Patterns of entrepreneurship development
S. Michael Camp
Ever since Schumpeter first described entrepreneurship as the introduction of new resource configurations, researchers have striven to understand the entrepreneurship development process. For this summary, entrepreneurship development is defined as the process of creating and advancing new ventures to an effective and mature state. The study of new venture development has been organized around the core domains first delineated in Gartner’s (1985) governing framework: (1) the acquisition and assembly of firm level resources (i.e., the behavioral process); (2) the cognitive motivations and decision making processes of the founding entrepreneur(s); (3) the supportive qualities of the contextual environment; and (4) the strategic, structural, and performance characteristics of the new venture(s). Since the last domain has been the primary area of study in strategic management, the focus of this summary will be on the patterns observed in the first three domains.
Patterns in the Behavioral Processes of New Venture Development
Webster (1976) published one of the earliest conceptual models of the new venture creation process in the first issue of the Academy of Management Review. Building from the theoretical foundation of the life cycle of the firm, Webster’s model included a five stage sequence be ginning with pre venture conceptualization and extending through venture termination. Several years later, Block and MacMillan (1985) relied on the foundations of milestone planning to pro pose a more comprehensive model that included ten stages: (1) concept and product testing; (2) prototyping; (3) first financing; (4) completion of initial plant tests; (5) market testing; (6) production start up; (7) first sale; (8) first competitive action; (9) first redesign; and (10) first significant price change. Though Block and MacMillan’s model provided more detail than other models being developed at the time, it was limited in that it applied primarily to techno logy based, product manufacturing firms.
Bhave (1994) empirically demonstrated new venture development to be an iterative, non linear, feedback driven, cognitive and physical 204 patterns of entrepreneurship development process. Based on his findings, Bhave proposed a new model that applied to different types of new ventures, and its enhanced applicability set the stage for future research. His model included the following steps: (1) opportunity recognition; (2) set up of production technology; (3) organization creation; (4) product development; (5) market entry; and (6) market feedback.
For ease of analysis, Bhave grouped these steps into three overarching stages: (1) the opportunity stage, (2) the organization creation stage, and (3) the exchange stage. These three stages comprise the current overarching frame work for the behavioral perspective of the new venture development process.
The opportunity stage is where the entrepreneur’s idea for a new venture is first conceptualized and its feasibility initially assessed. Research at the opportunity stage has mostly concentrated on opportunity recognition (Venkataraman, 1997; Kirzner, 1973), information search (McGrath, 1999; Cooper, Folta, and Woo, 1995; Kaish and Gilad, 1991), and product/prototype development (Bhave, 1994). The organization creation stage, often referred to as the implementation stage, is where the enterprising effort shifts to the acquisition and assembly of firm level re sources. Research at this second stage has focused on resource acquisition (Greene and Brown, 1997; Teece, Pisano, and Shuen, 1997), networking (Low and MacMillan, 1988; Johannisson et al., 1994), and firm structure and strategy (i.e., resource deployment) (Chandler and Hanks, 1994; Mosakowski, 1993). The exchange stage begins at market entry and is comprised of early supply chain transactions. This stage, often labeled the evaluation stage, represents the first market based test of the entrepreneur’s vision for the new venture. Research at this stage has focused on entrepreneurial orientation (Miller and Friesen, 1982; Covin and Slevin, 1989; Lumpkin and Dess, 1996) and new venture performance (Birley and Westhead, 1990; Chandler and Hanks, 1993; Cooper, 1993).
Patterns in the Cognitive Processes in New Venture Development
Despite the difficulties in conducting cognitive research, several patterns have emerged in the study of the cognitive processes in new venture creation. Shaver and Scott (1991) were among the first to challenge the field of entrepreneur ship in this important area of study. They argued that an entrepreneur’s cognitive representations of the world influenced the new venture creation process. They challenged researchers to consider the orienting dispositions, motivational principles, personal motives, and the antecedents of choice of lead entrepreneurs. Their call set the stage for several significant conceptual and empirical studies throughout the next decade. In response, Kamm and Nurick (1993) provided one of the first staged decision making models that demonstrated how differences in the strategy, structure, and performance of new ventures were determined by unique motivations and cognitions of the lead entrepreneur during the formation process.
