Exploring Start-up Event

8/6/2019 Exploring Start-up Event

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ELSEVIER

E X P L O R I N G S T A R T -U P E V E N TS E Q U E N C E SNANCY M . CARTER

M a r q u e t t e U n i v e r s i t y

WILLIAM B . GARTNERS a n F r a n c i s c o S t a t e U n i v e r s it y

P A U L D . R E Y N O L D SB a b s o n C o l l e g e

Th i s r e s ea r ch a n a l y z ed n ew ven t u r e s t a r t -u p a c t i v i t i e s u n d er t a ken b y 7 1E X E C U T I V E n a s cen t en t r ep r en eu r s . N a s ce n t en t r ep r en eu r s a r e i n d i v id u a l s wh o wer eS U ~ / I I V I A R Y i d en ti f ied a s t a k i n g s t ep s t o f o u n d a n e w b u s i n es s b u t w h o h a d n o t ye t

s u ccee d ed i n m a k i n g t h e t r a n s i ti o n t o n ew b u s i n es s o wn er s h i p . Lo n g i t u d i n a ld a t a f o r t h e s tu d y c o m e s r o m a s e c o n d a r y d a t a a n a l y s is o f t w o r e p r e s en t a ti v es a m p l es , o n e o f 6 8 3 a d u l t r e s id en t s i n W i s co n s i n (R eyn o l d s a n d W h i t e 1 9 9 3 )

a n d t h e o t h er o f 1 0 1 6 a d u l t r e s i d en t s o f t h e U n i t ed S t a t e s (Cu r t i n 1 9 8 2 ). Th es e s u r veys w er e co n d u c t edb e t w een 1 9 9 2 a n d 1 9 9 3 , a n d t h e n a s cen t en t r ep r en e u r s we r e r e i n t e r v i ewed s i x t o 1 8 m o n t h s a f t e r t h e i rin i t ia l in terv iew.

Th r ee b r o a d q u es t i o n s w er e a d d r es s ed : (1) W h a t a c t i v i ti e s d o n a s cen t en t r ep r en eu r s i n i ti a t e ina t t em p t i n g t o e st a b l is h a n e w b u s i n es s ? (2) H o w m a n y a c t i v i t ie s d o n a s cen t en t r ep r en eu r s i n i ti a t e d u r in gt h e g es t a t i o n o f t h e s t a r t-u p ? a n d (3) W h en a r e p a r t i cu l a r a c t i v i t ie s i n i t ia t ed o r co m p l e t ed ?

B e t w e e n t h e f i r s t a n d s e c o n d i n te r v ie w , 4 8 % o f t h e n a s c e n t e n t re p r e n e u r s r e p o r te d t h e y h a d s e tu p a b u s i n es s i n o p er a ti o n . O v er 2 0 % h a d g i ven u p a n d w er e n o l o n g er a c t i ve l y tr y i n g t o e s t a b li s h ab u s i n es s . A l m o s t a t h i r d o f t h e r e s p o n d en t s r ep o r t ed t h ey wer e s t i l l t r y i n g t o e s ta b l i s h a f i r m .A s a wa y t o s u m m a r i z e t h e r e s u l ts a n d a s a s p r i n g b o a r d t o wa r d s o m e i n s i g h t s i n t o t h e im p l i ca t i o n so f t h is r e s e a r c h f o r p r a c t i c e a n d f u t u r e r e s e a r ch , w e d e v e l o p e d t h e f o l l o w i n g a c t i v it y p r o f il e s o f t h et h r ee t yp es o f n a s cen t en t r ep r en eu r s s t u d ied . Th es e p r o f i l e s a r e o f f e r ed a s a co m b i n a t i o n o f b o t h f a c ta n d s o m e i n t u i t io n a b o u t t h e f i n d i n g s .

S T A R T E D A B U S I N E S S . N a s c e n t e n t re p r e n e u r s w h o w e r e a b l e t o s t a rt a b u si n e s s w e r e m o r ea g g r es s i ve i n m a k i n g t h e i r b u s i n es s e s r ea l. Th ey u n d er t o o k a c t i v it i e s th a t m a d e t h e i r b u s i n es s e s t a n g i b l et o o th e r s : t h e y l o o k e d f o r f a c i l it i e s a n d e q u i p m e n t , s o u g h t a n d g o t f i n a n c i a l s u p p o r t , f o r m e d a l e g a len t i ty , o r g a n i z ed a t ea m , b o u g h t a c i l i t i e s a n d eq u i p m en t , a n d d evo t ed f u l l ti m e t o t h e b u s i n es s . I n d i v i d u a l swh o s ta r t ed b u s i n es s e s s eem ed t o a c t w i t h a g r ea t e r l eve l o f i n ten s i ty . Th ey u n d er t o o k m o r e a c t i v it i e st h a n t h o s e i n d i v i d u a l s wh o d i d n o t st a r t a b u s i n es s . Th e p a t t e r n o f a c t i v i t ie s s eem t o in d i ca t e t h a ti n d i v id u a l s wh o s t a r t ed f i r m s p u t t h em s e l ve s i n t o th e d a y - t o -d a y p r o ces s o f r u n n in g a n o n g o i n g b u s i n es sa s q u i ck l y a s t h ey co u l d a n d t h a t t h e s e a c t i v i t ie s r e s u l t ed i n s t a r ti n g f i r m s t h a t g en e r a t ed s a l e s (9 4 %

Address correspondence to Nancy M. Carter, School of Business Administration, Marquette University, 606North 13th St., Milwaukee, WI 53233.

Journal of Business Venturing 11. 151-166~/ 1996 Elsevier Science Inc.655 Avenue of the Americas, New York, NY 10010 0883-9026/96/$15.00S SD I 0883-9026(95)00129-8


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152 N.M . CARTER ET AL.o f th e e n t r e pr e n e u rs ) a n d p o s i ti v e c a s h f l o w ( 5 0 % o f t h e e n tr e p r en e u r s ). W h a t is n o t k n o w n i s h o ws u c c e s s f u l o r p r o fi ta b l e t h e s e n e w f i r m s w i l l b e o v e r t i m e . F o r e x a m p l e , 5 0 % o f th e f i r m s t h a t w e r es t a rt e d h a d n o t r e a c h e d p o s it i v e c a s h f l o w a n d t h e s e f i r m s m a y h a v e b e e n s t a r t e d b y i n d i vi d u al s w h ow er e f o o l h a r d y a n d r u s h ed i n t o o p er a t i o n o f a b u s i n es s t h a t w o u l d n o t b e s u s ta i n a b l e .

G A V E U P . T h e p a t t e r n o f a c t iv i t ie s f o r t h e g r o u p o f e n t r e p re n e u r s w h o g a v e u p s e e m t o i n di c a tet h a t th es e en t r ep r en e u r s d i s co ver ed t h a t th e i r i n it i a l id ea f o r t h e i r b u s i n es s es w o u l d n o t l ea d t o s u cces s .Th e f i n d i n g t h a t t h e a c t i v i ty o f d eve l o p i n g a mo d e l o r p r o t o t y p e d i f fe r en t i a ted i n d i v id u a l s w h o g a ve u pf r o m t h o s e w h o w er e s t i ll tr y i n g w o u l d s u g g es t t h a t th o s e w h o g a ve u p h a d ' ~est ed " t h e i r i d ea s o u t a n df o u n d t h a t t h e y w o u l d n o t w o r k a c c o r d i n g t o th e i r e x p e c ta t io n s . N a s c e n t e n t r e p r e n e ur s w h o g a v e u ps eem ed t o b e s i m i l a r i n th e i r a c t i v i ty p a t t e r n s co m p a r ed w i t h t h o s e w h o s t a r t ed t h e i r f i r ms , t h a t is ,i n d i v id u a l s w h o g a ve u p p u r s u ed t h e a c t iv i t ie s o f c r ea t i n g a b u s i n es s i n a n a g g r es s i ve ma n n e r a t th eb eg i n n i n g o f t h e p r o ces s . B u t a s t h e b u s i n es s u n f o l d ed o ver t ime , t h es e en t r ep r en eu r s d ecr ea s ed t h e i ra c t i v i ti e s a n d t h en cea s ed s t a r t -u p a c t i v it i e s. Th i s g r o u p o f i n d i v id u a l s m i g h t b e s een a s e i t h er h a v i n gt h e w i s d o m t o t e s t t h e i r id ea s o u t b e f o r e j u m p i n g i n t o s o me t h i n g t h a t m i g h t l ea d t o f a i l u r e o r l a ck i n gt h e f l ex i b i l it y t o f i n d mo r e c r ea t i ve w a y s t o s o l ve t h e p r o b l em s t h a t t h ey w er e co n f r o n t ed w i t h .

