For the better or the worse? The impact of business idea changes on new venture performance and novelty

Should new ventures stick to their knitting once they start commercialising or should they engage in frequent changes of their business idea? In this paper we argue that new ventures still need to learn their way in the early phases of commercialisation and that changes are good, but subject to two important contingencies. First is that changes should be aimed at enhancing uniqueness, which in turn enhances new venture performance. Second is that our results show that changes have limited affect on uniqueness and performance for entrepreneurs aiming at maximising opportunities, but that changing the business idea has a significant positive impact for entrepreneurs focusing on minimising losses. Our findings indicate that entrepreneurs aiming at minimising losses may offset their initial disadvantages by engaging in a series of adaptations of the business idea to gain higher performance and a more unique product offering.

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.

Institutional constraints on altruism in the formation of a venture idea

This thesis is about the social orientation of new venture ideas and how the degree of social orientation is influenced by the entrepreneur's level of altruism, by industry norms, and by nonprofit work experience. Potential entrepreneurs were asked to generate new venture ideas based on 3D-printing and their ideas were rated for degree of social orientation. It was found that while greater altruism leads to more socially-oriented venture ideas, the influence of altruism on the venture idea is constrained by the profit-maximization norm that is prevalent in most industries.

Do strategy choices matter for nascent firms? A study on effectuation and causation impacts on new ventures outcomes

Principal Topic : Nascent entrepreneurship has drawn the attention of scholars in the last few years (Davidsson, 2006, Wagner, 2004). However, most studies have asked why firms are created focussing on questions such as what are the characteristics (Delmar and Davidsson, 2000) and motivations (Carter, Gartner, Shaver & Reynolds, 2004) of nascent entrepreneurs, or what are the success factors in venture creation (Davidsson & Honig; 2003; Delmar and Shane, 2004). In contrast, the question of how companies emerge is still in its infancy. On a theoretical side, effectuation, developed by Sarasvathy (2001) offers one view of the strategies that may be at work during the venture creation process. Causation, the theorized inverse to effectuation, may be described as a rational reasoning method to create a company. After a comprehensive market analysis to discover opportunities, the entrepreneur will select the alternative with the higher expected return and implement it through the use of a business plan. In contrast, effectuation suggests that the future entrepreneur will develop her new venture in a more iterative way by selecting possibilities through flexibility and interaction with the market, affordability of loss of resources and time invested, development of pre-commitments and alliances from stakeholders. Another contrasting point is that causation is ''goal driven'' while an effectual approach is ''mean driven'' (Sarasvathy, 2001) One of the predictions of effectuation theory is effectuation is more likely to be used by entrepreneurs early in the venture creation process (Sarasvathy, 2001). However, this temporal aspect and the impact of the effectuation strategy on the venture outcomes has so far not been systematically and empirically tested on large samples. The reason behind this research gap is twofold. Firstly, few studies collect longitudinal data on emerging ventures at an early enough stage of development to avoid severe survivor bias. Second, the studies that collect such data have not included validated measures of effectuation. The research we are conducting attempts to partially fill this gap by combining an empirical investigation on a large sample of nascent and young firms with the effectuation/causation continuum as a basis (Sarasvathy, 2001). The objectives are to understand the strategies used by the firms during the creation process and measure their impacts on the firm outcomes. Methodology/Key Propositions : This study draws its data from the first wave of the CAUSEE project where 28,383 Australian households were randomly contacted by phone using a specific methodology to capture emerging firms (Davidsson, Steffens, Gordon, Reynolds, 2008). This screening led to the identification of 594 nascent ventures (i.e., firms that are not operating yet) and 514 young firms (i.e., firms that have started operating from 2004) that were willing to participate in the study. Comprehensive phone interviews were conducted with these 1108 ventures. In a likewise comprehensive follow-up 12 months later, 80% of the eligible cases completed the interview. The questionnaire contains specific sections designed to distinguish effectual and causal processes, innovation, gestation activities, business idea changes and ventures outcomes. The effectuation questions are based on the components of effectuation strategy as described by Sarasvathy (2001) namely: flexibility, affordable loss and pre-commitment from stakeholders. Results from two rounds of pre-testing informed the design of the instrument included in the main survey. The first two waves of data have will be used to test and compare the use of effectuation in the venture creation process. To increase the robustness of the results, temporal use of effectuation will be tested both directly and indirectly. 1. By comparing the use of effectuation in nascent and young firms from wave 1 to 2, we will be able to find out how effectuation is affected by time over a 12-month duration and if the stage of venture development has an impact on its use. 2. By comparing nascent ventures early in the creation process versus nascent ventures late in the creation process. Early versus late can be determined with the help of time-stamped gestation activity questions included in the survey. This will help us to determine the change on a small time scale during the creation phase of the venture. 3. By comparing nascent firms to young (already operational) firms. 4. By comparing young firms becoming operational in 2006 with those first becoming operational in 2004. Results and Implications : Wave 1 and 2 data have been completed and wave 2 is currently being checked and 'cleaned'. Analysis work will commence in September, 2009. This paper is expected to contribute to the body of knowledge on effectuation by measuring quantitatively its use and impact on nascent and young firms activities at different stages of their development. In addition, this study will also increase the understanding of the venture creation process by comparing over time nascent and young firms from a large 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 changes identified may be due to several factors and may not only be attributed to the use/not use of effectuation. 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 and young firms during their creation and early operating stages.

