The Interaction of Founder Motivation and Environmental Context in New Venture Formation:
Preliminary Findings
by
J. David Hunger, Peter F. Korsching, and Howard
Van Auken
This paper was presented at
the prestigious Babson University/Kauffman Foundation Entrepreneurship Research
Conference June 6-8, 2002 at the University of Colorado, Boulder. This paper
was written 5/31/2002 and placed on this web site 2/19/2003. The authors
continue to analyze the data and will be placing new papers on this web site
in the future. If you would like to download a copy of this paper in a Word
file, please
click here.
ABSTRACT
Field research was conducted during 2000/2001 in two
rural
PROPOSED MODEL FOR RESEARCH
It is generally agreed in the entrepreneurship literature (Timmons, 1999) that the entrepreneurial process is a function of three variables: the environment (resources), the business opportunity, and characteristics of the founder(s). However, the literature does not provide us with a generally accepted comprehensive process model of new venture formation. For example, there is disagreement regarding the sequence of the identification of the idea/opportunity and the decision to initiate a new venture. According to one view (Martin, 1984: 269; Gartner, 1989, Gatewood et al., 1995), the process of new venture formation is initiated by the entrepreneur's decision to start a new business. According to this view, once a person decides to start a new venture, he/she then identifies a venture opportunity, which leads in turn to new venture start-up. This view may be called "decision driven." In contrast, a second view (Wheelen and Hunger, 1992) proposes that the identification of a new venture idea precedes the decision to start a new venture. According to this view, the basic idea for a new product/service leads to an evaluation of both the environment and founder characteristics/assets to see if there is a feasible new venture opportunity. Once the idea is determined to be a feasible business opportunity, the decision is made to develop a business plan followed by start-up (implementation of the business plan). According to this view, the decision to start a venture is made incrementally, based upon the feasibility of the business idea. This second view is supported by Timmons' (1999:37) argument that the entrepreneurial process is "opportunity driven."
We propose that there are three basic motivations for starting a new business venture. In the first instance, called opportunity-driven,
the founder(s) initially discovers a viable business opportunity and then
decides to start a new venture to take advantage of that opportunity. Founding a business is a means of taking advantage
of an attractive opportunity; whereas, the goal is the providing
of a product or service. In the second instance,
labeled internally motivated, decision-driven,
the founder(s) initially decides to start a new business venture to satisfy
an internal yearning to be his/her own boss and only then looks for a viable
business opportunity for that venture to exploit. The
new business is the goal and the opportunity is perceived as the
means to achieve that goal. These first two
instances are examples of an entrepreneur primarily being "pulled" into
starting a new venture because of the new venture's attractiveness. In the third instance, labeled externally-motivated,
decision-driven, external circumstances (such as losing a job) initiate
the process by forcing the founder(s) to start a new venture in order to
keep a certain lifestyle. In this instance, the entrepreneur
can be thought of as primarily being "pushed" into starting a new venture
as a means of avoiding negative circumstances. The
opportunity is simply perceived as the means of achieving the intermediate
goal of starting a new business with the eventual goal of providing a desired
lifestyle.
We also propose that new ventures can be categorized according to the venture's entrepreneurial content (amount of novelty present in the venture) and its initial growth objective. This results in a continuum of low growth lifestyle ventures at one end and high growth gazelles at the other. We hypothesize not only that opportunity-driven new ventures contain more entrepreneurial content and have higher initial growth objectives than do decision driven ventures, but also that internally motivated, decision-driven new ventures have more entrepreneurial content and higher initial growth objectives than do externally motivated, decision-driven new ventures.
Environmental munificence, the provision
of needed resources, can effect new venture initiation.
We hypothesize that the more highly developed and
supportive the local environment (in terms of community resources), the
more opportunity-driven and internally motivated, decision-driven new ventures
will be present as a percentage of the total new ventures. We further hypothesize that the more highly developed
and supportive the environment, the higher the entrepreneurial content and
initial growth objective in new ventures.
BACKGROUND
Since the farm crisis of the 1980s, rural communities in the Midwest have struggled with economic development programs to help them accommodate the shift to the service sector as well as to maintain a traditional way of life. With the shift from a natural resource-based economy, rural families turn to off-farm employment in order to make ends meet. Indeed, the quality of off-farm labor is often used as an indicator of rural quality of life (Lasley et al., 1995, Lobao, 1990). Although some rural areas are currently experiencing a shortage in labor (with the concomitant decline of small town mainstreet), good paying, high quality jobs are scarce. Such employment is required by many rural Americans, who frequently must hold multiple jobs to support a family (Parker, 1997, Mishel et al., 1997). Establishing a new venture may be one means of maintaining and even improving a desired lifestyle for the entrepreneur and for the firm's employees. This is supported by the argument that "rural entrepreneurship is one of the foundations of rural economic development" (Wortman, 1990). Understanding the process that leads to successful entrepreneurial ventures in rural areas may help policy makers improve existing and future programs to support rural economies (Shaffer, 1990).