S T I L L T R Y I N G . I t w o u l d s e e m t h a t th o s e w h o a r e s t il l t r y in g a r e n o t p u t t i n g e n o u g h e f fo r t in t ot h e s ta r t -u p p r o c es s i n o r d er t o f i n d o u t w h e t h er t h ey s h o u l d s t a r t t h e b u s i n es s o r g i ve u p . Th o s es t il l t r y i n g h a d u n d er t a ken f e w e r a c t i v i t ie s t h a n i n d i v id u a l s i n th e o t h er t w o g r o u p s . Th e s t il l t r y i n gen t r ep r en eu r s w er e d evo t i n g t h e i r s h o r t - t e r m e f f o r t s t o w a r d a c t i v i t ie s i n t e r n a l t o t h e s ta r t -u p p r o c es s(e. g . , s a v i n g m o n ey a n d p r ep a r i n g a p l a n ) a n d l e s s e f f o r t t o w a r d a c t i v i t i e s t h a t w o u l d m a ke t h e b u s i n es sr ea l t o o t h ers . Th e s t i ll tr y i n g en t r ep r en eu r s m a y b e a l l t a l k a n d l i tt le a c t i o n . Or t h es e s t i ll t ry i n gen t r ep r en eu r s m i g h t b e in vo l ved i n d eve l o p i n g b u s i n es s es t h a t t a ke l o n g er f o r t h es e p a r t i c u l a r o p p o r t u n i -t i e s to u n f o ld . ( l t s h o u l d b e n o t ed t h a t t h er e w a s n o i n d u s t r y e f f ec t a cr o s s t h e t h r ee g r o u p s . )

Ou r a d v i ce t o i n d i v i d u a ls co n s i d er i n g b u s i n es s s t a r t -u p i s t h a t t h e r e s u l ts s eem t o p r o v i d e ev i d en cet h a t n a s cen t en tr ep r en eu r s s h o u l d a g g r es s i ve l y p u r s u e o p p o r t u n i t i e s i n t h e s h o r t - t e r m , b eca u s e t h eyw i l l q u i ck l y l ea r n t h a t t h es e o p p o r t u n i ti e s w i l l e i t h er r evea l t h ems e l ves a s w o r t h y o f s t a r t-u p o r a s p o o rch o i ces t h a t s h o u l d b e a b a n d o n ed . In d i v i d u a l s w h o d o n o t d evo t e t h e t ime a n d e f f o r t to u n d er t a k i n g t h ea c t i v i ti e s n eces s a r y f o r s t a r t i n g a b u s i n es s m a y f i n d t h ems e l ves p e r en n i a l l y s t i l l t r y in g , r a t h er t h a ns u cceed i n g o r f a i l i n g .

W h a t en t r ep r en eu r s d o i n t h e i r d a y - t o -d a y a c t i v i t ie s m a t t e rs . Th e t dn d s o f a c t i v i t ie s t h a t n a s cen ten t r ep r en eu r s u n d er t a ke , t h e n u m b er o f a c t i v i ti e s , a n d t h e s eq u en ce o f t h es e a c t i v it i e s h a ve a s i g n i f ica n ti n f lu en ce o n t h e a b i l it y o f n a s ce n t en t r ep r en eu r s t o s u cces s f u l l y c r ea t e n ew ven t u res . Th i s s t u d y s u g g es t st h a t th e b eh a v i o r s o f n a s cen t en t r ep r en eu r s w h o h a v e s u cces s f u l l y s t a r t ed a n ew ven t u r e ca n b e i d en t if ieda n d d i f fe r en t i a t ed f r o m t h e b eh a v i o r s o f n a s cen t en t r ep r en eu r s w h o f a i l ed . W e b e l i eve t h a t f u t u r e s t u d i e sw i l l mo r e p r ec i s e l y i d en t i f y t h e k i n d s o f b eh a v i o r s a p p r o p r i a t e f o r cer t a i n n ew v en t u r e co n d i t io n s . I fs u ch co n t i n g en cy i n f o r ma t i o n ca n b e g en er a t ed , en t r ep r en eu r s h i p r e s ea r ch i s l i ke ly t o h a ve s i g n i f i ca n tb en e f it s f o r en t r ep r en eu r s h i p p r a c t i ce , ed u ca t i o n , a n d p u b l i c p o l i cy .

I N T R O D U C T I O NT h i s s t u d y f o c u s e d o n n a s c e n t e n t r e p r e n e u r s a n d t h e p r o c e s s o f o r g a n i z a t i o n c r e at i o n . O t h e rt e r m s f o r t h is p e r i o d o f t im e a r e : o r g a n i z a t i o n a l e m e r g e n c e ( G a r t n e r , B i rd , a n d S t a r r 1 9 9 2) ;t he p reo rgan iza t ion (Ka tz and Gar tn e r 1988 ; H anse n 1990) , t he o rgan iza t ion in v i t ro (Hansena n d W o r t m a n 1 9 8 9) , p r e l a u n c h ( M c M u l l a n a n d L o n g 1 9 9 0) , g e s ta t i o n ( R e y n o l d s a n d M i l l e r1992 ; W he t t en 1987) , and s t a r t -up (Van de Ve n , An g le , and Poo le 1989 ; Ve spe r 1990) .O r g a n i z a t i o n c r e a t i o n i n v o l v e s t h o s e e v e n t s b e f o r e a n o r g a n i z a t i o n b e c o m e s a n o r g a n i z a t i o n ,tha t i s , o rgan iza t ion c r ea t ion invo lves t hose f ac to r s t ha t l ead to and in f luence the p roces s o fs t a r t ing a bus ines s .

R e y n o l d s ( 1 9 9 4 ) e s t i m a t e s th a t n e a r l y 4 % o f w o r k i n g a g e a d u l ts i n t h e U n i t e d S t a te sa re , a t any one t ime , ac t i ve ly i nvo lved in t he p roces s o f s t a r t i ng a bus ines s . He found tha tn e a r l y 1 0 % o f th e n a s c e n t e n t r e p r e n e u r s i n h i s s t u d y r e p o r t e d a n e w f i r m in p l a c e w i t h in 1 2


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E X P L O R I N G S T A R T - U P E V E N T S E Q U E N C E S 153t o 1 8 m o n t h s o f in i ti al c o n t a c t , w h e r e a s i t t o o k , o n a v e r a g e , o v e r t w o y e a r s b e f o r e n a s c e n ten t r ep reneu r s i nd i ca t ed they had g iven up on e f fo r ts t o s t a r t a bus ines s . Co up led w i th B i r ch ' s(1987) f i nd ings tha t , on ave rage , ov e r one mi l l i on bus ines se s a r e founde d in t he Un i t ed S t a t e seach yea r , subs t an t i a l e f fo r t s a r e unde r t aken and r e sources u t i l i zed (bo th succes s fu l ly andu n s u c c e s s f u l l y ) t o c r e a te n e w o r g a n i z a t i o n s .

T h i s s t u d y e x p l o r e d t h e a c ti v it i es u n d e r t a k e n b y n a s c e n t e n t r e p r e n e u r s d u r i n g t h e o r g a n i -z a t i o n c r e a t i o n p r o c e s s . T h r e e b r o a d q u e s t i o n s w e r e a d d r e s s e d: ( 1) W h a t a c t i v i ti e s d o n a s c e n ten t r ep reneur s i n i t i a t e i n a t t empt ing to e s t ab l i sh a new bus ines s? (2 ) How many ac t iv i t i e s donascen t en t r ep rene ur s i n i t ia t e du r ing the ges t a t i on o f t he s t a r t -up? and (3) W he n a re pa r t i cu l a rac t iv i t i e s i n i t i a t ed o r comple t ed?