Venture idea newness, relatedness and performance in nascent ventures

Principal Topic The study of the origin and characteristics of venture ideas - or ''opportunities'' as they are often called - and their contextual fit are key research goals in entrepreneurship (Davidsson, 2004). We define venture idea as ''the core ideas of an entrepreneur about what to sell, how to sell, whom to sell and how an entrepreneur acquire or produce the product or service which he/she sells'' for the purpose of this study. When realized the venture idea becomes a ''business model''. Even though venture ideas are central to entrepreneurship yet its characteristics and their effect to the entrepreneurial process is mysterious. According to Schumpeter (1934) entrepreneurs could creatively destruct the existing market condition by introducing new product/service, new production methods, new markets, and new sources of supply and reorganization of industries. The introduction, development and use of new ideas are generally called as ''innovation'' (Damanpour & Wischnevsky, 2006) and ''newness'' is a property of innovation and is a relative term which means that the degree of unfamiliarity of venture idea either to a firm or to a market. However Schumpeter's (1934) discusses five different types of newness, indicating that type of newness is an important issue. More recently, Shane and Venkataraman (2000) called for research taking into consideration not only the variation of characteristics of individuals but also heterogeneity of venture ideas, Empirically, Samuelson (2001, 2004) investigated process differences between innovative venture ideas and imitative venture ideas. However, he used only a crude dichotomy regarding the venture idea newness. According to Davidsson, (2004) as entrepreneurs could introduce new economic activities ranging from pure imitation to being new to the entire world market, highlighting that newness is a matter of degree. Dahlqvist (2007) examined the venture idea newness and made and attempt at more refined assessment of the degree and type of newness of venture idea. Building on these predecessors our study refines the assessment of venture idea newness by measuring the degree of venture idea newness (new to the world, new to the market, substantially improved while not entirely new, and imitation) for four different types of newness (product/service, method of production, method of promotion, and customer/target market). We then related type and degree of newness to the pace of progress in nascent venturing process. We hypothesize that newness will slow down the business creation process. Shane & Venkataraman (2000) introduced entrepreneurship as the nexus of opportunities and individuals. In line with this some scholars has investigated the relationship between individuals and opportunities. For example Shane (2000) investigates the relatedness between individuals' prior knowledge and identification of opportunities. Shepherd & DeTinne (2005) identified that there is a positive relationship between potential financial reward and the identification of innovative venture ideas. Sarasvathy's 'Effectuation Theory'' assumes high degree of relatedness with founders' skills, knowledge and resources in the selection of venture ideas. However entrepreneurship literature is scant with analyses of how this relatedness affects to the progress of venturing process. Therefore, we assess the venture ideas' degree of relatedness to prior knowledge and resources, and relate these, too, to the pace of progress in nascent venturing process. We hypothesize that relatedness will increase the speed of business creation. Methodology For this study we will compare early findings from data collected through the Comprehensive Australian Study of Entrepreneurial Emergence (CAUSEE). CAUSEE is a longitudinal study whose primary objective is to uncover the factors that initiate, hinder and facilitate the process of emergence and development of new firms. Data were collected from a representative sample of some 30,000 households in Australia using random digit dialing (RDD) telephone survey interviews. Through the first round of data collection identified 600 entrepreneurs who are currently involved in the business start-up process. The unit of the analysis is the emerging venture, with the respondent acting as its spokesperson. The study methodology allows researchers to identify ventures in early stages of creation and to longitudinally follow their progression through data collection periods over time. Our measures of newness build on previous work by Dahlqvist (2007). Our adapted version was developed over two pre-tests with about 80 participants in each. The measures of relatedness were developed through the two rounds of pre-testing. The pace of progress in the venture creation process is assessed with the help of time-stamped gestation activities; a technique developed in the Panel Study of Entrepreneurial Dynamics (PSED). Results and Implications We hypothesized that venture idea newness slows down the venturing process whereas relatedness facilitates the venturing process. Results of 600 nascent entrepreneurs in Australia indicated that there is marginal support for the hypothesis that relatedness assists the gestation progress. Newness is significant but is the opposite sign to the hypothesized. The results give number of implications for researchers, business founders, consultants and policy makers in terms of better knowledge of the venture creation process.