Entrepreneurship refers to starting a new business that often involves the development, production, and marketing of innovative products or services within a community context. Entrepreneurship research and theory identify a long list of factors that are to some degree instrumental in the emergence and survival of entrepreneurial ventures. These factors include such varied items as the motivation and business skills of the entrepreneur, available financial, educational, and technical assistance, and the physical infrastructure to support the business (Bygrave, 1989). However, little research exists that integrates several different types of factors into a more comprehensive analytic framework to determine their relative contributions to the entrepreneurial process. In particular, there is a lack of understanding of the roles of the less tangible social system inputs that may facilitate or constrain local entrepreneurship. Bygrave and Hofer (1991) note that "a major challenge facing entrepreneurship researchers … is to develop models and theories built on solid foundations from the social sciences." To meet this challenge, the authors emphasize the interaction between individual characteristics and environmental (community) characteristics that facilitate or constrain rural entrepreneurship.
RESEARCH QUESTIONS
This study springs from two basic research questions:
· How does the availability of resources in the local community (environment) affect the founding of entrepreneurial ventures, especially in rural areas?
· How does the initial motivation of the founder for starting an entrepreneurial venture affect the type of new venture being established?
It is generally agreed in the literature that the entrepreneurial process is a function of three variables: the environment (resources), the business opportunity, and characteristics of the founder(s). The first variable, the basic inputs into the emergence of entrepreneurial firms, may be classified into seven types of community resources - herein referred to as capitals. They are environmental, technological, financial, human, institutional, cultural, and social capital. Community capital comes in a variety of forms. Some types are necessary for economic development and others facilitate (support) the process.
Necessary Community Capital
Most community leaders and economic developers, when considering strategies for growth and development of the local economy generally focus on the traditional environmental, technological, financial, and human capital. These four capitals are therefore considered to be necessary for entrepreneurship to occur.
Environmental capital consists of all the components and features of the natural environment, some of which are consumable (minerals, oil), some renewable (trees, wildlife), and reusable (soil, scenic vistas, water). In resource endowment theory, a community's economic vitality is a function of the availability and productive use on natural resources (Shaffer, 1989).
Technological capital consists of the buildings, facilities, structural improvements, and the technological infrastructure. Traditionally necessary community technological capital includes buildings and space, industrial parks, roads and bridges, gas, water, sewer, electricity, and railroads. In the current service and information economy (Glasmeir and Howland, 1995), the greatest opportunity for economic development in rural areas are in businesses requiring additional infrastructure, such as high speed telecommunications and overnight delivery (Hobbs, 1986).
Financial capital is the money, financing and credit needed to establish the new venture and sustain it during its formative period. In a study of nascent entrepreneurs who attended workshops to help them evaluate their business ideas, individuals who decided against pursuing their goal of launching a business venture mentioned the lack of capital availability as a primary obstacle (Van Auken, 1999). On the other hand, a study of successful rural entrepreneurs in a four state area found that most entrepreneurs having trouble raising money were eventually able to raise the money (Buss et al., 1991). Entrepreneurs often rely upon venture capitalists to help finance their enterprises, but venture capitalists generally are not a source of funds in rural areas, and many of these ventures simply are not of the size and scale that catch the attention of venture capitalists (Shaffer and Pulver, 1985).
Human capital, the availability of a skilled and educated workforce, is not always an issue for new business ventures. Due to the lack of financial capital, entrepreneurs tend to rely heavily on family labor. The lack of qualified workers was not mentioned as an obstacle to launching a new business by nascent entrepreneurs in a study by Van Auken (1999), but Buss et al. (1991) found that the percentage of entrepreneurs who mentioned finding qualified workers as a strart-up problem varied according to the nature of the local economy. Entrepreneurs in areas having a strong economy more significantly more likely to mention finding workers as a start-up problem than entrepreneurs in areas having a weak economy.
Facilative Community Capital
The four
previously-mentioned capitals (environment, technological, financial, and
human) are necessary for entrepreneurial ventures to emerge. For them to flourish, however, three additional capitals
are necessary as catalysts and facilitators. "This
includes the set of values that are held regarding entrepreneurial behavior
in the community or region, rewards and incentives for taking initiative,
and rules and regulations that favor or restrict attempts to realize specific
opportunities (Bryant, 1989: 340). The types of capital
that facilitate the emergence of entrepreneurship and support its viability
are institutional, cultural, and social capital, plus an added dimension
of human capital.