L I T E R A T U R E R E V I E WA n u m b e r o f s c h o l a r s h a v e o f f e r e d f r a m e w o r k s f o r e x p l o r i n g t h e c h a r a c te r i s ti c s o f th e o r g a n i z a -t i o n c r e a ti o n p r o c e s s . G a r t n e r ( 1 9 8 5 ) o u t li n e d a f r a m e w o r k o f f o u r d i m e n s i o n s t h a t s h o u ldb e a c c o u n t e d f o r w h e n s t u d y i n g n e w v e n t u r e s : t h e i n d i v id u a l s i n v o l v e d i n th e c r e a t io n o f th en e w v e n t u r e , th e a c t iv i ti e s u n d e r t a k e n b y t h o s e i n d i v i d u a ls d u r i n g t h e n e w v e n t u r e c r e a t io np r o c e s s , t h e o r g a n iz a t i o n a l s t r u c tu r e a n d s t r a t e g y o f th e n e w v e n t u r e , a n d t h e e n v i r o n m e n t a lc o n t e x t o f t h e n e w v e n t u r e . V a n d e V e n e t a l. ( 1 9 8 9 ) s u g g e s t e d th a t r e s e a r c h e r s e x p l o r e t h eb u s i n e s s c r e a t io n p r o c e s s b y l o o k i n g a t " ( 1) h o w a b u s in e s s i d e a ( o r st r a te g y ) e m e r g e s o v e rt i m e , ( 2) w h e n a n d h o w d i f fe r e n t f u n c ti o n a l c o m p e t e n c i e s a r e c r e a te d t o d e v e l o p a n d m a r k e tt h e f ir s t p r o p r i e t a r y p r o d u c t , ( 3) w h e n a n d h o w t h e s e f u n c t io n a l c o m p e t e n c i e s a r e r e d e p l o y e dt o d e v e l o p s u b s e q u e n t n e w p r o d u c t s i n a f a m i l y o f p r o d u c t s b e l i e v e d t o r e s u l t in a s u s t a i n ab l eb u s i n e s s , a n d ( 4) h o w t h e s e b u s i n e s s d e v e l o p m e n t e f fo r ts b o t h i n fl u e n ce a n d a r e c o n s t r a in e db y o r g a n i z a t i o n a n d i n d u s t r y c o n t e x t s " ( p p . 2 2 4 - 2 2 5 ) . V e s p e r ( 1 9 9 0 ) a r g u e d t h a t a n e wc o m p a n y i s c o m p o s e d o f f iv e k e y i n g r e d ie n t s : ( 1 ) t ec h n i c a l k n o w - h o w , ( 2) a p r o d u c t o r s e r v i c eidea , (3 ) pe r son a l con tac t s , ( 4 ) phys i ca l r e sou rces , a nd (5 ) cus tom er o rde r s , and he o f f e r ss o m e i n s ig h t s i n to v a r i o u s s t a r t - u p s e q u e n c e s t h a t o c c u r a m o n g t h e f iv e k e y i n g r e d ie n t s . K a t za n d G a r t n e r ( 1 9 8 8 ) e x p l o r e d t h e o r g a n i z a t i o n t h e o r y a n d e n t r e p r e n e u r s h i p l i te r a t u r e to i d e n t if ya t h e o r e ti c a l a n d e m p i r i c a l ly b a s e d f r a m e w o r k f o r i d e n t i fy i n g t h e p r o p e r t i e s th a t w o u l d i n d ic a t ea n o r g a n i z a t i o n i n t h e p r o c e s s o f c re a t i o n . T h e i r l it e r at u r e r e v i e w f o u n d t h a t m o s t t h e o r ie so n o r g a n i z a t i o n s a s s u m e c o m p l e x p r o p e r t i e s t h at o c c u r o n l y a f t e r o r g a n i z a t io n s a c h i e v e s o m epar t i cu l a r s i ze ( e .g . , M in tzbe rg 1979 ; M arc h and S im on 1958 ; M i l e s 1980) , r a the r t han somem i n i m a l s e t o f c h a r a c t e r is t i c s th a t m i g h t d i f fe r e n t ia t e a n e m e r g i n g o r g a n i z a t i o n f r o m o t h e rt y p e s o f s o c ia l s i tu a t io n s . K a t z a n d G a r t n e r ( 1 9 8 8 ) s u g g e s t e d f o u r e m e r g e n t p r o p e r t i e s t h a two u ld be i nd i ca to r s t ha t an o rgan iza t ion i s i n t he p roces s o f com ing in to ex i s tence : intentiont o c r e a t e a n o r g a n i z a t i o n , a s s e m b l i n g resources t o c r e a t e a n o r g a n i z a t i o n , d e v e l o p i n g a no r g a n i z a t i o n a l boundary ( e . g . , i nco rpo ra t ion ) , an d exchanges o f r e s o u r c e s a c r o s s t h e b o u n d a r y(e .g . , s a l e s ) .

S u b s e q u e n t e m p i r i c a l e x p l o r a t i o n s ( R e y n o l d s a n d M i l l e r 1 9 9 2 ; R e y n o l d s a n d W h i t e1 9 9 3 , R e y n o l d s 1 9 9 4 ) o f th e K a t z a n d G a r t n e r ( 1 9 8 8 ) f r a m e w o r k h a v e f o u n d t h at n o o n ep a t t e r n o r s e q u e n c e o f e v e n ts i s c o m m o n t o a ll e m e r g i n g o r g a n i z a t i o n s . W h e r e a s t h e m o s tc o m m o n f i r s t e v e n t i n th e c r e a t i o n o f a n o r g a n i z a t i o n i s a p e r s o n a l c o m m i t m e n t b y i n d i v id u a l si n v o l v e d i n th e n e w v e n t u r e ( f iv e o u t o f s i x n e w f i rm s ) , s o m e e m e r g i n g o r g a n i z a t i o n s ( t w oin fi ve ) r epo r t ed t he f i r st even t a s hav ing sa l e s , w herea s o the r s be gan w i th h i r i ng o r f i nanc ia ls u p p o r t ( o n e i n f o u r ). T h e m o s t c o m m o n l a s t e v e n t s i n t h e c re a t i o n o f a n o r g a n i z a t io n w e r el ike ly to be h i r i ng f i rs t em ploy ees and f i rs t s a l e s i ncom e (on e -ha l f o f new ve n tu res ) , f i nanc i a ls u p p o r t ( t w o i n fi v e ), a n d a m a j o r p e r s o n a l c o m m i t m e n t to t h e v e n t u r e ( o n e i n f o u r n e w


4/16

154 N.M. CARTERET AL.ventures). In general, the average time a firm was in the process o f emergence was one year,though 20% completed gestation within one month, and 90% completed gestation withinthree years. In contrast, Van de Ven et al. (1989) in a study of high-technology venturesfound that entrepreneurs engaged in a set of activities for nearly four years before businessinitiation.

We sought to reexamine the literature on entrepreneurial behaviors and develop linkagesbetween certain cogent entrepreneurial behaviors and their efficacy for organization creation.The theoretical and empirical literature on entrepreneurial behaviors is very diverse, and fewefforts have been undertaken to identify and validate a set of comprehensive and parsimoniousbehaviors necessary to create new businesses (Gatewood, Shaver, and Gartner 1995; Gartnerand Start 1993). As discussed in the methodology section, we had available for analysis 14activity measures taken from two previous studies of nascent entrepreneurs (see Table 1).The theoretical basis for our exploration is grounded in Weick's theory of organizing (Weick1979). In Weick's view, an organization is an ongoing process of interactions among individu-als. We see the process of organization formation as analogous to Weick's process of"enact -ment"-the generation of specific patterns of interlocked behaviors among individuals. Ingeneral, one would expect that some behaviors would be more effective in enacting anorganization compared to others. For example, Aldrich and Fiol (1994) suggest that entrepre-neurs seek to gain cognitive legitimacy for their organizations by developing trust amongthose involved in the start-up. In broad terms, a view of organization formation as "enactment"would assume that entrepreneurs who were involved in behaviors that demonstrated to othersthat the emerging business was "real" would be more likely to create an organization (Gartner,Bird, and Starr 1992, p. 17). For example, a behavior such as buying facilities and equipmentmight be a more significant indicator to others that a nascent business is real than undertakinga behavior such as planning. Buying facilities may show others that the entrepreneur hasmade a significant commitment to creating a new business compared to what might be aless public demonstration of commitment like planning. A fully developed logic for linkingtheoretical ideas about organizing with specific hypotheses and measures awaits development.

Our primary objective was to explore the three questions listed earlier: What activitieswere undertaken? How many activities were undertaken? When were these activities under-taken? It was our assumption that nascent entrepreneurs who were able to get a businessup and running undertook different behaviors (or sequences of behaviors) in starting theirbusinesses than those nascent entrepreneurs who failed to start a business. What specificbehaviors or sequences of behaviors would result in the successful creation of a businesswould be discovered through exploration of the survey responses.

M E T H O D O L O G YS o u r c e o f D a t aLongitudinal data for the study comes from a secondary data analysis of two representativesamples, one of 683 adult residents in Wisconsin (Reynolds and White 1993) and the otherof 1016 adult residents of the United States (Curtin 1982). Data had been collected in thesetwo studies through a procedure that starts with a random selection of households, followedby a random selection of an adult member of the household. During the course of a phoneinterview these randomly selected adults were asked: "Are you, alone or with others, nowtrying to start a business?" If they answered yes, they were asked if they had "given seriousthought to the new business" and whether a number of different activities associated with


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E X P L O R I N G S T A R T - U P E V E N T S E QU E N CE S 1 5 5

s t a r t i n g a n e w f i r m h a d b e e n i n i t i a t e d o r c o m p l e t e d . T h e y w e r e a l s o a s k e d t h e m o n t h a n dy e a r a l l r e p o r t e d a c t i o n s w e r e i n i t i a t e d . T h o s e t h a t r e p o r t e d t w o o r m o r e f i r m g e s t a t i o nb e h a v i o r s w e r e c o n s i d e r e d n a s c e n t e n t r e p re n e u r s . F o l l o w - u p i n t e rv i e w s w e r e c o m p l e t e d o nb o t h s a m p l e s . W h e n t h e f o l lo w - u p s a m p l e w a s r e s t r ic t e d t o a u t o n o m o u s s t a r t -u p s a n d f r a n -ch i se s , da t a w ere ava i l ab l e fo r 71 nascen t en t r ep reneur s . Subs id i a r i e s , b r anche s , o r pu rch aseso f a n o t h e r b u s in e s s w e r e e x c l u d e d f r o m t h e s t u d y .

