BUSINESS IDEA SOURCES AND ENTREPRENEURSHIP:

AN INSTITUTIONAL VIEW

Chuck Eesley (Stanford)Xiao Hu (Tsinghua University)

Delin Yang (Tsinghua University)

Motivation• Prior work shows that venture performance is shaped by

characteristics of:– The founding team (Beckman, Burton, etc.)– Growth Market (Eisenhardt and Schoonhoven, 1990)– Technology (Shane)– User-driven innovation (von Hippel, Sonali Shah, etc.)

• Gap: Prior work has rarely examined whether the source of the startup idea exerts an influence on performance– Entrepreneurial Ideation and Organizational Performance:

Imprinting Effects (Eesley, Hsu, and Roberts, WP)

Policy-driven business idea source

• Government context from policies - contacting with government (communicating with related government officials) and following the policy change closely. – For example, entrepreneurs might start new

ventures based on property policy reform (Walder, 1999)

• Market-driven business idea source indicates that entrepreneurs choose to obtain their business ideas from market opportunities by contacting other market participants (suppliers, customers, competitors). – When an entrepreneur chooses to obtain his

business idea from market-driven source, he has many ways to identify better (new) potential markets or better (new) ways to serve target markets (Johne, 1999)

Hypothesis 1.

• In the transitional institutional environment with high level of dynamics, entrepreneurs who choose to obtain their business idea from policy-driven source will create better performing firms.

Hypothesis 2.

• In the stable institutional environment with low dynamics and uncertainty, entrepreneurs who choose to obtain their business idea from market-driven source will create better performing firms.

Hypothesis 3:

• Entrepreneurs who choose to obtain their business idea from both policy-driven and market-driven source will create better performing firms.

Research Context: China

• transitional institutional from 1988 to 1999, • stable institutional environment from 2000 to

2002, • transitional institutional environment from

2003 to 2009,

9

Tsinghua Survey

Unique data on firm origins, early composition and multiple stages of performance measures • Alumni: ~26,700 mailed;

3,000 surveys, 11% response rate–General biographic information, education and career histories, family background, attitudes toward entrepreneurship.–718 individuals (24%) indicated founding at least one company • Additional questions for self-identified

entrepreneurs:–Company origins, structure, and performance.• Advantages: Defined‘at risk’ set, first

abroad, detailed work history and founding data, less biased by govt. concerns

Charles Zhang, founder and CEO of Sohu.com

Industries

11

INDUSTRY NUMBER OF FIRMS %AEROSPACE 3 0.90ARCHITECTURE 13 3.88BIOTECH AND DRUGS 7 1.09CHEMICALS 8 2.39CONSUMER PRODUCTS 17 5.07ELECTRIC 12 3.58ELECTRONICS 69 20.60ENERGY 14 4.18FINANCE 10 2.99INTERNET 33 9.85LAW, ACCOUNTING 22 6.57MACHINERY 19 5.67MANAGEMENT 21 6.27MATERIALS 13 3.88MED DEVICES 4 1.19OTHER MFG 16 4.78PUBLISHING 11 3.28SOFTWARE 34 10.15TELECOM 9 2.69TOTAL 335 100

Sample

• Population:– 62.5% in engineering

11.9% in sciences– 12.9% in humanities

(architecture, medicine and law comprise the remainder)

– 25-30% women19.2% doctorate degrees

– 53.4% graduate degrees

• Tsinghua survey sample:– 62.2% engineering– 10.6% sciences13.7%

humanities– 28% women– 19.3% doctorate degrees– 53.9% graduate degrees

DV: ln(Revenue). We measured entrepreneurial performance as the natural logarithm of revenue in the most recent fiscal year for the entrepreneur’s firm.

IVs:• Policy-driven Source measures, on a scale of 1 to 8, the degree

to which entrepreneurs believed that the government’s policy was an important idea source for their ventures.

• Market-driven Source, as the measure of the extent that an entrepreneur’s idea source depended on new market opportunities at that time.

• Market-driven Source measures, on a scale of 1 to 8, the degree to which entrepreneurs believed that market opportunities were an important idea source for their ventures.