A FR.E.S.H idea

This paper explores the possibility of including human factoring in a business process model. The importance of doing so is twofold: (1) The organization becomes transparent in its processes as all participants (human, activities and events) are identifiable. (2) Including human factoring allows organizations to hire accordingly to the process needs. (3) Human factoring alleviates the current work related stress that is being encountered. (4) Enable quicker transition for newer employees into job scope. This was made possible by including a human behaviour layer in between pools within a process to depict human behaviour and feeling. Future work includes having a human thought symbol and a human interaction symbol included into the Business Process Modelling Notation (BPMN).

The managerial benefits of tax compliance: perception by small business taxpayers

Research undertaken in 2006 – 2007 investigated the perception of managerial benefits of tax compliance by small business taxpayers. Survey data from a sample of 300 small business taxpayers and responses to semi-structured interviews of owner managers were examined. The study found that a majority of small business taxpayers recognised that tax compliance activities led to better record keeping and to an improved knowledge of their financial affairs. However, there seemed to be a general reluctance by respondents to accept the idea that benefits could be derived as a result of complying with tax. The findings of this study are important as it is the first research that systematically investigated managerial benefits and their perception by small business taxpayers in Australia.

Attractiveness of venture idea amongst expert entrepreneurs : a conjoint analysis

Principal Topic Venture ideas are at the heart of entrepreneurship (Davidsson, 2004). However, we are yet to learn what factors drive entrepreneurs’ perceptions of the attractiveness of venture ideas, and what the relative importance of these factors are for their decision to pursue an idea. The expected financial gain is one factor that will obviously influence the perceived attractiveness of a venture idea (Shepherd & DeTienne, 2005). In addition, the degree of novelty of venture ideas along one or more dimensions such as new products/services, new method of production, enter into new markets/customer and new method of promotion may affect their attractiveness (Schumpeter, 1934). Further, according to the notion of an individual-opportunity nexus venture ideas are closely associated with certain individual characteristics (relatedness). Shane (2000) empirically identified that individual’s prior knowledge is closely associated with the recognition of venture ideas. Sarasvathy’s (2001; 2008) Effectuation theory proposes a high degree of relatedness between venture ideas and the resource position of the individual. This study examines how entrepreneurs weigh considerations of different forms of novelty and relatedness as well as potential financial gain in assessing the attractiveness of venture ideas. Method I use conjoint analysis to determine how expert entrepreneurs develop preferences for venture ideas which involved with different degrees of novelty, relatedness and potential gain. The conjoint analysis estimates respondents’ preferences in terms of utilities (or part-worth) for each level of novelty, relatedness and potential gain of venture ideas. A sample of 32 expert entrepreneurs who were awarded young entrepreneurship awards were selected for the study. Each respondent was interviewed providing with 32 scenarios which explicate different combinations of possible profiles open them into consideration. Results and Implications Results indicate that while the respondents do not prefer mere imitation they receive higher utility for low to medium degree of newness suggesting that high degrees of newness are fraught with greater risk and/or greater resource needs. Respondents pay considerable weight on alignment with the knowledge and skills they already posses in choosing particular venture idea. The initial resource position of entrepreneurs is not equally important. Even though expected potential financial gain gives substantial utility, result indicate that it is not a dominant factor for the attractiveness of venture idea.