Institutional capital includes government policies and procedures, including regulations and tax codes. It is an important part of the environment for entrepreneneurship (Gartner, 1985). Components of institutional capital include providing advice and counseling through small business development centers and training and mentoring programs, assisting in access to venture capital, providing space and services through incubators, giving tax breaks to new businesses, and having a comprehensive visionary local development that includes support for new business ventures. The popular "growth machine model" of economic development emphasizes institutional capital. Under this model, land speculators/developers, real estate agents, construction contractors, bankers, local newspapers, and other pro-growth stakeholders work to support local development with policies that facilitate business and industrial development through investment in growth-inducing resources (Molotch, 1976).
Cultural capital includes the values,
attitudes, norms, and beliefs held by people in the local community about
change and development. The shared ideas and expectations
about entrepreneurship can either facilitate or hinder the emergence and
growth of entrepreneurial ventures in a community. One
of the principles of sustainable community economic development is building
community culture, that is, a common identity and purpose that provide local
ties and a shared vision of the future (Allen and Dillman,
1994; Nozick, 1993). Local
attitudes toward business and starting a business (Shapero,
1984; Schell and Davig, 1981; Bryant, 1989),
attitudes toward entrepreneurship (Gnyawali and
Fogel, 1994), and the general community outlook
on risk-taking (Hoffman cited in Naffziger, 1995)
have been shown to affect local entrepreneurship. When individuals are in
systems that have favorable values, attitudes and norms toward change and
innovation, those individuals also tend to be more innovative (
Social capital includes networks, norms, and trust that facilitate cooperation and sharing. It is a group property that is part of the structure of relationships among people (Coleman, 1988). Social capital is a crucial resource for entrepreneurship in that “…successful entrepreneurs are more likely than others to work on building networks of trust, and cooperative exchange governed by norms of reciprocity” (Aldrich, 1995:96). It brings certainty and stability to the community through the assurance that actions will be repaid in kind thus providing the base for future cooperation (Wall et al., 1998). Trust among business partners and the reciprocity involved in networking and joint learning are identified by entrepreneurs as elements critical to success (Neace, 1999; Taylor et al., 1997).
Human capital was previously included in the
first set of capitals needed for entrepreneurship. It
has another dimension, visionary local leadership, which is included here. Visionary local leadership facilitates and supports entrepreneurship. Schell and Davig (1981:564)
suggest that such leadership is crucial in the emergence and success of
entrepreneurship within a community. They call these people "macroentrepreneurs" who are …"involved in stimulating
growth and development in the community as a whole rather than their own
private business."
Together, these seven capitals represent Timmons' first element (environment/resources) of the entrepreneurial process as well as provide context for the other two elements (business opportunity and founder characteristics). We propose that the more highly developed the environmental, technological, financial, and human capitals, and the more facilitative and supportive of entrepreneurship the institutional, cultural, and social capitals, the more munificent is the entrepreneurial environment. We also speculate that environmental munificence has a significant impact on the founding of new ventures, in terms of the number and/or type being founded.
Proposed Influence of Founder Motivation on the Type of New Ventures Founded
The entrepreneurship literature does not provide a generally-accepted process model of new venture formation. In particular, there is disagreement regarding the sequence of the identification of the idea/opportunity and the decision to initiate a new venture. According to one view, the process of new venture formation is initiated by the entrepreneur's decision to start a new business. This view argues that new ventures are decision-driven. In contrast, a second view proposes that the identification of a new venture opportunity precedes the decision to start a new venture. This view argues that new ventures are opportunity-driven.
