detection and evaluation of university technologies with
market potential and, above all, on provision of the specialised service needed to bring these technologies to
the market.
Results
The university's decision to invest in new research-based companies is motivated by three main reasons:
technology-transfer reasons, economic reasons and researcher reasons. The results can help in concreting
lessons learned from university spin-off strategies. In these lessons we refer especially to aspects related to
spin-off associated risks, location of spin-offs, economic returns and universities as stakeholders, as well as
to a new technology transfer office.
• Associated risks concern to the university’s relation with the spin-off, economic problems and
company performance
• Location of spin-offs: university authorities, responsible for establishing a model for spin-off
support programmes and drafting the relevant regulations, must bear in mind that it is not
necessary for the main researcher to leave the university in order to establish the spin-off
• Economic returns and universities as stakeholders: the cases we have studied highlight the
importance of the university being a stakeholder in its spin-offs. The best approach for the
university is to accept shares in return of support provided, for university permits, for the fact of
being a spin-off, etc., and, secondly, to grant the spin-off a license for the use of technology.
Income resulting from the licensing is distributed in accordance with the institution's royalty’s
policy, invariably allocating a significant proportion to the main researcher; while income arising
from shares held is allocated to the institution alone. The universities, via their technology transfer
offices, must have the necessary resources for participation in the management of their spin-offs,
with a twofold purpose: control and support
• The new technology transfer office: within the present framework of “academic capitalism” and
entrepreneurial universities, the technology transfer offices are confronted with a strategic problem:
they must define their marketing approach and strategy, adapted to this new framework. The
technology transfer offices studied channel their efforts through patents and spin-offs. They
represent a new model of technology transfer office. They are assigned a highly specific set of
objectives, to which they devote their generally limited resources. Their task entails proactive
detection and evaluation of university technologies which have market potential and, above all,
application of specialised services enabling transfer of these technologies to the market.
Discussion and conclusions
There are many types of technology transfer office and spin-off support units, yet study of these cases
indicates that they share certain key characteristics. We have focused especially on the characteristics and
approaches of technology transfer units within universities which are exceptionally active in the field of spinoff initiatives. This only represents the tip of an iceberg of an unstoppable process taking place in all
universities with a significant level of basic research. The support provided to spin-offs entails new
management, funding and organisational modalities which have the effect of changing traditional practice
and in many cases leading to major organisational change. The overall aim is efficiency and the application
of criteria of entrepreneurial excellence in keeping with the dynamic new profile of the entrepreneurial
university.
Capturing and Appropriating Value from Innovations for Small Businesses
Duhamel, Francois
Reboud, Sophie
Santi, Michel
HEC School of
Management
Ecole Supérieure de
Commerce de Dijon
HEC School of
Management
In this paper, we aim at developing a general framework of value capture and value appropriation to help
innovators derive an optimal value from their innovations. The framework has been developed particularly
for small businesses that often need more complementary resources than large companies to sustain the
commercialization of their innovations. We describe the determinants of the choices of innovators in
capturing and appropriating value streams from innovations, namely: autonomous expansion, shared
expansion, licensing-out the innovation, selling-out the innovation, and withdrawal. We argue that these
choices are determined by specific r ent configurations, the concept of rent configuration being defined
as a specific set of volume, rate of profit, and duration of the rent derived from the innovation. Rent
configurations depend on environmental factors, as well as the intra industry competitive situation of the
innovator, and access to critical resources at a given point of the unfolding of the innovation. In this article,
we also develop the example of two high-tech small business ventures to illustrate our framework and the
type of recommendations in term of value appropriation that can be derived for this kind of companies.
The Effects of Owner Identity and Financial Markets on R&D Investments.
A Study of Western European Firms
Munari, Federico
Oriani, Raffaele
Sobrero, Maurizio
University of Bologna
The relationship between corporate governance structures and innovation has attracted the attention of a
vast community of scholars coming from different disciplinary perspectives (for a recent review see Munari
and Sobrero, 2003). The interest is far from being confined to the Academic world or to specific economies,
as suggested, for instance, by the European Union white paper on European Governance (Commission of
the European Countries, 2001).
In this paper we refer to some critical characteristics in the corporate governance systems - such as the
influence of institutional investors in the national stock markets, the degree of ownership concentration and
the identity of large shareholders – in order to assess which kinds of governance structure are more
conducive towards innovative activities.
Schumpeter’s seminal work on the economics of technological innovation, contrasting and comparing the
role of small entrepreneurially based firms and that of large and widely held corporation contains several
aspects which were developed and partly tested. First, different governance structures can be comparatively
less efficient in addressing the classical asymmetric information problem characterizing technological
innovation activities. Second, given the inherently risky nature of new technology based programs, the proper
alignment of principal and agent incentives is critical to ensure a correct allocation of resources to R&D
activities. Third, firm-level structural arrangements are profoundly affected by the external institutional
environment, which might influence the cost of capital to support innovation-related activities depending on
the characteristics of both investors and financiers.
