Nascent entrepreneur
Nancy M. Carter
The term ‘‘nascent entrepreneur’’ has been added to the literature in the past ten years as researchers focused greater attention on under standing the earliest stages of organization emergence (Carter et al., 2003). Studies showing that new businesses provide profound social and eco nomic benefits stimulated researchers and policy makers to learn more about how new businesses come into existence, how many were being formed, at what rate, and information on the individuals who were starting the businesses. Previous research had relied on retrospective reports of entrepreneurs who already had their businesses established to relate how the entrepreneurial career choice was made, the processes of early creation and launch, and why some start up efforts were successful while others were discontinued. Concern about the validity of the reminiscences of new firm owners to reflect organization emergence led to efforts to studynascent entrepreneurs – individuals who were actively involved in business start up activities.
Identifying individuals actively engaged in the creation of new organizations is not a trivial issue. It is both time consuming and expensive. Because a business is not yet tangible, typical sampling frames for studying new firms – like business registries or census data – are not useful for locating or determining exactly who is a nascent entrepreneur. Simply put, ‘‘nascent entrepreneur’’ refers to individuals, or teams of individuals, who are initiating activities intended to culminate in the start up of a new business. These individuals come from two potential sources: the population at large and existing businesses. Individuals in the population who decide to start a new business are referred to as ‘‘independent nascent entrepreneurs.’’ Those starting a new business or new venture for their employer as part of a current job assignment are referred to as ‘‘corporate nascent entrepreneurs.’’ Both groups are referred to as nascent entrepreneurs and undertake a series of activities to enact a new business, including the assembly of resources using social networks.
The process of organization emergence (see figure 1) involves four stages: (1) start up intentions; (2) gestation; (3) infancy; and (4) adolescence; and four transition points: (1) conception; (2) discontinuance; (3) firm birth; and (4) firm growth. All of these stages and transitions are affected by the social, political, and economic context where emergence is occurring. Nascent entrepreneurs are the primary actors in the first two stages and the first three transition points in the model.
The first stage of organization emergence rep resents the stock of all individuals with an intention to start a new business and who act on that intention. During this stage of emergence, the question is about what qualifies an individual as a nascent entrepreneur and whether these individuals are different from others in the general or business firm populations.
Researchers have applied numerous criteria for determining who is a nascent entrepreneur, ranging from requiring only that individuals have given serious thought to starting a business (Usbasaran, Westhead, and Wright, 2001), to requiring that individuals satisfy a series of progressive conditions before qualifying (Reynolds and White, 1997). The Panel Study of Entrepreneurial Dynamics (PSED), a multi university initiative to study firm emergence, applied one of the most comprehensive sets of qualifying criteria (Gartner et al., 2004). The collaborative project specified three conditions
Figure 1
Source: adapted from Reynolds et al. (2004)
that a nascent entrepreneur must meet: (1) participation; (2) current involvement; and (3) ownership; and a further refining condition: (4) autonomy. To meet the first two criteria, individuals had to report that they were actively trying, either alone or with others, to start a new business and that at least some of their start up activities had occurred during the past 12 months. Recognizing that there is an upper limit to the level of activity before the entrepreneurial effort transitions from nascency to an infant new business, the PSED specified that any initiative that had achieved more than 3 months of positive cash flow that covered expenses and salaries for the owner/manager was an infant business. Individuals who had developed their start up effort to that extent were disqualified as nascent entrepreneurs.
PSED respondents who demonstrated that their involvement in the start up process qualified as active involvement were then required to demonstrate further commitment to the start up through the investment of money. The investment of time, while necessary, was not sufficient by itself. Because ownership was defined as full or partial ownership, it was possible that in some instances another business – non persons – might have majority control of the new initiative. To be designated as an ‘‘autonomous nascent entrepreneur,’’ the PSED specified that a start up initiative could involve no more than 49 per cent ownership by other businesses. This refinement of the definition ensured that a nascent entrepreneur, or a team of nascent entrepreneurs, controlled the creation effort.