Research by Bhave (1994)
reveals that neither view is correct. He found that
the formulation of a new business concept is preceded by one of two processes
initiated by the entrepreneur: (a) the person first
makes a conscious decision to start a new venture and then identifies a
business opportunity (decision-driven), or (b) the person
first recognizes a business opportunity and then makes the decision to start
a new venture (opportunity-driven). Both
of these two sequences were found to lead to new venture formation. Out
of 27 total ventures studied in upstate
Bhave further measured the "entrepreneurial content" in a new venture as a function of the amount of novelty (high, medium, low) in the new venture. He found that he could differentiate among new ventures based upon their level of entrepreneurial content. Bhave did not, however, directly examine if the resulting new ventures were affected by the sequence of their entrepreneurial process. Nevertheless, an examination of his data (1994: 227) reveals that out of 27 total ventures studied, at least seven of the 11 opportunity- driven ventures (63.6%) led to a start-up containing at least one component having a high degree of novelty; whereas, only two of the 16 decision-driven ventures (12.5%) led to a start-up containing at least one component having a high degree of novelty. This suggests that opportunity-driven new ventures are more "entrepreneurial" (as measured by the degree of novelty) than are decision-driven new ventures. This supports the contention that there should be two models of new venture creation for two fundamentally different categories of new ventures: one model for opportunity-driven new ventures with high entrepreneurial content (e.g., fast growth gazelles) and one for decision-driven new ventures with low entrepreneurial content (e.g., slow growth life style firms). This distinction is supported by Allen (1999:13), who states that entrepreneurial ventures are essentially innovative, value-creating, growth-oriented; whereas, life style businesses tend to be relatively small and geographically bound. Kuratko and Hodgetts (2001: 362) point out that independence, autonomy, and control (not achieving growth or being innovative) are the primary driving forces of the life style venture, which strives only for a comfortable living for the entrepreneur.
Opportunity-driven new ventures and decision-driven new ventures should have different driving (motivating) forces. It is accepted in the literature (Shapero and Sokol, 1982 and Vesper, 1983) that entrepreneurial motivational factors can be classified in terms of being attracted to starting a business ("pull" factors) or of being forced into this choice ("push" factors). The pull factors are typically discussed in terms of personal traits and characteristics (e.g., high need for achievement or parents' profession). People are thus viewed as having predispositions to becoming entrepreneurs. The pull factors are generally internal to the person (i.e., the desire to start a new venture comes from within the person) and an example of proactive decision making (i.e., the decision is initiated by the person). Therefore, pull factors should not only predominate in opportunity-driven new ventures, but also in those decision-driven ventures in which a person desires to start a new venture, but waits until he/she can identify an opportunity. In these instances, the motivation comes from within and is thus proactive. In contrast, the push factors are typically discussed in terms of precipitating events (e.g., being fired) or personal background (e.g., immigrant). The push factors act to restrict personal choice. This restriction forces people to value new ventures more highly as a way to achieve their personal goals, regardless of their traits or other personal characteristics. The push factors can also be viewed as being external to the person (i.e., forced upon the person by outside events) and an example of reactive decision making (i.e., the decision is a response to external events). Therefore, push factors should predominate in those decision-driven new ventures in which starting a new venture is perceived as just another alternative to keep or regain a standard of living and is thus reactive.
We propose to extend and improve the process model of new venture creation by measuring how the initial motivation (decision-driven or opportunity-driven) of the founding entrepreneur affects the degree of novelty in new business ventures. We also propose to measure the effect of reactive (driven by external push factors) versus proactive (driven by internal pull factors) decision making on the degree of novelty present in a decision-driven venture. For example, the decision to start a new venture may be influenced in a proactive manner by the entrepreneur's internal desire (pull) to be his/her own boss or in a reactive manner by external factors (push), such as being fired or by being forced to work at home for family reasons. Following this logic, we predict that decision-driven new ventures that are internally motivated by pull factors are likely to have a higher degree of novelty than do decision-driven ventures that are externally motivated by push factors in the environment.
This reasoning can be extended to include the growth objective set by the founding entrepreneur for his/her new venture. Because an opportunity-driven venture is started to take advantage of a business opportunity, it is likely that the founder(s) will want the new venture to grow as much and as fast as possible to take advantage of that opportunity. On the other hand, an internally motivated decision-driven new venture is started because the founder(s) wants to start and manage his/her own business. Therefore, the founder(s) is likely to set the venture's growth objective based on its likelihood of success. The growth objective may thus be high, low or somewhere in between. Since it is likely that an externally motivated decision-driven new venture is started primarily to provide for the founder(s)'s lifestyle, the founder(s) is likely to establish a fairly low and easily achievable growth objective for the venture (i.e., lifestyle firm).
RESEARCH HYPOTHESES AND DEFINITION OF
TERMS
Based on the above reasoning, we propose
the following eight hypotheses for field research. We
group them, based on their primary focus, into three categories: community
focus, founder focus, and interaction focus. There
are two community hypotheses, four founder hypotheses, and two interaction
hypotheses.
Environmental Hypothesis 1: The more highly developed the environmental,
technological, financial, and human capitals of the local environment, the
greater the number of new ventures being founded.
Environmental Hypothesis 2: The more supportive (i.e., for entrepreneurial
ventures) the institutional, cultural, and social capitals of the local environment,
the greater the number of new ventures being founded.
Founder Hypothesis 1: Opportunity-driven new ventures contain
a significantly higher level of novelty than decision-driven new ventures.
