Do strategy choices matter for nascent firms? Effectuation in the early stages of venture creation

This paper explores empirically effects of Effectuation on nascent firms’ performance. Three potential outcomes for nascent firms using different levels of effectuation and causation are investigated. Innovation, a measure of venture sophistication was introduced as a moderator. We examine a longitudinal random sample of 625 nascent firms collected over two years in Australia and provide support for our hypotheses. Results show that in situation of high uncertainty, nascent firms using effectuation are more likely to reach operational stage than their counterpart using causation.

Nascent entrepreneurship and the developing individual : early entrepreneurial competence in adolescence and venture creation success during the career

What predicts a person's venture creation success over the course of the career, such as making progress in the venture creation process and multiple successful venture creations? Applying a life span approach of human development, this study examined the effect of early entrepreneurial competence in adolescence, which was gathered retrospectively by means of the Life History Calendar method. Human and social capitals during the founding process were investigated as mediators between adolescent competence and performance. Findings were derived from regression analyses on the basis of prospective and retrospective data from two independent samples (N = 88 nascent founders; N = 148 founders). We found that early entrepreneurial competence in adolescence had a positive effect on making progress in the venture creation process. Nascent founders' current human and social capital also had a direct effect, but it did not mediate the effect of early competences. Finally, the data revealed that early entrepreneurial competence in adolescence positively predicted habitual entrepreneurship (multiple successful venture creations) exhibited over a longer period of the individual career (specifically, 18 years). In line with the results from prospective longitudinal studies on early precursors of entrepreneurship, our findings underscore the long neglected importance of adolescent development in the explanation of entrepreneurial performance during the subsequent working life.

Do balanced skills help nascent entrepreneurs to make progress in the venture creation process?

We apply Lazear’s jack-of-all-trades theory to investigate the effect of nascent entrepreneurs´ balanced skill set across various functional areas on the performance of nascent projects. Analyzing longitudinal data on innovative nascent projects, we find that nascent entrepreneurs with a more balanced skill set are more successful in that they progress faster in the venture creation process.

Gender and new venture outcomes : not better or worse, just different

We investigate how differences in the goals of male and female entrepreneurs affect business resources, outcomes and satisfaction with those outcomes. To investigate this topic we use the CAUSEE database to access a longitudinal sample of 247 female-controlled and 332 male-controlled young Australian firms. We find that female entrepreneurs are less motivated by business growth, invest less time developing their businesses and yet even when profits are lower they are more satisfied with their profit performance. Our results support prior qualitative studies indicating that female business owners want greater flexibility and manageability in terms of balancing their family and work responsibilities. Our findings also suggest that future dialogue on firm performance should include an analysis of the entrepreneur’s achievement in terms of both financial and personal goals.

Business planning, idea change, flexibility and performance: the best of both worlds?

The relationships between business planning and performance have divided the entrepreneurship research community for decades (Brinckmann et al, 2010). One side of this debate is the assumption that business plans may lock the firm in a specific direction early on, impede the firm to adapt to the changing market conditions (Dencker et al., 2009) and eventually, cause escalation of commitments by introducing rigidity (Vesper, 1993). Conversely, feedback received from the production and presentation of business plans may also lead the firm to take corrective actions. However, the mechanisms underlying the relationships between changes in business ideas, business plans and the performance of nascent firms are still largely unknown. While too many business idea changes may confuse stakeholders, exhaust the firm’s resources and hinder the undergoing legitimization process, some flexibility during the early stages of the venture may be beneficial to cope with the uncertainties surrounding new venture creation (Knight, 1921; March, 1982; Stinchcombe, 1965; Weick, 1979). Previous research has emphasized adaptability and flexibility as key success factors through effectual logic and interaction with the market (Sarasvathy, 2001; 2007) or improvisation and trial-and-error (Miner et al, 2001). However, those studies did not specifically investigate the role of business planning. Our objective is to reconcile those seemingly opposing views (flexibility versus rigidity) by undertaking a more fine-grained analysis at the relationships between business planning and changes in business ideas on a large longitudinal sample of nascent firms.

