Transcript Slide 1

Entrepreneurship and New Business
Development
Johan Brink 20110516
2015-07-21
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New venture creation
‘organization creation involves those events before an organization becomes an
organization that is, organization creation involves those factors that lead to
and influence the process of starting a business’. Carter et al. (1996: 52)
‘... serious gaps in our knowledge remain about the events that occur before an
independent organization is started’. Chrisman (1999: 99)
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Emergent organizations
What defines a ‘firm’?
•Intentions
•Resources
•Boundaries
•Exchanges
(Katz and Gartner, 1988)
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New venture emergence
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Barriers for Entrepreneurship
Barrier
No
Potentially
Intend
Actual
Business Risk
3.68*
3.1
2.65
2.58
Failure concerns
3.26*
2.52
2.47
2.15
Work stress
3.3*
2.31
2.19
2.48
Capital
2.63
3.5*
2.62
1.48*
Awareness of regulations
2.66
2.56
2.59
1.56
Economic conditions
2.41
2.86*
2.17
1.18*
Low business income
2.68
2.10
1.59
2.03
Find opportunity
2.84*
1.93
2.29
0.73*
Know business skills
2.13*
1.24
1.49
0.84*
Government policies
discourage
1.95*
1.69
1.30
0.67*
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New firms
Limited:
– financial
– technological
– human resources
– unsophisticated governance models
– fluid identities
– little power over other actors
– Liability of newness – No track
record!
– BOOTSTRAP!
• Use what you got
• Get operations quickly
• Sell something (anything!)
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Capital requirements
Capital at start (USD)
%
None
24.7
-4.999
32,1
5.000-9.999
10.3
10.000-24.999
11.9
25.000-49.999
7
50.000-999.99
4.3
100.000 -
4.1
Not reported
5.6
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Sources of capital
Source of Capital
%
Family
8.1
Friends
1.7
Personal credit (Home, card)
3.2
Bank Loan
16
Did not need
66.8
Grants
0.5
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GROWTH
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Size distribution
0-9
Employees
10-99
Employees
100-499
Employees
500+
Employees
Denmark
22
37
17
24
France
28
25
14
33
Germany
17
28
17
38
Greece
59
21
11
9
Italy
48
24
10
19
Spain
36
30
17
17
UK
26
21
18
35
EU average
% of Firms
29.6
93.2
25.1
6.3
15.8
0.4
29.5
0.1
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Survival rates
AGE
Employees
0-6
7-20
21-45
46-95
95+
1-19
40
22
20
17
0
20-49
32
14
11
11
16
50-99
31
13
10
14
15
100-249
25
12
11
7
11
250-499
32
13
7
7
6
500-999
21
10
6
5
5
1000+
-
13
9
2
8
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Growth measurement
•
•
•
•
•
•
Assets,
Employment
Market share,
Physical output,
Profits
Sales.
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Growth and size
• The original interpretation of Gibrat’s Law is that the size
of units and measures of percentage growth are statistically
independent (Gibrat 1931). In the context of the study of
firm growth this means that growth rates should be
independent of firm size (Sutton 1997).
• Some studies have indicated that
– growth rates are independent of size,
– other studies have indicated that Gibrat’s law is applicable
only to large organizations (but not to small organizations),
– and some studies find that growth rates diminish with
increasing size (Dunne and Hughes, 1996; Evans, 1987;
Storey, 1995; Sutton, 1997; Wagner, 1992)
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Starting big?
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Factors related to growth
• Human capital, educated individuals
• Specific human capital, such as
– start-up experience,
– management experience, and
– experience of working in rapidly growing
organizations
– a founding team rather than solo entrepreneur
– willingness to share equity
– a multi-skilled management team,
– marketing expertise
• But general work experience and age has no
effect
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Growth motivation
• Prior research has shown that many
small business managers are reluctant to
expand their firms (Davidsson, 1989b;
Wiklund et al., 1997).
– Personal independence
– Expectations of changed work
conditions
– Aspiration levels for organizational size
are founded on managerial beliefs that
size affects organizational efficiency or
legitimacy.
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Growth aspiration
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Growth aspiration
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Growth aspiration
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Growth and profit
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Growth models: Life cycle
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Greiner (1972)
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Proteome systems ltd
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!
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Proteome systems ltd
“We chose IBM as our technology partner because we believe IBM
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real understanding of the challenges presented by proteomics.” Keith Williams 2001
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Proteome systems
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Stages of Growth models
Dynamic states model
Assumption
Organizations grow as if they were organisms
Each state represents management’s attempts to
most efficiently/effectively match internal organizing
capacity with the external market/customer demand
Propositions:
what
Configuration of structural variables and
management problems
Configuration of structural variables and organizational
activities (aspirations)
Propositions:
how
A specific number of progressive stages
Sequence and order is predictable Incremental
and punctuated transitions
Any number of states
Sequence and order may be predictable depending on
context
Incremental and punctuated transitions, and
emergence
Propositions:
why
Immanent program of development
Prefigured rules of development “Regulated” by
environment
Adaptive process of retaining the sustainability of a
business model
Interdependent rules for development
Driven by market change and opportunity creation
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Growth challenge: Managerial transitions
The founding entrepreneurs become less
adept at managing the firm’s evolution
Beyond their initial focus
– Lower degree of diversification
Across an expanding operation
– Slower degree of professionalization
May not be able to modify their personal
management style to match the evolving
firm’s needs
– Weaker degree of termination
– Give up ownership
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Growth challenge: Path dependency
Experience &
skills
Experience and
skills
(Time 2)
Structure
Structure
(Time 2)
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Case discussions
1.
2.
3.
4.
5.
6.
Is Cynthia Riggs an entrepreneur or a small business owner?
Would you consider MIB a small business or an entrepreneurial venture? Is
there a difference?
Is the company in trouble? What indicators do you have that the company is
not doing well at this time?
What would Cynthia need to do differently to position her company for
growth?
How can Cynthia build the management team she needs to bring her
company to the next level?
What role should Cynthia take as the company changes and grows?
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READINGS
• Growing profitable or growing from profits: Putting the horse in front of the
cart? Davidsson et al, Journal of Business Venturing 24 (2009) 388–406
• Gazelles as job creators: a survey and interpretation of the evidence, Magnus
Henrekson & Dan Johansson, Small Bus Econ (2010) 35:227–244
• Evolution and Revo- lution as Organizations Grow, Larry E. Greiner, Harvard
Business ReviewJuly–August 1972.
• A Multidimensional model of Venture Growth, Baum et al, Academy of
Management Journal, vol 44, no 2, 2001
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