Founder Hypothesis 2: Internally motivated, decision-driven
new ventures contain a significantly higher level of novelty than do externally
motivated, decision-driven new ventures.
Founder Hypothesis 3: Opportunity-driven, new ventures have
a significantly higher growth objective than decision-driven new ventures.
Founder Hypothesis 4: Internally motivated, decision-driven new ventures have a significantly higher growth objective than do externally motivated, decision-driven new ventures.
Interaction Hypothesis 1: The more highly developed and supportive
the community capitals, the more opportunity-driven and internally motivated,
decision-driven new ventures will be present as a percentage of the total
new ventures.
Interaction Hypothesis 2: The more highly developed and supportive
the community capitals, the higher the level of novelty present in new ventures.
We used the following definitions of
key variables.
· Decision-Driven. Decision to start a new business before generated business ideas/opportunities.
· Opportunity-Driven. Generation of an idea/opportunity for a new product or service before decision to start a new business.
· Initial Motivation. Rationale for why started the new business: internal desire (pull) or external circumstances (push).
· Novelty of Business Concept. Degree of familiarity that potential customers have with the business concept.
· Novelty of Production Technology. Degree to which the equipment & technology needed to make the product is standard and easily available.
· Novelty of Product. Degree to which product development activity is needed before the product can be offered to the market.
· Novelty of Distribution. Degree to which the venture is able to use current distribution channels.
· Initial Growth Objective. Degree of growth initially desired by the founder from the new venture.
·
Human Capital. Presence and degree of leadership (support for local development)
and the size and skills of the workforce in the community.
·
Financial Capital. Presence and degree of financing available through banks
and venture capitalist in the community.
·
Physical Capital. Presence and degree of development of the services and
facilities infrastructure in the community (particularly information technology
infrastructure).
·
Social Capital. Degree to which community organizations (including businesses)
are linked in internal and external information and support networks and
are active in local development programs.
·
Cultural Capital. Presence and strength of community attitudes, values,
and norms that support entrepreneurship.
·
Institutional
Capital. Presence and degree of laws, regulations,
and tax codes in the community that support entrepreneurship.
METHODOLOGY
Questionnaires were sent to the founders
of recently-founded new ventures in two non-metropolitan
To obtain data with which the hypotheses could be tested,
we conducted surveys of new businesses that were founded in these two
Self-administered questionnaires were mailed to the business owners. A modified Dillman (1978) survey technique was used that included a first mailing consisting of a letter explaining the project, a copy of the questionnaire, and a stamped return envelope; a second mailing consisting of a reminder post card; and a third mailing with a letter, a replacement questionnaire, and a stamped return envelope.
The questionnaires were pre-tested with new business ventures from outside the counties being studied. Each questionnaire contained questions about the availability of community capitals/resources, questions relevant to starting and growing a new business venture, and demographic information on the entrepreneurs.
A second set of questionnaires were sent to key business leaders in each of the two counties. These business leaders were identified by Chamber of Commerce directors, ISU extension agents, and SBDC directors. These questionnaires contained questions about the availability of community capitals/resources. To date, these results have not yet been analyzed.
PRELIMINARY RESULTS
Community Capitals/Resources Hypotheses
Environmental Hypothesis 1: The more highly developed the environmental,
technological, financial, and social capitals of the local environment,
the greater the number of new ventures being founded.
Environmental Hypothesis 2: The more supportive (i.e., for entrepreneurial
ventures) the institutional, cultural, and social capitals of the local environment,
the greater the number of new ventures being founded.
We compared the entrepreneurs of
For necessary capitals, there was only
one item under environmental and technological capitals (physical space
for the business) with a significant difference between the two communities.
For facilitative capitals, there were
no significant differences on the items measuring institutional capital. There was, however, a significant difference between the
responses from the entrepreneurs in the two counties in terms of cultural
capital. Cultural capital
was measured through the entrepreneurs' perceptions of the community's and
its leaders' attitudes toward new businesses. (Leader's
attitudes are viewed as a dimension of human capital, but are discussed
here with cultural.)
Out of eleven items measuring cultural
capital and the leader attitudes dimension of human capital, six indicated
significant differences between the two counties - all more positive for
Although leaders (item j) are perceived
as being supportive of new businesses in both counties, the leaders in
As a measure of social capital, the entrepreneurs
were asked how active they were in local community organizations and activities. The entrepreneurs from
Other data from the questionnaire revealed
that only about one-third of the new business ventures in both counties in
the survey had more than one employee other than the founder/owner.