Me a s u r e sPrecursor ActivitiesD u r i n g t h e p h o n e i n t e rv i e w s t h e n a s c e n t e n t r e p r e n e u r s w e r e a s k e d a b o u t a s e r ie s o f a c t iv i ti e sa s soc i a t ed wi th t he ges t a t i on p roces s . Fo r each ac t iv i t y r e sponden t s i nd i ca t ed whe the r t heac t iv i t y was : (1) no t ye t i n i ti a ted ; (2 ) i n i ti a ted ; (3) co mp le t e ; o r (4) no t r e l evan t . I f the beha v io rh a d b e e n i n i ti a te d o r c o m p l e t e d t h e y w e r e a s k e d t o i n d i ca t e t h e m o n t h a n d y e a r o f i n i ti a ti o na n d / o r c o m p l e t io n . T h e e n t r e p r e n e u r s a l s o w e r e a s k e d i f t h e n e w b u s i n e ss w a s i n c lu d e d i na n y o f th e s t a n d a r d l i st s o f b u s i n e ss e s : D u n a n d B r a d s t re e t f i le s , u n e m p l o y m e n t i n s u r a n cef i le s , soc i a l s ecu r i t y f i le s , o r t he f ede ra l t ax r e tu rn l i st i ng . A t t he t ime o f t he s ec ond in t e rv i ewthe r e spo nden t s we re aga in a s ked to i nd i ca t e t he s t a tu s o f the s t a r t -up ac t iv it i e s and w he the rthey w ere i nc luded on the va r ious s t anda rd l is t s o f bus ines ses . W e c l a s s i f ied 14 o f the ac t i v i ti e sa s p r e c u r s o r b e h a v i o r s t h a t e n t r e p r e n e u r s c o m m o n l y u n d e r t a k e t o e s ta b l i sh a n e w b u s i n e s s( e .g . , dev e lop a bus ines s p l an , l oo k fo r f ac i li t ie s o r equ ipm en t o r l oca t ion , a sk fo r fund ing ) .The ac t iv i t i e s and the i r i n t e r co r r e l a t i ons a r e d i sp l ayed in Tab le 1 .

Us ing the da t e s a s soc i a t ed wi th w hen the ac t i v it i e s w ere i n i t ia t ed , a t ime f r am e o f f i rmd e v e l o p m e n t w a s c o n s t r u c t e d . A n a c t iv i ty w a s c o n s i d e r e d i n i ti a te d i f t he e n t r e p r e n e u r r e p o r t e din e i the r o f t he two in t e rv i ew s tha t t hey had in i t i at ed o r co mp le t ed the ac t i v i ty . Each ac t iv i tywa s ca t ego r i zed acco rd in g to t he leng th o f t ime sepa ra t i ng i t s i n i ti a t ion o r com ple t ion f ro mtha t o f t he ea r l i e s t r epo r t ed ac t iv i t y . Th e t ime sca l e was sepa ra t ed in to ca t egor i e s beg inn ingw i t h t h e f ir s t m o n t h o f a c t iv i t y a n d p r o g r e s s i n g b y q u a r t e r t h r o u g h t h e f o u r t h y e a r . T h u s , f o rexa mp le , a va lue o f 1 co r r e spo nde d to ac t i v i ti e s t ha t were i n i t i a ted du r ing the f ir s t mo n th o fthe f i rm ' s dev e lop m en t , a va lue o f 2 t o ac t iv i t i e s wi th in the f i r s t qua r t e r , and 3 to ac t i v i ti e sunde r t aken d u r ing the 2 qua r t e r , e t c . A va lue o f 17 acco rd ing ly , r ep resen ted ac t iv i t ie s in i t ia t edin the fou r th qua r t e r o f t he fou r th yea r and 18 r ep resen ted ac t iv i t i e s co r r e sp ond ing to t he 5 thy e a r o f a c t i v i t y . A l l a c t i v i t i e s c o m m e n c i n g i n t h e f i f t h y e a r w e r e g r o u p e d t o g e t h e r . T h i sm e a s u r e w a s u s e d t o e x a m i n e t h e s e q u e n c in g o f t h e s t a rt - u p a c ti v it ie s .

W e c r e a t e d t h re e m e a s u r e s f r o m t h e t im e s c a l e . F i r st , e a c h a c t iv i t y w a s d u m m y c o d e dto des igna t e whe the r t he r e spo nde n t r epo r t ed i n i ti a ti ng o r com ple t ing the beh av io r (1 = yes ;0 = n o ) . T h i s i n f o r m a t i o n w a s u s e d t o e x a m i n e w h a t a c t i v i t i e s e n t r e p r e n e u r s e n g a g e d i nd u r i n g t h e i r f i r m s ' d e v e l o p m e n t . S e c o n d , a c o u n t w a s m a d e o f th e t o t al n u m b e r o f ac t iv i ti e sin i ti a t ed ( r ange poss ib l e ; 0 = 14 ). Th i s m easu re was used to a s ses s t he ra t e o f ac t i v i t y in i ti a ti on .Th i rd , each ca t egory o f t he t ime sca l e was a s s igned a va lue des igna t ing the t ime pe r iod inwhich the ac t i on was i n i t ia t ed . V a lues r an ged f r om 1 ( co r r e sp ond ing to ac t iv i t ie s in i t ia t edwi th in a mo n th o f t he f i rs t behav io r ) t o 18 ( co r r e spond ing to t he 5 th yea r o f ac ti v i t y ) . Thus ,fo r exam ple , a va lue o f 3 s ign i f i ed ac t iv it i e s tha t were i n i ti a t ed du r ing the s eco nd qua r t e r o fthe f i rs t yea r o f t he f i rm ' s deve lop m en t , wh ereas a v a lue o f 16 r ep rese n ted ac t iv i t i e s in i t ia t edi n th e t h ir d q u a r t e r o f th e f o u r t h y e a r . T h i s m e a s u r e w a s u s e d t o e x a m i n e t h e s e q u e n c in g o fs tar t -up ac t iv i t ies .


6/16

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7/16

EXPLORING START-UP EVENT SEQUENCES 157

Start-up IndicatorsD u r i n g t h e s e c o n d i n t e r v i e w , t h e r e s p o n d e n t s w e r e a s k e d a s e l f - p e r c e p t io n m e a s u r e o f t h ecu r r en t s t a tu s o f t he deve lopm en t o f t he i r f i rm: (1 ) st il l wo rk ing on pu t t i ng the bus ines s i np l ace ; (2 ) g ive n up , do n o t exp ec t to s t a r t tha t bus ines s ; ( 3 ) t he bus ines s i s now in ope ra t ion ,u p a n d r u n n i n g . R e s p o n s e s t o t h is q u e s ti o n w e r e u s e d t o g r o u p t h e e n t r e p r e n e u r s i n to o n e o ft h r e e o u t c o m e c a t e g o r i e s t h a t w e r e f e r t o a s " o u t c o m e s t a tu s . " A d d i t io n a l l y , s e v e r a l o t h e rs t a r t -up ind i ca to r s were a s ses sed . Us ing the s ame sca l e a s t ha t u sed to a s ses s t he p recu r so rb e h a v i o r s , r e s p o n d e n t s w e r e a s k e d t o i n d ic a t e w h e t h e r t h e i r b u s in e s s w a s i n c l u d e d o n f o u rs t anda rd bus ines s l i s t ings ( i . e . , D un and Brad s t r ee t fi l e s, unem plo ym en t i n su rance f i le s , soc ia ls e c u r i ty f i le s , o r t h e f e d e r a l t a x r e tu r n l is t in g ) , w h e t h e r t h e y h a d r e c e i v e d a n y m o n e y f r o mt h e s a l e s o f g o o d s o r s e r v i c e s , a n d i f t h e y h a d a c h i e v e d a p o s i t i v e c a s h f lo w ( m o n t h l y r e v e n u e se x c e e d e d t h e m o n t h l y e x p e n s e s ) . I f th e y r e s p o n d e d " y e s , " t h e y w e r e a s k e d t o i n d i ca t e th eda t e when the s t a r t -up ind i ca to r f i r s t happened .