Business planning, innovation and performance in nascent firms

Debate about the relationships between business planning and performance has been active for decades (Bhidé, 2000; Mintzberg, 1994). While results have been inconclusive, this topic still strongly divides the research community (Brinckmann et al., 2010; Chwolka & Raith, 2011; Delmar & Shane, 2004; Frese, 2009; Gruber, 2007; Honig & Karlsson, 2004). Previous research explored the relationships between innovation and the venture creation process (Amason et al., 2006, Dewar & Dutton, 1986; Jennings et al., 2009). However, the relationships between business planning and innovation have mostly been invoked indirectly in the strategy and entrepreneurship literatures through the notion of uncertainty surrounding the development of innovation. Some posited that planning may be irrelevant due to the iterative process, the numerous changes innovation development entails and the need to be flexible (Brews & Hunt, 1999). Others suggested that planning may facilitate the achievement of goals and overcoming of obstacles (Locke and Latham, 2000), guide the venture in its allocation of resources (Delmar and Shane, 2003) and help to foster the communication about the innovation being developed (Liao & Welsh, 2008). However, the nature and extents of the relationships between business planning, innovation and performance are still largely unknown. Moreover, if the reasons why ventures should engage (Frese, 2009) –or not- (Honig, 2004) in business planning have been investigated quite extensively (Brinckmann et al., 2010), the specific value of business planning for nascent firms developing innovation is still unclear. The objective of this paper is to shed some light on these important aspects by investigating the two following questions on a large sample of random nascent firms: 1) how is business planning use over time by new ventures developing different types and degrees of innovation? 2) how do business planning and innovation impact the performance of the nascent firms? Methods & Key propositions This PSED-type study draws its data from the first three waves of the CAUSEE project where 30,105 Australian households were randomly contacted by phone using a methodology to capture emerging firms (Davidsson, Steffens, Gordon, Reynolds, 2008). This screening led to the identification of 594 nascent ventures (i.e., firms that were not operating yet at the time of the identification) that were willing to participate in the study. Comprehensive phone interviews were conducted with these 594 ventures. Likewise, two comprehensive follow-ups were organised 12 months and 24 months later where 80% of the eligible cases of the previous wave completed the interview. The questionnaire contains specific sections investigating business plans such as: presence or absence, degree of formality and updates of the plan. Four types of innovation are measured along three degrees of intensity to produce a comprehensive continuous measure ranging from 0 to 12 (Dahlqvist & Wiklund, 2011). Other sections informing on the gestation activities, industry and different types of experiences will be used as controls to measure the relationships and the impacts of business planning and innovation on the performance of nascent firms overtime. Results from two rounds of pre-testing informed the design of the instrument included in the main survey. The three waves of data are used to first test and compare the use of planning amongst nascent firms by their degrees of innovation and then to examine their impact on performance overtime through regression analyses. Results and Implications Three waves of data collection have been completed. Preliminary results show that on average, innovative firms are more likely to have a business plans than their low innovative counterpart. They are also most likely to update their plan suggesting a more continuous use of the plan over time than previously thought. Further analyses regarding the relationships between business planning, innovation and performance are undergoing. This paper is expected to contribute to the literature on business planning and innovation by measuring quantitatively their impact on nascent firms activities and performance at different stages of their development. In addition, this study will shed a new light on the business planning-performance relationship by disentangling plans, types of nascent firms regarding their innovation degres and their performance over time. Finally, we expect to increase the understanding of the venture creation process by analysing those questions on nascent firms from a large longitudinal sample of randomly selected ventures. We acknowledge the results from this study will be preliminary and will have to be interpreted with caution as the business planning-performance is not a straightforward relationship (Brinckmann et al., 2010). Meanwhile, we believe that this study is important to the field of entrepreneurship as it provides some much needed insights on the processes used by nascent firms during their creation and early operating stages.

Identifying important success factors in new venture creation

This paper seeks to uncover the factors that lead to a successful entrepreneurial experience and or venture. Findings of interest in this paper include: • A venture’s initial aspirations are a double edged sword. Ambition may lead to improved performance by striving to reach harder goals. Harder goals are more difficult therefore this may lead to some dissatisfaction, and possibly abandonment of the venture. • Venture legitimacy is important to establish where possible. Firms that formalize their legal form are more successful, as are those set up a shop-front in order to makes sales. • Increased use of technology and higher levels of novelty does not guarantee success early on. Firms of this nature have longer processes, and attempting to create brand new markets is difficult to achieve. At the same time developing your own technology and securing this intellectual property is important for success. • Having goals to work towards and business planning may be useful, but only if the plan is actively revised. Just having a business plan does not matter. Business plans are more useful as a thinking tool than as a blueprint for action. It is the process of thinking through while reviewing the plan that provides the benefit, not following its instruction to the letter.

ACE research vignette 030 : Is venture capital investment the key to success?

This series of research vignettes is aimed at sharing current and interesting research findings from our team of international Entrepreneurship researchers. This vignette, written by Professor Per Davidsson, reports on a paper which synthesizes available research on the effects of VC funding on the performance of the funded firm.

The stewardship performance of forms of privatised water infrastructure

In this research Agency Theory and Stewardship Theory are used to analyse the relative performance of different forms of privitisation of water infrastructure and in doing so enriches understanding of previously underdeveloped aspects of both theories. The prior Agency Theory literature had established assumptions about the behaviour of principals and agents in contracts and these were found not to be correct in the context of contracts between modern government and private organisations. Agency theory was extended to include steward-like behaviour of an agent and Stewardship Theory was developed by the identification of factors within the contractual relationship which promote the sense of responsibility to the principal. The alliance, joint venture and Build Own Operate Transfer (BOOT) forms of privatisation were found to achieve stewardship of the infrastructure.

Environmental dynamism as a moderator of the relationship between bricolage and firm performance

Many firms initially face significant resource constraints during attempts to develop and grow (Shepherd et al., 2000). One promising theory that explicitly links to ways entrepreneurial firms respond to resource constraints is bricolage (Lévi-Strauss, 1966). Bricolage is defined as “making do by applying combinations of the resources at hand to new problems and opportunities” (Baker & Nelson, 2005, p. 333). Bricolage aligns with notions of resourcefulness: using what’s on hand, through making do, and recombining resources for new or novel purposes. Through a bias for action and a refusal to enact limitations on the resources that are available to create solutions, bricoleurs can tackle unexpected complex challenges, take advantage of opportunities, and go where most other firms won’t, in their attempts at firm development. Bricolage studies have previously not empirically examined the impact of bricolage on firm performance. Our work contributes to the emerging behavioral theory of bricolage by offering the first empirical test evaluating the impact of bricolage on early stage firm performance (i.e. venture emergence in nascent firms and sales in young firms). Using new product development (NPD) theories of speed of development, co-creation and innovativeness, we theorise that bricolage has a positive effect on early stage firm performance. We then introduce environmental dynamism as a moderator which influences this relationship.