The finding that cultural capital is
significantly higher in Carroll than in
Since this study found the same number
of new businesses (96) to have been founded in each county during the 1994-2000
time period, neither hypothesis could be tested as written. Given an equal number of new ventures in each county (data
not available at the time of hypothesis formulation), the two environmental
hypotheses should have predicted no significant differences reported in the
four necessary and three facilitative capitals. With
this in mind, the data supports a reformulated environmental hypothesis
1. It is logical that an equal level of the four
necessary capitals would be reflected in an equal number of new ventures
being formed in each county. Insofar as the three
facilitative capitals are concerned, there was no difference in the level
of institutional capital. Carroll County reported
significantly greater cultural capital than did Buena Vista County, but significantly
less social capital than Buena Vista County. If it
can be assumed that these two capitals can substitute for each other, one
could then argue that overall there is no significant difference in the reported
facilitated capitals in each county. The data could
thus be said to support a reformulated environmental hypotheses 2. If there is no difference in the overall level of the
three facilitative capitals in the two counties, there should be no difference
in the number of new ventures being founded. This
was the case. For a true test of the two environmental
hypotheses as originally written, additional data would have to be gathered
from two counties having a significantly different level of new ventures.
Founder Hypotheses
Entrepreneurs were asked: "Which came
first, the Decision to start your new business OR the idea for a new business opportunity?" Of
the 75 entrepreneurs who responded to this question, 36 (48%) indicated
that the decision came first and 39 (52%) indicated that the idea came first. There was no significant difference between these responses
- either in total or by county. The county totals
were 21 (47.7%) decision-driven and 23 (52.3%) idea-driven in
Founder Hypothesis 1: Opportunity-driven new ventures contain
a significantly higher level of novelty than decision-driven new ventures.
Four items (#23, 24, 25, and 26) in
the questionnaire dealt with the issue of novelty in the entrepreneurial
venture. Differences between the means were tested
for significance using the t test (parametric) as well as the Gamma and
"When you first started your new business,
how hard was it to explain what you were going to do as a business (How
familiar were people with the kind of business you were going to start?)" The respondents were asked to select from five responses
ranging from Very Easy/Very Familiar (1) to Very Hard/Clueless (5). The decision-driven ventures had a mean average score
of 1.92. The opportunity-driven respondents had a
mean average of 2.05. The difference was in the predicted
direction, but was not significant.
"When you first started your new business,
how available was the necessary equipment and technology needed to make
your product or provide your service? (Assuming you
had the money to pay for it.)" The respondents were
asked to select from five responses ranging from Readily Available (1) to
Not Available At All (5). The decision-driven ventures
had a mean average score of 1.64. The opportunity-driven
had a mean average of 1.85. Again, the difference
was in the predicted direction, but was not significant.
"When you first started your new business,
how much development activity (e.g., develop prototype or conduct market
research) was needed before the product could be offered to the market?" The respondents were asked to select from five responses
ranging from Very Large Amount (5) to None Needed
(1). The decision-driven ventures had a mean average
score of 1.86. The opportunity-driven had a mean
average of 2.10. Again, the difference was in the
predicted direction, but was not significant.
"When you first started you new business,
how available were the distribution channels you needed to market your product
or service?" The respondents were asked to select
from five responses ranging from Readily Available (1) to Not Available
At All (5). The decision-driven ventures had a mean average score of 1.77. The opportunity-driven had a mean average of 2.16. The difference was in the predicted direction and would
have been significant at the .10 level, but only if a two-tailed t test
had been appropriate.
Overall, the mean average measures of
novelty in opportunity-driven new ventures were directionally higher than
those in decision-driven new ventures, but none approached a significant
degree of difference. This is contrary to what was
found in Bhave’s study. This
may be because of the difference between Bhave's
methodology and the questionnaire approach taken in this study, or it may
be due to many other reasons. Bhave personally evaluated the degree of novelty in
each venture he studied; whereas, this study used questionnaire responses
from the owners/founders of the ventures. Regardless
of the rationale, Founder Hypothesis 1 was not significantly supported
in this study.
Founder Hypothesis 2: Internally motivated, decision-driven
new ventures contain a significantly higher level of novelty than do externally
motivated, decision-driven new ventures.
Item 19 in the questionnaire was an
open-ended question: "Why did you decide to start this new business? (List
the reasons below in order of importance beginning with the most
important reason first." When the weighted
responses for decision-driven and opportunity-driven ventures are compared
(see Table 3), there appears to be no clear pattern beyond the obvious. The primary reason for founding the opportunity-driven
new venture is clearly the identification of a need that created a business
opportunity. If nothing else, this validates the
truthfulness of the response to the later question (#20) of which came first
- the decision or the idea. In contrast to the opportunity-driven
venture, there is no one dominant reason given for founding the decision-driven
venture. The top two reasons given for founding this
type of venture were because the new business allowed them to do the kind
of work they enjoy and are skilled at doing and because they liked being
their own boss.