An alytical TechniquesD i s c r i m i n a n t a n a l y s i s a n d o n e - w a y a n a l y s is o f v a r i a n c e w e r e u s e d t o t e s t w h e t h e r t h e r e w e r es ign i fi can t d i f f e r ences am on g the t h r ee ou tco m e ca t egor i e s . A dd i t i ona l ly , de sc r ip t i ve s t a t is t i c sw ere d i sp l aye d to i l lu s t r a te s eque nc ing o f t he s t a r t-up ac t iv it i e s . The d i sc r im inan t va r i ab l e s( p r e c u r s o r a c t i v it i es ) w e r e e n t e r e d s t e p w i s e a c c o r d i n g t o t h e W i l k s ' l a m b d a c r i t e ri o n . S t e p w i s ea n a l y s i s w a s a p p r o p r i a t e , b e c a u s e t h e r e l a ti o n s h i p b e t w e e n t h e d i s c ri m i n a n t v a r i a b l e s a n d t h es ta t u s o u t c o m e s w a s n o t k n o w n f r o m p r e v i o u s r e s e a r c h . T h e f u n c t i o n s w e r e r o t a t e d u s in gva r im ax ro t a t i on to a id i n t he in t e rp re t a t i on o f t he func t ions ' mean in gs .

R E S U L T STab le 2 shows the ou tc om e s t a tus o f t he ges t a t i on e f fo r ts . Be tw een the f i r s t and the s econdi n t e r v ie w , 4 8 % o f t h e n a s c e n t e n t r e p r e n e u r s r e p o r t e d t h e y h a d p u t a b u s i n e s s i n t o o p e r a t i o n ,u p a n d r u n n in g . O v e r 2 0 % h a d g i v e n u p a n d w e r e n o l o n g e r a c t i v e l y t r y i n g to e s t a b li s h th en e w v e n t u r e . A l m o s t a t h i rd o f t h e r e s p o n d e n t s r e p o r t e d t h e y w e r e s ti ll t ry i n g t o e s t a b li s h af i rm.

T a b l e 3 r e p o r t s t h e r e su l t s o f a f o r w a r d s t e p w i s e d i s c ri m i n a n t a n a l y s i s u s e d t o e x a m i n ewh e the r t he k inds o f ac t i v i t ie s nascen t en t r ep reneu r s i n i ti a t e va r i e s by ou tco m e s ta tus . Thed i s c r im i n a n t a n a l y s i s r e v e a l e d t h a t th e f ir s t d i s c r i m i n a n t f u n c t i o n h a d a n e i g e n v a l u e o f 0 . 2 7 9a c c o u n t i n g f o r 6 2 . 7 % o f t he v a r i a n c e , w i t h a c a n o n i c a l c o r r e la t i o n o f 0 . 4 6 7 . T h e s e c o n dd i s c r im i n a n t f u n c ti o n h a d a n e i g e n v a l u e o f 0 .1 6 6 , a c c o u n t i n g f o r 3 7 . 3 p e r c e n t o f t h e v a r i a n c e .W i l k s ' l a m b d a s p r i o r t o e x t ra c t i o n o f e a c h fu n c t i o n w e r e 0 . 6 7 a n d 0 . 8 6 . B o t h l a m b d a s w e r es igni f icant a t .005 or less .

The f i r s t f unc t ion , wh ich exp la ined the mos t va r i ance , d i f f e r en t i a t ed t he en t r ep reneur sw h o w e r e s ti ll a c t iv e l y tr y i n g t o s t a rt b u s in e s s e s f r o m t h e o t h e r t w o g r o u p s . T h e s e n a s c e n ten t r ep reneur s were l ea s t l i ke ly t o ge t f i nanc i a l suppor t o r t o buy f ac i l i t i e s o r equ ipmen t . I nTA B LE 2 Outcome Status at Tim e of Second InterviewFledgling new firm , started 34 (48%)Still actively rying to establish firm 21 (30% )Not actively rying-G ave up 16 (22%)Total 71


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1 5 8 N . M . C A R T E R E T A L .

T A B L E 3 R e s u l t s o f D i s c r i m i n a n t A n a l y s i s : A c t i v i t ie s I n it ia t ed w i t h i n F iv e Y e a r s o f F i r s t B e h a v i o rV a r i a b l e F u n c t i o n 1 F u n c t i o n 2C a n o n i c a l d i s c r i m i n a n t f u n c i t o n s e v a l u a t e d

a t g r o u p m e a n s ( c e n t r o i d s )S t ar te d b u s i n e s s e s . 6 58 - . 4 9 7G a v e u p , n o t a c t iv e l y t r y i n g - . 0 8 4 . 7 3 9S ti ll a c ti v el y t r y in g - . 7 2 0 - . 2 5 4

R o t a t e d s t a n d a r d i z e d d i s c r i m i n a n tfunc t ion c oe f f i c i e n t s

B o u g h t f a c il i ti e s /e q u i p m e n t . 6 5 8 - . 4 9 8G o t f ina nc ia l supp o r t .604 .555D e v e lo p e d m o d e l s - . 0 0 0 . 78 9

C o r r e c t l y c l a s s i fi e d 6 3 %

contrast, nascent entrepreneurs who had started businesses were most likely to have boughtfacilities or equipment and to have obtained financial support. The second function separatedentrepreneurs who gave up and were no longer actively trying to establish a new businessfrom the other two groups. Those who gave up were more likely to get financial support andto have developed models or prototypes.

Table 4 provides further insight into the kinds of activities nascent entrepreneurs in thethree outcome status groups initiated. A review of the precursor activities that did not statisti-cally discriminate the groups indicates that a substantial percentage of all entrepreneurs inthe study reported having saved and invested their own money in the start-up, having lookedfor equipment or facilities, and having organized a start-up team.

A review of the start-up indicators shows that over 90% of the entrepreneurs who hadT A B L E 4 P e r c e n t a g e o f A c t i v i t ie s I n i ti a t ed w i t h in F i v e Y e a r s o f F i r s t B e h a v i o r

S t a r t e d G a v e U p S t il l T r y i n g T o t a l(n = 34) (n = 16) (n = 21) (n = 71)

D i s c r i m i n a t i n g a c t i v it i e sB o u g h t f a c i li t ie s , e q u i p m e n t 8 5 5 0 4 3 6 5G o t f ina nc ia l supp o r t 47 44 5 34D e v e l o p e d m o d e l s / p r o t o t y p e s 1 5 4 4 1 4 2 1

O t h e r p r e c u r s o r a c t i v i t i e sO r g a n i z e d s t a r t - u p t e a m 6 8 5 6 4 8 5 9D e v o t e d f u ll t i m e 4 7 3 8 1 4 3 5A s k e d f o r f u n d i n g 5 3 4 4 1 0 3 8I n v e s t e d o w n m o n e y 9 1 8 1 6 7 8 2L o o k e d f o r f a c i l i ti e s / e q u i p m e n t 8 2 8 1 5 2 7 3A p p l i e d l i c e n s e / p a t e n t 7 1 5 6 3 8 5 8S a v e d m o n e y t o i n v e s t 6 8 5 6 6 7 6 5P r e p a r e d p l a n 5 3 5 6 4 3 5 1F o r m e d l e g a l e n t it y 4 9 4 5 3 6 2 8H i r e d e m p l o y e e s 3 2 6 1 0 2 0Re n te d f a c i l i t i e s , e qu ipm e n t 24 19 19 21

S t a r t - U p i n d i c a t o r sS a l e s 9 4 5 0 4 8 7 0Pos i t i ve c a sh f low 50 19 19 34D & B c re d i t l i s t i ng 6 6 5 5U n e m p l o y m e n t i n s u r a n c e 2 4 0 0 11F I C A 4 7 0 0 2 2F i l e d f e de ra l t a x 71 6 19 41


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EXPLORING START-UPEVENT SEQUENCES 159TA B LE 5 Summary of Analysis of Variance for Total Num ber of Activi ties Init iatedSource df MS F pOutcome status 2 114.35 9.75 .0002Error 68 398.89

a b u s i n e ss i n o p e r a t i o n a t th e t i m e o f th e s e c o n d i n t e r v ie w h a d s a le s f r o m g o o d s o r s e r v i c e s ,7 1 % h a d f i l e d f e d e r a l i n c o m e t a x r e t u r n s , a n d 5 0 % r e p o r t e d h a v i n g a p o s i t i v e c a s h f l o w .T h e s e r a t e s f a r e x c e e d t h o s e o f th e o t h e r t w o g r o u p s .