Assessing the potential impact of web services on business processes

Though web services offer unique opportunities for the design of new business processes, the assessment of the potential impact of Web services on existing business information systems is often reduced to technical aspects. This paper proposes a four-phase methodology which facilitates the evaluation of the potential use of Web services on business information systems both from a technical and from a strategic viewpoint. It is based on business process models, which are used to frame the adoption and deployment of Web services and to assess their impact on existing business processes. The application of this methodology is described using a procurement scenario.

The role of idea novelty and relatedness in nascent ventures

The study of venture idea characteristics and the contextual fit between venture ideas and individuals are key research goals in entrepreneurship (Davidsson, 2004). However, to date there has been limited scholarly attention given to these phenomena. Accordingly, this study aims to help fill the gap by investigating the importance of novelty and relatedness of venture ideas in entrepreneurial firms. On the premise that new venture creation is a process and that research should be focused on the early stages of the venturing process, this study primarily focuses its attention on examining how venture idea novelty and relatedness affect the performance in the venture creation process. Different types and degrees of novelty are considered here. Relatedness is shown to be based on individuals’ prior knowledge and resource endowment. Performance in the venture creation process is evaluated according to four possible outcomes: making progress, getting operational, being terminated and achieving positive cash flow. A theoretical model is developed demonstrating the relationship between these variables along with the investment of time and money. Several hypotheses are developed to be tested. Among them, it is hypothesised that novelty hinders short term performance in the venture creation process. On the other hand knowledge and resource relatedness are hypothesised to promote performance. An experimental study was required in order to understand how different types and degrees of novelty and relatedness of venture ideas affect the attractiveness of venture ideas in the eyes of experienced entrepreneurs. Thus, the empirical work in this thesis was based on two separate studies. In the first one, a conjoint analysis experiment was conducted on 32 experienced entrepreneurs in order to ascertain attitudinal preferences regarding venture idea attractiveness based on novelty, relatedness and potential financial gains. This helped to estimate utility values for different levels of different attributes of venture ideas and their relative importance in the attractiveness. The second study was a longitudinal investigation of how venture idea novelty and relatedness affect the performance in the venture creation process. The data for this study is from the Comprehensive Australian Study for Entrepreneurial Emergence (CAUSEE) project that has been established in order to explore the new venture creation process in Australia. CAUSEE collects data from a representative sample of over 30,000 households in Australia using random digit dialling (RDD) telephone interviews. From these cases, data was collected at two points in time during a 12 month period from 493 firms, who are currently involved in the start-up process. Hypotheses were tested and inferences were derived through descriptive statistics, confirmatory factor analysis and structural equation modelling. Results of study 1 indicate that venture idea characteristics have a role in the attractiveness and entrepreneurs prefer to introduce a moderate degree of novelty across all types of venture ideas concerned. Knowledge relatedness is demonstrated to be a more significant factor in attractiveness than resource relatedness. Results of study 2 show that the novelty hinders nascent venture performance. On the other hand, resource relatedness has a positive impact on performance unlike knowledge relatedness which has none. The results of these studies have important implications for potential entrepreneurs, investors, researchers, consultants etc. by developing a better understanding in the venture creation process and its success factors in terms of both theory and practice.

Engagement, persistence, progress and success as theoretically distinct aspects of business creation processes

Starting from the vantage point that explaining success at creating a venture should be the unique contribution—or at least one unique contribution—of entrepreneurship research, we argue that this success construct has not yet been adequately defined an operationalized. We thus offer suggestions for more precise conceptualization and measurement of this central construct. Rather than regarding various success proxies used in prior research as poor operationalizations of success we argue that they represent other important aspects of the venture creation process: engagement, persistence and progress. We hold that in order to attain a better understanding of venture creation these constructs also need to be theoretically defined. Further, their respective drivers need to be theorized and tested separately. We suggest theoretical definitions of each. We then develop and test hypotheses concerning how human capital, venture idea novelty and business planning has different impact on the different assessments of the process represented by engagement, persistence, progress and success. The results largely confirm the stated hypotheses, suggesting that the conceptual and empirical approach we are suggesting is a path towards improved understanding of the central entrepreneurship phenomenon of new venture creation.