In an attempt to explain why some individuals were entrepreneurial while others, under similar circumstances, were not, Learned (1993) pro posed several cognitive dimensions leading up to the decision to launch a new venture. The first dimension focused on the entrepreneur’s propensity to launch a new business. Learned (1993) noted that not all individuals have the necessary propensity to create a new venture, arguing that an individual’s psychological traits combine with specific life experiences to provide entrepreneurial potential. Despite the level of entrepreneurial propensity, Learned (1993) also suggested that a person’s intention to launch a new business determines his or her behavior. He suggested that certain situations interact with specific person level variables to bring about start up efforts. Furthermore, Learned (1993) recognized that among those individuals who possess the propensity and the intention to launch a new business, the sense making process will differentiate between those who fail and those who succeed. He asserted that those who are unable to identify and properly configure the necessary resources will abandon the effort before the new venture is actually launched.
Since Learned’s propositions, an individual’s propensity, intentions, and mental competency have been the focus of much of the research into the cognitive aspects of new venture development. More recently, Simon, Houghton, and Aquino (2000) empirically confirmed Learned’s proposition concerning failure. They studied how entrepreneurs cope with the risks associated patterns of entrepreneurship development 205 with start up decisions and found that belief in the law of small numbers and the illusion of control lowered an entrepreneur’s perception of the riskiness of a new venture. The authors argued that such biases, while enhancing the likelihood of launching a new venture, may impede its performance.
Patterns in Environmental Factors Conducive to New Venture Development
Van de Ven (1993) argued that the study of entrepreneurship development had been limited by its focus on the characteristics and behaviors of in dividual entrepreneurs and by its treatment of the social, economic, and political infrastructure for entrepreneurship as externalities. Gnyawali and Fogel (1994) further asserted that, despite an increase in the number of studies, researchers had not compiled an integrated framework for studying the environmental conditions conducive to entrepreneurship. Gnyawali and Fogel provided a framework comprised of several dimensions of the environment linked to the core elements of new venture development. Specific emphasis was given to the role of environmental conditions in developing enterprising opportunities and enhancing the entrepreneur’s propensity for and ability to create ventures.
Research on environmental conditions for new venture development has primarily derived from the theoretical foundations of resource dependence and population ecology. Resource dependence suggests that new ventures use market transactions to acquire the resources they cannot generate internally. Population eco logy asserts that, in order to survive over time, new firms must adapt to their market environments, environments that are in part constrained by resource availability. Using these theoretical foundations, researchers have consistently demonstrated the strong relationship between environmental resource conditions and new venture creation (Specht, 1993; Reynolds, Storey, and Westhead, 1994), survival (Romanelli, 1989), and strategy (Zahra, 1996).
The environmental resources most often studied in new venture development include: (1) the entrepreneurial assets of financial, human, and technology capital; (2) cultural cap ital (i.e., community values, attitudes, and beliefs); and, more recently, (3) social capital. Starr and Fondas (1993) used the organizational socialization perspective to describe how entrepreneurs adapt their attitudes and behaviors in response to socializing agents and contextual pressures. Their approach provided additional explanations for why some individuals are more successful than others at creating new ventures. Stuart and Sorenson (2003) studied the tendency of related businesses to cluster in physical space. They argued that industries cluster in part because it is difficult for new ventures to mobilize critical resources when they are not physically located near those resources. The authors therefore suggested that opportunities for new venture development mirror the distribution of essential resources.
Contingencies that Influence New Venture Development Patterns
Despite emerging patterns, there are a number of contingent factors that have been found to influence the new venture development process and which provide fruitful areas for future re search. Four of the more significant contingencies are the gender of the lead entrepreneur, the corporate environment, industry structure, and the cultural context.
Differences in the performance of male and female led enterprises have been well documented. Businesses started by women are typic ally smaller and grow slower than do businesses started by men. Female entrepreneurs also tend to congregate in service and retail trades, while males tend to concentrate in manufacturing and construction trades (Ljunggren and Kolvereid, 1996). Researchers contend that these differences are in part explained by differences in the cognitive and behavioral processes men and women employ in firm creation (Bird and Brush, 2002).
Researchers have also studied the new venture development process within existing organizations (McGrath, Venkataraman, and MacMil lan, 1994; Hitt et al., 1999; Russell, 1999). Research on corporate venturing has focused on the disadvantages of bureaucracy and inflexibility and the advantages of resource capacity. Also, research on the differences in resource capacity and accessibility between industries has revealed significant differences in new 206 patterns of entrepreneurship development venture formation process by industry. Vander Werf (1993) demonstrated that the information asymmetries in new industries make them particularly favorable for the creation of new ventures.
Finally, when studying cross cultural differences in entrepreneurship, it is clear that some cultures produce many more new ventures than others. Busenitz and Lau (1996) showed that differences in the rate of new venture development between cultures could be explained by the values, norms, and beliefs people held about themselves as entrepreneurs. These factors pro vide a rich opportunity for enhancing the under standing of new venture development.
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