W e u s e d a o n e - w a y a n a l y s i s o f v a r i a n c e t o e x a m i n e w h e t h e r t h e to t a l n u m b e r o f a c t iv i ti e sen t r ep reneur s i n i t i a t e va r i e s ac ros s t he ou tcome s t a tus g roups . The r e su l t s r epo r t ed i n Tab le5 ind i ca te a s ta t i s ti ca l d i f f e r ence . Pa i rw i se com par i so ns o f t he mean s r evea l ed tha t the ave ra get o ta l n u m b e r o f p r e c u r s o r a c t iv i ti e s i n it ia t ed b y e n t r e p r e n e u r s w h o h a v e a b u s i n e s s o p e r a t i n g( m e a n = 8 . 0 0 ) a r e s i g n if i ca n t ly g r e a t e r t h an t he n u m b e r i n it ia t e d b y e n t r e p r e n e u r s w h o g a v eup (mean = 6 .56 ) , o r t hose who a re s t il l t r y ing (m ean = 5 .05 ) .F igu re 1 p lo t s t he i n i ti a t ion o f ac t iv i t i e s ac ro s s t he t ime sca l e . Th e t r ends i nd i ca t e t ha ten t r ep reneur s who s t a r t ed bus ines ses i n i t i a t ed more ac t iv i t i e s a t a l l t ime pe r iods measu red .E n t r e p r e n e u r s w h o e v e n t u a l l y g a v e u p w e r e s i m i l a r in t h e ir r a t e o f a c t iv i t y to t h o s e w h o g o ta bus ines s s t a r t ed t h roug h the f i r st yea r . H ow eve r , a f t e r t he f ir s t yea r , t he r a t e o f in i t ia t i onb y t h o s e w h o e v e n t u a l l y g a v e u p b e g a n t o t a p e r o f f. T h o s e w h o r e p o r t e d t h e y w e r e s ti ll t ry i n gto e s t ab l i sh a bus ines s i n i ti a ted s ign i f ican t ly f ew er ac t i v i ti e s ac ros s a l l t ime pe r iods t han e i t he ro f t h e o t h e r t w o g r o u p s .

T o f u r t h e r a n a l y z e t h e t re n d s w e r e c a l c u l a te d t h e s c o r e s p l o t t e d i n F i g u r e 1 a s a p e r c e n t a g eof t o t a l ac t iv i t i e s in i t i at ed by the i r g roup . Th e r e su l t s i nd i ca t e t ha t by the e nd o f t he f i rs t yea r ,a lmos t two- th i rds o f a l l ac t i v i t i e s t ha t wou ld be i n i t i a t ed by each o f t he g roups a l r eady hadb e e n u n d e r t a k e n . W e t h e n s o u g h t t o d e t e r m i n e w h e t h e r t h e k i n d s o f a c t i v it i es i n it ia t ed e a r l yi n th e d e v e l o p m e n t a l p r o c e s s v a r i e d b y o u t c o m e s t a tu s .

T h e a n a l y t ic t e c h n i q u e s t h a t c o u l d b e e m p l o y e d t o a d d r e s s t h i s is s u e w e r e l im i t e d . T h enu m ber o f ac t iv i t i e s in i t ia t ed ea r ly i n t he p roc es s r e su l t ed i n t he t ime sca l e va r i ab l e be ingh i g h l y s k e w e d t o t h e l e ft . W e r e l i e d o n m e d i a n v a l u e s t o e x a m i n e t h e s e q u e n c i n g o f a c ti v it ie sin i t i a t ed du r ing the f i r s t yea r . The r e su l t s a r e d i sp l ayed in Tab le 6 .

T h e r e s u lt s f r o m t h is a n a l y s i s p r o v i d e f u r t h e r i n s ig h t i n t o th e a p p a r e n t p a s s i v e a p p r o a c hof en t r ep ren eur s s t il l i n t he ges t a t i on p roces s . Du r ing the f ir s t s i x mon ths o f s t a rt -up , t hesee n t r e p r e n e u r s f o c u s e d o n s a v i n g m o n e y t o i n v e s t in t h e b u s i n e ss , p r e p a r i n g a b u s i n e s s p l a n ,a n d o r g a n i z i n g a s t a r t- u p t e a m . I n c o n t ra s t , e n t r e p r e n e u r s w h o g o t a b u s i n e ss o p e r a t i n g l o o k e df o r a n d b o u g h t f a c i li ti e s o r e q u i p m e n t , i n v e s t ed t h e i r o w n m o n e y , p r e p a r e d a b u s i n e s s p l a n ,a sked fo r and go t f i nanc i a l suppor t , o rgan ized a s t a r t -up t eam, fo rmed a l ega l en t i t y , anddev o ted fu l l t im e to t he bus ines s . Ta b le 7 d i sp l ays add i t i ona l i n fo rm a t ion abo u t t he s equenc ingpa t t e rns . Th e da t a i nd i ca t e s t ha t s i x mo n ths a f t e r i n i t ia t i ng the i r f i rs t s ta r t -up ac t iv i t y , 50%o f th e e n t r e p r e n e u r s w h o r e p o r t e d s t a r in g a b u s i n e ss h a d r e c e i v e d m o n e y f r o m s a le s . E n t r e p r e -n e u r s w h o h a d g i v e n u p a n d w e r e n o l o n g e r a c t i v e l y t r y in g t o e s t ab l is h a b u s i n es s a p p e a r t ob e s o m e w h a t l e ss a g g r e s s i v e t h a n t h o s e w h o s t a r t ed o p e r a t io n s . T h o s e w h o g a v e u p w e r ed i s t i nc t i n t he i r ea r ly e f fo r t s by deve lop ing mode l s o r p ro to types . By the s ix th mon th , on ly2 5 % o f th i s l at t er g r o u p h a d m o n e y f r o m s a le s .

I t s h o u l d a l s o b e n o t e d t h a t w e c o n d u c t e d a n a l y s e s t o d e t e r m i n e w h e t h e r t h e r e s u l t sw e r e a f f ec t e d b y i n d u s t r y . T h e r e w a s n o i n d u s t r y e f f e c t a m o n g t h e t h r e e g r o u p s o f n a s c e n te n t r e p r e n e u r s ( i . e . , s t a rt e d , g a v e u p , t r y i n g t o s ta r t) . F o r e x a m p l e , d e v e l o p i n g a m o d e l o rp r o t o t y p e i s a n a c t iv i t y th a t d i ff e r en t i at e s t h o s e n a s c e n t e n t r e p r e n e u r s w h o g a v e u p f r o m t h o se


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160 N.M. CARTER ET AL.

I m

[ ] [ ] [ ] Z [ ] O

I I I ' ' I I' I I X I E I I I 'lm ly 2y 3y 4y 5y

m- STARTED O TRYING -*- QUIT

FIGURE 1 Number of activities initiated since first start-up behavior.nascent entrepreneurs who continued to try and, therefore, it seemed plausible that thoseentrepreneurs who had developed a model and gave up would likely be in industries that arein manufacturing or other types of industries that might be more capital intensive than serviceindustries. Yet, of the 14 nascent entrepreneurs who indicated they had initiated or completedmodels or prototypes, nearly seven of these individuals were in the gave up category in suchindustries as: one in nondurable manufacturing, one in restaurants/bars/clubs, two in consumerservices, and three in business services.

D I S C U S S I O NAs way to summarize the results and as a springboard toward some insights into the implicationsof this research for practice and future research, we developed the following activity profiles


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EXPLORING START-UP EVENT SEQUENCES 161TA BL E 6 Sequencing of Startup Activities ~,b

Started Gave up Still TryingYear 1 (n = 34) (n = 16) (n = 21)1st month Looked for F + E Asked for funding

Developed modelsSaved money to investOrganized start-up team

1st quarter Invested own money Invested own money Saved money to investAsked for funding Got financial supportGot financial supportPrepared plan

2nd quarter Formed legal entity Prepared plan Prepared planOrganized team Bought F + E Organized teamBought F + EDevoted full time

3rd quarter Hired employees Looked for F + E Invested own moneyLooked for F + EApplied for L/P

4th quarter Saved money Devoted full time Bought F + ERented F + E Applied for L/PApplied for L/P

Categorized by median value of those who had initiated the activity.Median values reported only if more than five entrepreneurs in the group had initiated activity.

o f t h e t h r e e t y p e s o f n a s c e n t e n t r e p r e n e u r s s tu d i ed . T h e s e p r o f i l e s a r e o f fe r e d a s a c o m b i n a t i o nof bo th f ac t and som e in tu i t ion ab ou t t he f i nd ings .