Once an individual qualifies as a nascent entrepreneur, organization conception is said to have occurred and the nascent entrepreneur transitions into the second stage of the emergence process: gestation. During the gestation stage, nascent entrepreneurs are seen as the architects of the start up and who engage in assembling and investing resources to create new products, identify new customers, or ac quire new skills and knowledge in an effort to establish the new business. Questions of interest to researchers about the gestation stage focus on determining how nascent entrepreneurs go about the process of starting the business. For example, how many and what types of resources are invested? How are these resources accumulated? What are the characteristics of individuals involved in the start up process? How long does it take to get the business up and running, or before the nascent entrepreneur gets discouraged and gives up?
Nascent entrepreneurs transition out of the gestation stage either when they succeed in get ting the business established, or when they give up and abandon the start up effort. These two transitions are represented in figure 1 as firm birth and discontinuance.
Variation within the Population
From a population ecology perspective, nascent entrepreneurs’ intentions and activities and the contexts of their start ups constitute a major source of organizational variation (Aldrich, 1999). Other criteria for defining what qualifies an individual as a nascent entrepreneur provide additional explanations for the population variation. For example, is the nascent entrepreneur a novice entrepreneur (individuals with no prior business start up experience); a habitual entrepreneur in the process of starting yet another new business (individuals with prior start up experience); a serial entrepreneur (involved with several start up experiences, shutting down one before starting the other); or a port folio entrepreneur (operates an existing business they started while beginning efforts to create this new initiative) (Usbasaran, Westhead, and Wright, 2001)? Criteria that contrast organizational forms (e.g., franchising, family firms, management buy outs or buy ins) also illustrate that the nascent entrepreneur category is not homogeneous.
Finally, it is important to recognize that al though many people start a business entirely on their own, others begin with a team, making the enterprise a collective effort from the beginning. When a team of individuals initiates the start up, should additional, or different, criteria be imposed to designate who is a nascent entrepreneur? Much of the literature on start up teams assumes that team formation represents a deliberate choice by a lead entrepreneur (Davidsson and Honig, 2003). Implicit in these discussions is the assumption that a team is normally planned, rather than emergent. Ruef, Aldrich, and Carter (2003), however, showed that other factors play a role in start up team formation, such as the existence of previous relations between founders. Their findings reveal that about half of all start ups in the US begin as team led ventures and that prior social relations among the team members have a pronounced effect on the team’s composition. More than 70 percent of the teams they studied were comprised of family members, 53 percent were being started by spouses/partners, and another 18 percent involved other family members. Because these team members are bound by social, psychological, and emotional ties, do all of the individuals qualify as nascent entrepreneurs, or are differentiating criteria needed for tracking team based initiatives?
Identifying and locating nascent entrepreneurs is neither easy nor inexpensive. Because these individuals are responsible for such a significant social and economic phenomenon, efforts to determine who they are and to track their start up processes is an investment well spent.
Bibliography
Aldrich, H. (1999). Organizations Evolving. London: Sage.
Carter, N. M., Gartner, W. B., Shaver, K. G., and Gatewood, E. J. (2003). The career reasons of nascent entrepreneurs. Journal of Business Venturing, 18: 13 40.
Davidsson, P. and Honig, B. (2003). The role of social and human capital among nascent entrepreneurs. Journal of Business Venturing, 18: 301 31.
Gartner, W. B., Shaver, K. G., Carter, N. M., and Reynolds, P. D. (2004). Handbook of Entrepreneurial Dynamics: The Process of Business Creation in Contemporary America. San Francisco, CA: Sage.
Reynolds, P. D. and White, S. B. (1997). The Entrepreneurial Process. Westport, CT: Quorum Books.
Reynolds, P. D., Carter, N. M., Gartner, W. B., and Greene, P. G. (2004). The prevalence of nascent entrepreneurs in the United States: Evidence from the panel study of entrepreneurial dynamics. Small Business Eco nomics (forthcoming).
Ruef, M., Aldrich, H., and Carter, N. M. (2003). The structure of founding teams: Homophily, strong ties, and isolation among US entrepreneurs. American Sociological Review, 68: 195 224.
Usbasaran, D., Westhead, P., and Wright, M. (2001). The focus of entrepreneurial research: Contextual and process issues. Entrepreneurship: Theory and Practice, 25 (4): 57 80.