When these weighted responses are converted
into difference scores, the pattern becomes clearer. Table
4 shows the difference between opportunity-driven and decision-driven ventures
in the scores for each reason weighted by order written.
For example, the reason "need/opportunity for a business" received
a score of 84 by opportunity-driven ventures and only 28 by decision-driven
ventures. Subtracting one from the other gives a difference
score of 56 in favor of opportunity-driven new ventures.
Table 4 thus identifies how opportunity-driven and decision-driven
ventures are most different from each other. These
can be considered the key differentiating characteristics of these two types
of entrepreneurial ventures. Opportunity-driven
ventures are characterized first by the identification of a need for a new
product or service, second by the ability to use one's personal abilities,
third by a need or desire to change occupation or retire from a current
job, and then for extra income. Decision-driven
ventures, in contrast, were founded for a greater number of reasons. Most importantly, it was founded to enjoy the type of
work that's involved, to obtain greater flexibility in schedule and to enjoy
time with the family. It enabled the founder to regain
income from a lost job and be self-employed. Further
reasons were that a hobby became a business and that the venture provided
retirement income and better working conditions. It
enabled the founder to offer a quality product/service (presumably not offered
in their previous job). Additional reasons were that
the business was purchased, the founder wanted to support and live in a small
town, and because of health reasons.
At the time of this paper, the data
had not yet been examined to test Founder Hypothesis 2. The
initial examination of the data did not separate internally from externally
motivated decision-driven new ventures. Next steps
in this study are to: (1) identify external and internal reasons given by
entrepreneurs of decision-driven ventures, (2) score each questionnaire
from a decision-driven venture in terms of the reasons given for starting
the venture, and (3) compare the mean responses to each of the four novelty
questions for each of the two types of ventures to test the hypothesis.
Founder Hypothesis 3: Opportunity-driven, new ventures have
a significantly higher growth objective than decision-driven new ventures.
The entrepreneur's growth objective
for the new venture was tapped via item 17a: "When you first started your
new business, how large did you want it to be?" The
responses ranged from (a) "Stay small enough so I can run it by myself out
of my house/apt/farm" to (b) "Grow to a moderate size so business is in a
new location/building. Hire a few employee" to (e)
"Become a large (over 1,000 employees) nationally-known firm." The five responses were weighted from a=1 to e=5 and multiplied
times the number of checks for each response for decision-driven and opportunity-driven
ventures. The mean average response for item 17a was
1.72 for decision-driven ventures and 1.46 for opportunity-driven ventures. Both types of ventures chose to keep their ventures at
a small to moderate size. Although no significance
test was done, this result was contrary to the hypothesis. Opportunity-driven ventures wanted to stay smaller than
did decision-driven ventures! Therefore, founder
hypothesis 3 was not supported.
Founder Hypothesis 4: Internally motivated, decision-driven new ventures have a significantly higher growth objective than do externally motivated, decision-driven new ventures.
At the time of this paper, the data
had not yet been examined to test Founder Hypothesis 4. The
initial examination of the data did not separate internally from externally
motivated decision-driven new ventures. Next steps
in this study are to: (1) identify external and internal reasons given by
entrepreneurs of decision-driven ventures, (2) score each questionnaire
from a decision-driven venture in terms of the reasons given for starting
the venture, and (3) compare the mean responses on item 27a for each of the
two types of ventures to test the hypothesis.
Interaction Effects of Environmental
Resources/Capitals and Founder Motivation
Interaction Hypothesis 1: The more highly developed and supportive
the community capitals, the more opportunity-driven and internally motivated,
decision-driven new ventures will be present as a percentage of the total
new ventures.
We hypothesized that new entrepreneurial
ventures in
We also hypothesized that the decision-driven
ventures from
Interaction Hypothesis 2: The more highly developed and supportive
the community capitals, the higher the level of novelty present in new ventures.