The main purpose of this paper is to develop new theoretical insights and offer a widespread empirical test
on the different effects related to these three general issues. To this purpose, we analyze a unique database
reporting information on the governance structures and R&D investment levels of 701 firms that were
publicly traded in France, Italy and the United Kingdom in 1996. Our contribution is threefold. First, we
extend the analysis on the relationship between the ownership concentration and R&D investments to
publicly traded firms operating in selected Western European countries, since previous studies have only
focused on the U.S. context (Baysinger et al., 1991; Hill and Snell, 1989). Second, we assess whether the
relationship between ownership concentration and R&D investments is influenced by the characteristics of
the capital market on which firms are publicly traded, with particular attention to the role of institutional
investors. Third, we analyze whether differences in owner identity influence the level of R&D investments. In
this respect, we intend to complement previous research (Bushee, 1998; Kochhar and David, 1996; Zahra,
1996), which has largely focused on a single category of shareholders – institutional investors – and
completely ignored the role played by other types of shareholders. More precisely, we focus on three
categories of investors, which substantially characterize the ownership patterns of Western Europe (see
Faccio and Lang, 2002): government, families and financial institutions.
In our empirical analysis, in order to control the potential selection bias arising from discretional R&D
disclosure, we adopt the censored regression model with a stochastic threshold described by Maddala
(1983). The results provide several interesting insights for the questions investigated. First, the presence of a
higher share of institutional investors in the national stock markets is negatively associated with widely held
firms’ R&D investments. This clearly implies that the relationship between ownership concentration and
innovation can not be fully understood if country-specific factors are ignored. In particular, the propensity to
invest in R&D of widely held corporations can significantly change between Anglo-Saxon and Continental
European corporate governance regimes, which are characterized by different investors with different
investment horizons and trading behavior.
Our findings also show that the identity of large shareholders affects firms’ R&D investments. Familyownership was negatively and significantly associated to R&D investments, consistently with our predictions
of a limited risk-propensity of this kind of controlling shareholders. Similarly, a negative impact on R&D
intensity was also found for companies in which the largest owner was a widely-held financial institutions.
On the contrary, we did not find support for our hypothesis concerning a positive impact of the State as a
controlling owner on R&D.
Unlocking Innovation in UK Universities: The return on Investment made
by UK Government
Logan, Julie
Cass Business School, City University
UK public sector investment in research and development in 2002 was 0.62% of GDP compared with an
average of 0.82% for Sweden, Germany and France. Private sector funding also lagged behind these
countries. Total funding for research and development as a percentage of GDP is a long way from the
European Union target of 2.5% by 2015.
The 2001 UK Government White Paper 'Opportunity for All’ focuses on the need to move away from our
current low value manufacturing and service base towards high value innovation processes.
Entrepreneurship and innovation are seen as the key to both economic development and wealth creation.
Substantial funding has been made available to the higher education sector. During the past five years we
have seen the launch of a variety of initiatives aimed at unlocking innovation within UK universities. These
have included the Science Investment Framework; the Higher Education Innovation funding scheme; the
launch of 13 Science Enterprise Centres; the provision of University Challenge funding; and of funding for
Knowledge Transfer Partnerships. All these initiatives are intended to improve the UK science base and
support the commercialisation of science and technology.
This paper examines the impact of UK government policy upon the university sector. It evaluates both the
return on investment, and the impact upon people working in universities, particularly those engaged in
academic research. The findings will have implications for other European universities, as governments
increasingly determine that universities hold the key to knowledge creation and wealth generation.
We evaluate first the number of new spinouts and licenses created as a result of government funding to
universities, and the financial return that the commercialisation of research has contributed. Secondly, the
paper reports the results of a current in-depth study of more than 50 academic researchers who, as a result
of government policy, have been encouraged by their universities, to undertake more entrepreneurial and
innovative activities. The study examines their attitudes towards these initiatives, and whether, as a result of
the knowledge creation agenda, they feel better equipped to meet the new challenges that have arisen, to
teach entrepreneurship, work with business and commercialise their research.
Why do incubators succeed?
Gray, John
Nlemvo, Frédéric
University of Western Sidney
Troyes Graduate School of Management
The Journal of Business Venturing (JBV) January 2005 edition was dedicated to the analysis of science parks
and incubators. All the authors in that edition expressed a similar research question as we pose in our title,
but in obverse form. They were interested in why science parks and incubators fail. We concentrate upon
incubators only and we posit that because success is unlikely, cases of success deserve special attention for
theory building and to provide bases for generalised empirical research. Phan, Siegel and Wright (2005:
166) noted that, “ ….it is evident that …incubators take place in different environmental and institutional
environments, which are …dynamic. …there is a need for further development of a structural contingency
perspective that relates different types of ...incubators to different contexts.” Given the emphases on market
and institutional contexts, it is unsurprising that they also noted that institutional theory has rarely been
applied to incubators.