13

Context - interviews

How are Tsinghua’s Entrepreneurs Born?The entrepreneurs surveyed reported that their initial business ideas came from:

Class at Tsinghua

Research at Tsinghua (internal funding)

Research at Tsinghua (outside funding)

Thesis at Tsinghua

Discussion with Tsinghua classmates or teachers

A visiting lecturer at Tsinghua

14.6% 4.1% 4.8% 9.9% 27.4% 12.1%An internship while at Tsinghua

Reading professional literature at Tsinghua

Industry experience

Army or government experience

An academic conference

Discussion with fellow professionals

12.1% 11.1% 61.8% 7.3% 11.1% 43.9%

14

Where did the primary idea for the start-up come from?

Idea sources MIT Data Tsinghua data percentage percentage

In school-doing outside-funded research 2.40 1.66 In school- graduate thesis 4.64 3.96 In school- in class 1.98 5.88 In school-informal discussion w/ students 3.41 11.00 In school-other research 2.28 1.92 In school-professional literature 1.73 4.48 In school- visiting scientists, engineers 1.77 4.86 In school-working w/ outside company 3.20 4.86 Other sources-discussions in social/professional conferences 21.54 17.65

Other sources-research conference 2.66 4.48 Other sources-working in the industry 41.44 24.81 Other sources- working in the military (government experience) 4.01 2.94

Doing outside-funded research 2.07 0.77 Total 100 100 Number of observations 1284 110

Variable ln(Revenue)  

（ 1-4）88-99

（ 2-3）00-02

（ 3-4）03-07

Policy-driven Source 0.752** 0.118 0.374***

  (3.91) (0.90) (3.79)Market-driven Source 0.0233 0.379** 0.0261

  (0.14) (2.98) (0.29)Interaction between Sources

-0.00328 -0.0432 -0.0341

(-0.05) (-0.69) (-0.87)Controls      Age 0.00179 -0.0252 0.00183  (0.02) (-0.37) (0.05)Gender -0.372 0 -0.737  (-0.28) (.) (-0.75)Overseas 1.087 0.799 -0.0856  (0.90) (1.35) (-0.19)Length of Work -0.0198 0.0329 0.0146  (-0.28) (0.55) (0.37)Position Diversity 0.600 -0.115 -0.149  (1.42) (-0.59) (-1.01)Market Experience 0.698 -0.340 0.402*

  (1.84) (-1.59) (2.26)Entrepreneur Ties -0.570* 0.109 0.0473  (-2.41) (0.70) (0.37)Communist Party -0.928 -0.0672 0.153  (-1.02) (-0.14) (0.38)Parent Official 0.378 -0.223 0.0163  (0.93) (-1.02) (0.08)Work for Government -0.0460 -0.552** -0.362*

  (-0.07) (-2.99) (-2.06)Government Tie 0.361 0.483* 0.0227

Variable In(Revenue) In(Revenue)  (4-3) (4-4)Policy-driven Source 0.365*** 0.367***

(5.06) (5.11)Market-driven Source 0.0814 0.0864

(1.22) (1.30)Interaction between Sources   -0.0390

(-1.43)Control    Age -0.00680 -0.00450  (-0.23) (-0.15)Gender -0.821 -0.883  (-1.12) (-1.20)Overseas 0.509 0.536  (1.55) (1.63)Length of Work -0.00251 -0.00466  (-0.09) (-0.16)Position Diversity -0.0558 -0.0422  (-0.51) (-0.39)Market Experience 0.232 0.221  (1.84) (1.75)Entrepreneur Ties -0.0936 -0.100  (-1.04) (-1.11)Communist Party -0.0788 -0.0815  (-0.27) (-0.28)Parent Official 0.148 0.132  (1.08) (0.97)Work for Government -0.439*** -0.438***

  (-3.51) (-3.50)Government Ties 0.128 0.120  (1.19) (1.13)

Contributions

• Ideas for customers/users may not always be the best

• Source of the idea appears to play an important role in venture quality – deserving of greater attention in future research

• Varies with the institutional environment