We hypothesized that
"When you first started your new business,
how hard was it to explain what you were going to do as a business (How
familiar were people with the kind of business you were going to start?)" The respondents were asked to select from five responses
ranging from Very Easy/Very Familiar (1) to Very Hard/Clueless (5). The
"When you first started your new business,
how available was the necessary equipment and technology needed to make
your product or provide your service? (Assuming you
had the money to pay for it.)" The respondents were
asked to select from five responses ranging from Readily Available (1) to
Not Available At All (5). The
"When you first started your new business,
how much development activity (e.g., develop prototype or conduct market
research) was needed before the product could be offered to the market?" The respondents were asked to select from five responses
ranging from Very Large Amount (5) to None Needed
(1). The
"When you first started you new business,
how available were the distribution channels you needed to market your product
or service?" The respondents were asked to select
from five responses ranging from Readily Available (1) to Not Available
At All (5). The
Since there was no significant difference
between the overall level of the seven capitals
in each county, this hypothesis could not be tested as written. The equal percentage of opportunity-driven new ventures
in each county does support a reformulated hypothesis that a similar level
of munificence in the seven capitals should lead to a similar level of novelty
in the new ventures being founded. The data in this study does support the
reformulated hypothesis.
PRELIMINARY CONCLUSIONS
This study was undertaken as exploratory
research to learn (1) how the availability of resources in the local environment
affects the founding of entrepreneurial ventures and (2) how the initial
motivation of the founder for starting an entrepreneurial venture affects
the type of new venture being established. Although
data analysis is not yet complete, the study has made at least a small beginning
in understanding more about these issues.
As of
(1)
Although the data did
not support the two environmental hypotheses, it did not disprove them. An equivalent level of necessary and facilitative capitals
in each county should result in an equivalent number of new ventures being
formed. This is what was found in this study. For a true test of the two environmental
hypotheses as originally written, additional data would have to be gathered
from two counties having a significantly different level of new ventures.
(2) Neither founder hypothesis 1 or 3 received significant support from the data in this study. Opportunity-driven new ventures did not contain a significantly higher level of entrepreneurial content (novelty) or have a higher initial growth objective than did decision-driven new ventures. Nevertheless, the mean average measure of entrepreneurial content present in opportunity-driven new ventures was higher than that in decision-driven new ventures, although the difference was not significant. As noted earlier, there was no test of founder hypotheses 2 and 4, since the data from the decision-driven new ventures has not yet been split into internally motivated and externally motivated ventures.
(3)
Although the data did
not support the two interaction hypotheses, it did not disprove them. An equivalent level of necessary and facilitative capitals
in each county should result in an equivalent percentage of opportunity-driven
being formed and an equivalent level of novelty present in the new ventures. (Internally motivated decision-driven new ventures have
not yet been analyzed.) This is what was found in
this study. For a true test of the two environmental
hypotheses as originally written, additional data would have to be gathered
from two counties having a significantly different number of new ventures.
Aside from the incomplete testing of
hypotheses, this study already provides some valuable information regarding
the new venture initiation process. A relatively
equal percentage of recent new ventures reported that they were initiated
either by the identification of an opportunity or by a decision to start
a new business. This study supports Bhave’s conclusion that the new venture initiation
process is much more complicated than shown by existing models. Clearly, the process can be initiated either by
the identification of an opportunity or by a decision to start a
new venture.
Furthermore, this study found that opportunity-driven new ventures seem to be inherently different from decision-driven new ventures in terms of their characteristics. For one thing, the reasons given to found each type of business (in terms of difference scores) appear to be quite different. In this study Opportunity-driven ventures were characterized first by the identification of a need for a new product or service, second by the ability to use one's personal abilities, third by a need or desire to change occupation or retire from a current job, and then for extra income. Decision-driven ventures, in contrast, were characterized by a greater variety of reasons. Most importantly, decision-driven ventures were founded to enjoy the type of work that's involved, to obtain greater flexibility in schedule, and to enjoy time with the family. It enabled the founder to regain income from a lost job and be self-employed. Further reasons were that a hobby became a business and that the venture provided retirement income and better working conditions. It enabled the founder to offer a quality product/service (presumably not offered in their previous job). Additional reasons were that the business was purchased, the founder wanted to support and live in a small town, and because of health reasons. In addition, there is some evidence that opportunity-driven new ventures may make a greater contribution to economic development than do decision-driven new ventures. For example, during the time period from when the businesses were founded to when the survey was taken, opportunity-driven ventures added 27 new employees. Decision-driven ventures, in contrast, dropped one employee.
As mentioned previously, the data had
not yet been examined to test the hypotheses regarding internally versus
externally motivated decision-driven new ventures. Next
steps in data analysis are to: (1) identify external and internal reasons
given by entrepreneurs of decision-driven ventures, (2) separate each questionnaire
from a decision-driven venture in terms of internally and externally motivated
reasons, and (3) use the resulting data from each type of decision-driven
new venture to test founder hypotheses 2 and 4 and the second part of interaction
hypothesis 1.
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