Slice, mine and dice : complexity-aware automated discovery of business process models

Automated process discovery techniques aim at extracting models from information system logs in order to shed light into the business processes supported by these systems. Existing techniques in this space are effective when applied to relatively small or regular logs, but otherwise generate large and spaghetti-like models. In previous work, trace clustering has been applied in an attempt to reduce the size and complexity of automatically discovered process models. The idea is to split the log into clusters and to discover one model per cluster. The result is a collection of process models -- each one representing a variant of the business process -- as opposed to an all-encompassing model. Still, models produced in this way may exhibit unacceptably high complexity. In this setting, this paper presents a two-way divide-and-conquer process discovery technique, wherein the discovered process models are split on the one hand by variants and on the other hand hierarchically by means of subprocess extraction. The proposed technique allows users to set a desired bound for the complexity of the produced models. Experiments on real-life logs show that the technique produces collections of models that are up to 64% smaller than those extracted under the same complexity bounds by applying existing trace clustering techniques.

Business model experimentation : what is the role of deign-led prototyping in developing novel business models?

This book presents readers with the opportunity to fundamentally re-evaluate the processes of innovation and entrepreneurship, and to rethink how they might best be stimulated and fostered within our organizations and communities. The fundamental thesis of the book is that the entrepreneurial process is not a linear progression from novel idea to successful innovation, but is an iterative series of experiments, where progress depends on the persistence and resilience of the individuals involved, and their ability and to learn from failure as well as success. From this premise, the authors argue that the ideal environment for new venture creation is a form of “experimental laboratory,” a community of innovators where ideas are generated, shared, and refined; experiments are encouraged; and which in itself serves as a test environment for those ideas and experiments. This environment is quite different from the traditional “incubator,” which may impose the disciplines of the established firm too early in the development of the new venture.

Controlled automated discovery of collections of business process models

Automated process discovery techniques aim at extracting process models from information system logs. Existing techniques in this space are effective when applied to relatively small or regular logs, but generate spaghetti-like and sometimes inaccurate models when confronted to logs with high variability. In previous work, trace clustering has been applied in an attempt to reduce the size and complexity of automatically discovered process models. The idea is to split the log into clusters and to discover one model per cluster. This leads to a collection of process models – each one representing a variant of the business process – as opposed to an all-encompassing model. Still, models produced in this way may exhibit unacceptably high complexity and low fitness. In this setting, this paper presents a two-way divide-and-conquer process discovery technique, wherein the discovered process models are split on the one hand by variants and on the other hand hierarchically using subprocess extraction. Splitting is performed in a controlled manner in order to achieve user-defined complexity or fitness thresholds. Experiments on real-life logs show that the technique produces collections of models substantially smaller than those extracted by applying existing trace clustering techniques, while allowing the user to control the fitness of the resulting models.

Fast and accurate business process drift detection

Business processes are prone to continuous and unexpected changes. Process workers may start executing a process differently in order to adjust to changes in workload, season, guidelines or regulations for example. Early detection of business process changes based on their event logs – also known as business process drift detection – enables analysts to identify and act upon changes that may otherwise affect process performance. Previous methods for business process drift detection are based on an exploration of a potentially large feature space and in some cases they require users to manually identify the specific features that characterize the drift. Depending on the explored feature set, these methods may miss certain types of changes. This paper proposes a fully automated and statistically grounded method for detecting process drift. The core idea is to perform statistical tests over the distributions of runs observed in two consecutive time windows. By adaptively sizing the window, the method strikes a trade-off between classification accuracy and drift detection delay. A validation on synthetic and real-life logs shows that the method accurately detects typical change patterns and scales up to the extent it is applicable for online drift detection.