These issues excited our interests as one of the authors has recently completed a three-year project on
Australian law firms, which combined institutional theory and aspects of structural contingency theory. It
sought and found configurational fits of context and organising processes (Malhotra, Hinings, Gray,
McAllister 2003). Gray (1999) had previously set out components of success in this tightly coupled field of
law firms. Whilst Gray and Hinings (2003) had demonstrated that institutional theory can be used to
empirically track change (and success) in this field, by applying Greenwood and Hinings (1996) much-cited
piece to an eight-year case study of a law firm and its context. They showed a configurational fit between
the context of the firm and the organising processes of the firm. So, this seems to be an instance in which
a method and theory used in one field may apply in another. The immediate difficulty is that law firms
operate in a tightly coupled field, whereas the degree of structuration of incubator fields will vary.
We were encouraged also by work done in North Carolina on high performing incubators (Williamson,
2003) which sought to identify precursors for success and evaluation measures for incubators. That is, the
state and local governments invested millions of dollars over 15 years support North Carolina’s 24 small
business incubators, which seek to nurture small businesses and create new jobs within the state. The paper
gauged the likelihood that those incubators would produce successful businesses that are financially viable
and self-sufficient, based on their adherence to nationally identified precursors of successful, highperforming incubators. Whether the promising results of this analysis deserve to be generalized using
different contexts, they are definitely significant for three reasons. First, precursors of high-performing
incubators identified in the study can be used as guidelines when establishing or structuring an incubator.
Second, evaluating North Carolina incubators according to these precursors revealed areas of strength and
weakness that may inform future funding decisions made by state and local government agencies,
foundations, non-profits, and private firms that are asked to provide support for the development of
incubators. Finally, comparing current incubators with a set of precursors of success revealed areas that
warrant attention as officials attempt to increase the rate of success for incubators.
Our tasks then are to set out a theoretical framework and a method by which we will investigate the
question, “Why do incubators succeed” and to locate this clearly in the literature. We do so at this
conference to invite critique before we go to the field. The paper therefore defines incubator and success. We
then attend to method by delimiting this study to an initialising task, in which we study three cases of
incubators described as successful and tightly coupled by a referent group of Technopole experts in France.
As we have now defined the study so that it is as a sibling to Gray’s previous work on law firms, we set out
the method he has used (Malhotra, Hinings, Gray, McAllister 2003). This relies on deep case studies of an
ethnographic nature and field level quantitative studies. A real issue is the connection between the
intitialising study and the field study. The law studies used well-established variables that had been
operationalised from structural contingency theory. We believe that these variables should fit in the
incubator study that we plan to conduct. Even though it will emanate from the initialising study we set out
the variables as we expect to use them in this paper so that we can use this conference to refine our work
prior to entering the field for the initialising cases.
Track 7: Corporate Entrep reneurship
From the Employee’s Perspective: Autonomy, Teamwork, and Corporate
Entrepreneurial Culture
Monsen, Erik
Ford, Randal
Boss, R. Wayne
Max Planck Institute for
Research into Economic
Systems, Jena, Germany
University of Colorado
at Boulder, USA
University of Colorado
at Boulder, USA
We investigate the under-examined role that individuals and teams play in corporate entrepreneurship by
addressing two questions. First, what impact does an entrepreneurial organizational culture have on
employee attitudes and performance? Second, what role do autonomy and teamwork play in an
entrepreneurial organization? We collected data from an innovative public healthcare organization through a
survey of all organizational members, from executives to front-line employees, in addition to archival data
and interviews with key players. Using structural equation modeling, we analyze the impact of elements of
entrepreneurial culture on role ambiguity and organizational identification for 2001 respondents. Consistent
with social identity, empowerment, and organizational learning theories, we found substantial differences in
the organizational and entrepreneurial nature of work groups, contingent upon individual perceptions of
autonomy and teamwork in the work group. These results in turn suggest differing prescriptions for
improving both employee performance and quality of work life, based on individual and group dynamics.
This research has implications for the customized design of more successful corporate entrepreneurship
programs that maximize benefits for both firms and employees.
Corporate Spin-offs in the independent Incubator
Gullander, Staffan
Nouira, Semir
Linkoping University
Linkoping University
Corporate venturing deals with existing firm’s efforts to develop new business in non-traditional areas by
different means, often by establishing new separate organizational units located outside the focal
corporation, or through more virtual arrangements. In this paper we study a rather unknown location of the
venturing activity, namely in a third party incubator. This environment offers a number of advantages to
traditional organisational arrangements. In the paper we describe a corporate venture unit of a particular
company, and also the outsourced spin-off project located in an incubator. The case is analysed in reference
to existing literature on corporate venturing and incubators. The analysis comprises the venturing unit, the
spin-off project in the incubator, and the incubator itself. The case study is concluded with a
recommendation on the pros and cons to all three actors of such domiciled location of spin-offs.
For more information, please visit our website:
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Sustaining the Entrepreneurial Spirit Over Time

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