P r o f il e s o f T y p e s o f N a s c e n t E n t r e p r e n e u r sS t a r t ed A B u s i n es sN a s c e n t e n t re p r e n e u r s w h o w e r e a b l e to s t a r t a b u s in e s s w e r e m o r e a g g r e s s i v e i n m a k i n gthe i r bus ines ses r ea l , t ha t i s , t hey unde r took ac t iv i t i e s t ha t made the i r bus ines ses t ang ib l e t oo the r s : t hey looked fo r f ac i l i t i e s and equ ipmen t , sough t and go t f i nanc i a l suppor t , f o rmed al ega l en t i t y , o rgan ized a t eam, bough t f ac i l i t i e s and equ ipmen t , and devo ted fu l l t ime to t hebus ines s . I nd iv idu a l s who s t a r t ed bus ines se s s eem ed to ac t w i th a g rea t e r l eve l o f i n tens i t y .T h e y u n d e r t o o k m o r e a c t i v i ti e s th a n t h o s e i n d i v i d u a ls w h o d i d n o t s t a rt th e i r b u s i n e s se s . T h epa t t e rn o f ac ti v i t ie s l i st ed i n Tab le 5 s ee m to i nd i ca t e t ha t i nd iv idua l s w ho s t a r t ed f i rms pu tt h e m s e l v e s i n t o t h e d a y - t o - d a y p r o c e s s o f ru n n i n g a n o n g o i n g b u s i n e s s a s q u i c k ly a s t h e ycou ld and tha t t hese ac t i v it i e s r e su l ted i n s t a r t i ng f i rms tha t gene ra t ed sa l e s (94% of t hee n t r e p r e n e u r s ) a n d p o s i t i v e c a s h f lo w ( 5 0 % o f t h e e n t r e p r e n e u r s ). W h a t i s n o t k n o w n i s h o ws u c c e s sf u l o r p r o f i ta b l e t h e s e n e w f i rm s w i l l b e o v e r t i m e . F o r e x a m p l e , t h e 5 0 % o f th e f i r m ss t a rt e d t h a t h a v e n o t r e a c h e d p o s i t i v e c a s h f l o w m a y b e f i r m s s t a r te d b y i n d i v i d u a l s w h o w e r ef o o l h a r d y a n d r u s h e d i n to o p e r a t i o n o f a b u s i n e s s t h a t c o u l d n o t b e s u s ta i n ed .

G a ve U pT h e p a t t e r n o f a c ti v i ti e s f o r t h e g r o u p o f e n t r e p r e n e u r s w h o g a v e u p s e e m s t o i n d i c a te t h a tthese en t r ep reneur s d i scove red tha t t he i r i n i t i a l i dea fo r t he i r bus ines ses wou ld no t l ead to


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16 2 N.M. CARTER ET AL.

TA BL E 7 Percentage of Entreprene urs Initiating Activity within the First Year of Initial Start-UpBehavior

Started Gave Up Still Tryinglmo 3mo 6mo 12mo lmo 3mo 6mo 12mo lmo 3mo 6mo 12mo

Discriminating activitiesBought facilities, equip. 32 38 53 59 19 25 25 31 14 14 14 24Developed models 0 0 6 6 25 31 38 38 0 0 0 10Got financial support 21 24 27 32 19 25 38 38 0 0 0 0

Other precursor activitiesOrganized sta rt-up team 24 32 44 56 31 31 31 38 19 24 24 33Devoted full time 15 18 29 29 0 6 19 19 10 10 10 10Asked for funding 24 27 41 44 25 38 44 44 0 0 0 10Invested own money 41 53 68 71 31 44 56 63 24 24 29 38Looked for facilities 44 47 59 65 13 19 38 63 10 14 19 33Applied license/patent 12 15 27 35 6 13 19 31 10 10 14 24Saved money to invest 18 24 32 41 38 38 44 50 29 33 38 48Prepared plan 18 27 32 38 25 25 38 44 19 19 24 33Formed legal entity 6 9 21 27 6 6 6 13 0 5 10 14Hired employees 3 6 9 21 0 0 0 0 0 0 0 0Rented facilities, equip. 9 9 12 12 6 6 6 13 5 5 5 5

Start-up indicatorsSales 29 35 50 65 13 19 25 31 10 14 14 19Positive cashflow 15 15 21 32 6 6 13 13 5 10 10 10D&B credit listing 0 0 3 6 6 6 6 6 5 5 5 5Unemployment insur . 3 3 12 15 0 0 0 0 0 0 0 0FICA 15 12 27 32 0 0 0 0 0 0 0 0Filed federal tax 15 15 27 41 0 6 6 6 5 5 10 14

success. The finding that the activity of developing a model or prototype differentiated individu-als who gave up from those who were still trying would suggest that those who gave up hadtested their ideas out and found that they would not work according to their expectations.Nascent entrepreneurs who gave up seemed to be similar in their activity patterns comparedwith those who started their firms, that is, individuals who gave up pursued the activities ofcreating a business in an aggressive manner at the beginning of the process. But as the businessunfolded over time, these entrepreneurs decreased their activities and then ceased start-upactivities. This group of individuals might be seen as either having the wisdom to test theirideas out before jumping into something that might lead to failure or lacking the flexibilityto find more creative ways to solve the problems that they were confronted with.

Still TryingIt would seem that those who are still trying are not putting enough effort into the start-upp r o c e s s i n o r d e r t o f in d o u t w h e t h e r t h e y s h o u l d s ta r t t h e b u s i n e s s , o r g i v e u p . T h e s t i ll t r y in gh a d u n d e r t a k e n f e w e r a c t i v i ti e s t h a n i n d i v i d u a l s i n t h e o t h e r t w o g r o u p s . T h e s ti ll t r y in ge n t r e p r e n e u r s w e r e d e v o t i n g t h e ir s h o r t - t e r m e f f o r ts t o w a r d a c t i v i ti e s i n t e r n a l t o t h e s t a rt -u pp r o c e s s ( e . g . , s a v i n g m o n e y a n d p r e p a r i n g a p l a n ) a n d l e s s e f fo r t t o w a r d a c t i v i t i e s th a t w o u l dm a k e t h e b u s i n e s s r e a l to o t h e r s . T h e s t i ll t r y i n g e n t r e p r e n e u r s m a y b e a l l t a l k a n d l i tt l e a c t io n .O r , t h e s e s ti ll t r y i n g e n t r e p r e n e u r s m i g h t b e i n v o l v e d i n d e v e l o p i n g b u s i n e s s e s t h a t t a k e l o n g e r


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EXPLORING START-UP EVENT SEQUENCES 163for these particular opportunities to unfold. (Yet, as noted earlier, there was no industryeffect.)

Implicat ions for Pract iceIn terms of advice to individuals considering starting a business, it would seem that the resultsprovide evidence that nascent entrepreneurs should aggressively pursue opportunities in theshort-term, because they will quickly learn that these opportunities will either reveal themselvesas worthy of start-up or as poor choices that should be abandoned. Individuals who do notdevote the time and effort to undertaking the activities necessary for starting a business mayfind themselves perennially still trying, rather than succeeding or failing. It would seem thata certain level of effort and activity is necessary to determine success or failure in starting abusiness.

Consultants, advisors, and investors involved in helping nascent entrepreneurs may findin these results evidence that entrepreneurs are action oriented rather than passive. Individualswho do not begin a business or reach a decision to abandon efforts to start a business withina year are likely to remain in a constant state of abeyance, thereby wasting the valuable timeand resources of advisors that could be devoted to helping individuals who will actuallyundertake the activities to discover whether they can start a business.

These findings may lead to a better diagnostic to help nascent entrepreneurs and entrepre-neurship advisors determine whether these nascent entrepreneurs should abandon their effortsat start-up sooner, change their activities, or continue their efforts. The analytical results mayalso be useful for the development of a set of indicator variables for use in identifying thosenascent entrepreneurs who are likely to develop ventures that have the potential for substantialgrowth in sales and employment.Implicat ions and Direct ions for ResearchGiven that this study was based on an analysis of secondary data, the measures available foranalysis were not as comprehensive or as specific as we would have liked. In future longitudinalstudies of nascent entrepreneurs, the measures in these studies should capture additionalinformation about various factors and behaviors that might influence the venture start-upprocess. For example, it would be valuable to explore the expectations of these nascententrepreneurs regarding their perceptions of the future success of their ventures and theirsubsequent activities. It would also be valuable to explore whether nascent entrepreneursexpect to start their firms quickly (i.e., in less than six months) compared with other nascententrepreneurs that may expect the start-up process to take longer. One reason that somefirms may take longer to create may involve acquiring substantial financial resources or theprocurement of government licenses or regulatory approval. Some nascent entrepreneurs mayalso expect to start firms that grow more rapidly compared with other nascent entrepreneurs.

A number of start-up behaviors (e.g., gathering marketing information on competitorsand customers, acquiring know-how or expertise, seeking advice from mentors and advisors,and the activities involved with selling, marketing, and distribution) were not explored inthis research and might have a significant influence on the outcome of the start-up process.It might also be appropriate to develop measures o f the activities that reflect estimates of thenumber of hours the nascent entrepreneur devoted to a particular activity between the dateof inception and its completion.

It would also be o f value to collect additional information on the types of ventures that


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1 6 4 N.M. CARTER ET AL.n a s c e n t e n t r e p r e n e u r s a r e p l a n n i n g t o c r e a t e . C h a r a c t e r is t i c s o f t h es e e m e r g i n g v e n t u r e st h a t w o u l d b e a p p r o p r i a t e t o s tu d y w o u l d i n cl u d e: s t r a te g y ( e . g . , p r i c in g p o l i c y , p e r c e i v e dd i s t i n c t iv e c o m p e t e n c e ) a n d i n d u s t r y c h a r a c t e r i s t i c s ( e . g . , g r o w t h r a t e s , t e c h n o l o g i c a l c h a n g e ,c o m p e t i t i o n , p o w e r o f s u p p l i e r s a n d b u y e r s , a n d b a r r i e r s t o e n t ry ) . I n a d d i t i o n , t h e f i rm s t h a tw e r e s t a r t e d s h o u l d b e s t u d i e d t o f in d o u t i f t h e y w e r e s u c c e s s f u l i n t h e lo n g r u n .

A l a r g e r e f f o r t a t id e n t i f y i n g a n d t r a c k i n g n a s c e n t e n t r e p r e n e u r s i s c r i ti c a l t o g e n e r a t i n ga s a m p l e s i z e s u f f ic i e n t f o r t h e s t a t is t ic a l p o w e r n e c e s s a r y t o i d e n t i f y t h e n u a n c e s i n h e r e n t i nt h e b u s i n e s s s t a r t - u p p r o c e s s . W i t h a s a m p l e o f s i z e o f 7 1 c a s e s , a d i v i s i o n o f t h e s e c a s e s i n toe v e n a f e w g r o u p s q u i c k l y e l i m i n a t e s t h e u s e o f m a n y s t a ti s ti c a l a n d a n a l y t i c a l t o o l s . W eb e l i e v e t h e r e a r e m a n y f a c t o r s t h a t a r e l i k e l y to h a v e a s i g n if i c a n t m o d e r a t i n g a f f e c t o nt h e a c ti v it ie s o f n a s c e n t e n t r e p r e n e u r s ( e . g . , p r e v i o u s e x p e r i e n c e a n d b a c k g r o u n d o f th ee n t r e p r e n e u r , t h e v e n t u r e ' s s t r a t e g y , t h e v e n t u r e ' s i n d u s t r y ) t h a t w i l l l i k e l y s u r f a c e w h e n al a r g e r s a m p l e s i z e i s a v a i l a b l e f o r a n a l y s i s .

F i n a l l y , w e o f f e r s o m e s p e c u l a t i o n s f o r f u t u r e r e s e a r c h b a s e d o n t h e t h r e e p r o f i l e s t h a tw e r e g e n e r a t e d f r o m t h e q u a n t i t at i v e a n a l y s e s o f th e d a t a . T h e d i f f e r e n c es i n th e n u m b e r o fa c t i v i ti e s in i t ia t e d a m o n g t h e th r e e g r o u p s ( s t a r t e d a b u s i n e s s , g a v e u p , a n d s t i ll tr y i n g ) m i g h ts u g g e s t th a t "e n a c t in g " a n o r g a n i z a t i o n , t h a t i s , t a k i n g v e n t u r e c r e a t i o n a c t i o n s t h a t a r e v i s i b l et o o t h e r s ( e . g . , b u y i n g f a c i l it i e s a n d e q u i p m e n t , f o r m i n g a l e g a l e n t i t y ) is m o r e l i k e l y t o r e s u l ti n a n o n g o i n g b u s i n e s s . W e b e l i e v e t h a t fu t u r e e m p i r i c a l r e s e a r c h o n n a s c e n t e n t r e p r e n e u r sc o u l d l e a d t o a n o p e r a t i o n a li z a t io n o f th e a c t i o n s i n v o l v e d i n e n a c t m e n t . E m p i r i c a l r e s e a r c ho n e n t r e p r e n e u r s h i p c o u l d t h e r e f o r e i n f o r m W e i c k ' s t h e o r y o n o r g a n i z i n g . T h e f in d in g t h a tt h e " s t i l l t r y i n g " g r o u p u n d e r t a k e s f e w e r a c t i v i t i e s m i g h t s u g g e s t t h a t a c r i t i c a l f a c t o r f o rd i f f e r e n t ia t i n g i n d i v i d u a l s w h o g e t i n to b u s i n e s s f r o m t h o s e t h a t d o n o t i n v o l v e s a c t io n r a t h e rt h a n p l a n n i n g , o r "d o i n g " r a t h e r t h a n " t h i n k i n g a b o u t i t ." I t m i g h t b e u s e f u l t o e x p l o r e h o wn a s c e n t e n t r e p r e n e u r s u n d e r t a k e p l a n n i n g a n d w h e t h e r e n t r e p r e n e u r s w h o g e t in t o b u s i n e s su s e p l a n n i n g a s a s p r i n g b o a r d f o r a c t i o n , c o m p a r e d t o t h o s e " s ti ll tr y i n g " w h o m a y u s e p l a n n i n ga s a f o r m o f p r o c r a s ti n a t i o n . T h e f in d in g t h a t th o s e i n d i v i d u al s w h o " g a v e u p " u n d e r t o o k as i m i l a r n u m b e r o f a ct i v it i e s in t h e f ir s t y e a r c o m p a r e d w i t h t h o s e w h o g o t i n t o b u s i n e s s s h o u l db e e x p l o r e d t h r o u g h c a s e s tu d i e s a n d i n - d e p t h i n t e rv i e w s . I t w o u l d b e v e r y v a l u a b l e t o u n c o v e rh o w e n t r e p r e n e u r s m a k e j u d g m e n t s a b o u t t h e p o t en t ia l s u c c e s s o f a n e w v e n t u r e , a n d w h e t h e rt h o s e w h o "g a v e u p " w e r e m o r e d i s c e r n i n g i n t h e i r a b i li t y t o s p o t fa t a l fl a w s in a n e w b u s i n e s s ,o r w h e t h e r t h o s e w h o " g a v e u p " w e r e l e s s c r e a t iv e i n s u r m o u n t i n g p e r c e i v e d p o t e n t ia l p r o b l e m s .I f , a s G a r t n e r , B i r d , a n d S t a r r ( 1 9 9 2 ) s u g g e s t , e n t r e p r e n e u r i a l a c t i o n t r a n s f o r m s e q u i v o c a le v e n t s i n to n o n e q u i v o c a l i n t e r p r e ta t i o n s a n d i n t e ra c t io n s , t h e i m p a c t o f c i r c u m s t a n c e o n t h ep r o c e s s a n d o u t c o m e s o f b u s in e s s f o r m a t i o n is i m p o r t a n t a n d d e s e r v e s c a r e f u l s t u d y . F o re x a m p l e , M a c M i l l a n a n d K a t z (1 9 9 2 ) p o i n t o u t t h a t e n tr e p r e n e u r i a l e v e n t s a r e o f t e n id i o s y n -c r a t i c , o b s c u r e , a n d i n f r e q u e n t . I n - d e p t h l o n g i t u d i n a l c a s e s t u d i e s a r e n e c e s s a r y t o e x p l o r et h e e f fe c ts o f c h a n c e o c c u r r e n c e s , s u c h a s h o w t h e s h a r i n g o f a l i m o u s i n e r i d e t o t h e a i r p o r tw i t h a s tr a n g e r l e a d s to t h e f o r m a t i o n o f a t e a c o m p a n y ( Z i e g l e r , R o s e n z w e i g , a n d Z i e g l e r1 9 92 ) o n t h e p r o c e s s o f o r g a n i z a t i o n f o r m a t i o n .

C O N C L U S I O N SW h a t e n t r e p r e n e u r s d o i n t h e i r d a y - t o -c l a y a c t i v i ti e s m a t t e r s . T h e k i n d s o f a c t i v i t i e s t h a tn a s c e n t e n t r e p r e n e u r s u n d e r t a k e , t h e n u m b e r o f a c ti v it ie s , a n d t h e s e q u e n c e o f th e s e a c t iv i t ie sh a v e a s i g n i f i c an t i n f lu e n c e o n t h e a b i l i ty o f n a s c e n t e n t r e p r e n e u r s t o s u c c e s s f u l l y c r e a t e n e wv e n t u r e s . T h i s s t u d y s u g g e s t s th a t t h e b e h a v i o r s o f n a s c e n t e n t r e p r e n e u r s w h o h a v e s u c c e s s fu l l y


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EX PLO RIN G STA RT-U P EV EN T SEQ U EN CES 165

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Exploring Start-up Event