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Panel Studies of New Venture Creation: a Review and Suggestions for Future Research

Per Davidsson & Scott R. Gordon. Panel Studies of New Venture Creation: a Review and Suggestions for Future Research. Paul D. Reynolds. Recipient of the 2004 “Global Award for Entrepreneurship Research”. Panel Studies of Nascent Entrepreneurs/ Venture Creation: Historical roots.

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Panel Studies of New Venture Creation: a Review and Suggestions for Future Research

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  1. Per Davidsson & Scott R. Gordon Panel Studies of New Venture Creation: a Review and Suggestions for Future Research

  2. Paul D. Reynolds Recipient of the 2004 “Global Award for Entrepreneurship Research”

  3. Panel Studies of Nascent Entrepreneurs/ Venture Creation: Historical roots e.g. Gartner (1988); Katz & Gartner, 1988; Bhave, 1994 e.g. Sarasvathy, 2001; Shane, 2000; Baker & Nelson, 2005; Dahlqvist, 2007 GEM Pre-PSED Pilots e.g. China; Switzerland… PSED PSED 2 CAUSEE SwPSED; Other country sudies

  4. PSED-type Research: Basic Procedure • Approach a very large, random sample of households or individuals • Screen this sample for ‘nascent entrepreneurs’ = individuals currently involved in an active business start-up that is not yet an up-and-running firm • Conduct a longer interview with those qualified as well as a randomly selected comparison group • An important part of the contents concerns the initiation/completion and timing of a range of ‘gestation activities’ • Follow up over time (every 6-12 months over 12-72 months)

  5. Basic Rationales • Overcome under coverage of smallest/newest entities • Achieve international comparability • Overcome selection bias • Overcome hindsight bias/memory decay • Allow the study of process issues • Get temporal order of measurement right for causal analysis

  6. Studies of Nascent Entrepreneurs(hip) = the study of individuals who are currently involved in a business start-up. They may or may not have started other firms before (‘nascent’ is not equal to ‘novice’) = the study of on-going start-up efforts during their creation. They may or may not become up and running firms. • Level of analysis issue • Representativeness of sample issue

  7. Reviewed Works • All 78 PSED-type manuscript that have been published or accepted into peer reviewed, scholarly journals • Based on data sets from US, Canada, Netherlands, Norway and Sweden • Plus a peep into other types of publications (not ignoring, but not striving for completeness outside of the journals)

  8. Summary of findings on the characteristics of nascent entrepreneurs.

  9. Findings regarding characteristics of nascent entrepreneurs (I) • As regards resource endowments, results largely confirm prior research: • NEs have more Human Capital (S-E exp; Education) • Social capital more varied results. Close role model no longer important in the US? • Household wealth; income has no or little effect (but NEs with more money have higher aspirations) • Methods issue lurking!

  10. Findings regarding characteristics of nascent entrepreneurs (II) • As regards motivation and cognition, the research stream has produced novel and surprising findings: • Little or unexpected difference from others in “career motivation” • Strong evidence against push motivation (‘revenge’) • NEs are more risk averse than others!? • NEs have higher ‘Need for Closure’ – preference for order and predictability! • Theory/representativeness issue lurking!

  11. Findings regarding characteristics of nascent entrepreneurs (III) • The majority works in partnerships or teams • The majority of ‘teams’ is ‘romantic’ • The majority of the remaining teams aren’t exactly ‘textbook’ teams, either • The functionally well-balanced team that was assembled purely for business purposes is a rare occurrence • Theory/representativeness issues lurking!

  12. Population prop. = 2/7 ventures Sampling prop = 2/3 ventures (because 10/15 individuals belong to teams)

  13. Fundamental issue with investigating ‘Characteristics of Nascent Entrepreneurs’ • It’s a bit like comparing ‘holiday makers’ to other people… • Some of whom will, of course, go on vacation next week… • So perhaps we should be looking at ‘what does the NE experience do to the person’ rather than ‘what person characteristics make you become NE’?

  14. Findings regarding new venture creation process (I): Discovery • Relatively non-systematic search for opportunity, and processes triggered by a particular idea rather than by a wish to become a founder-manager seem to be relatively more common than systematic, textbook-like processes • Importantly, however, this descriptive result does not necessarily have any prescriptive implications. Even if less common those ventures resulting from systematic search may achieve better outcomes

  15. Findings regarding new venture creation process (I): Exploitation • Enormous variation in duration • Enormous variation in sequence • Liao, Welsh and Tan (2005): “firm gestation is a complex process that includes more than simple, unitary progressive paths” (2005: 15) and “a process where developmental stages are hardly identifiable” (2005: 13). • However, there are systematic sub-group differences • Additional method challenges • Theoretical boundary challenges

  16. Sampling day Annual prop. = 25/75 Sampling prop = 50/50 Jan 1. May 1 Sep. 1 Dec . 31

  17. Sampling day Jan 1. May 1 Sep. 1 Dec . 31

  18. Methods Insights • Level of analysis issues: The sampling procedure yields a representative sample of current nascent entrepreneurs, but a biased sample of emerging ventures or of entrepreneurial teams • There is a problem with a substantial group of ‘dilettante dreamers’ who never put their effort to an ‘acid test’ • Another group start more ambitious ventures but take longer to get up and running – and may mistakenly appear less ‘successful’ • CAUSEE: Higher tech; higher ambition take longer; retailing and brick-and-mortar-only get up quicker (but retail have lower survival once they are up and running)

  19. CAUSEE Digression: Analysis Example

  20. Methods insight: In this type of research it is important to • Control for type of venture • Analyse different types of outcomes at different points in time Otherwise all sorts of confounding effects will blur our understanding

  21. Findings regarding DRIVERS OF OUTCOMES(I) • Some 33-50% of nascent ventures ever reach an operational stage (self-perceived / regular sales) • HC influences appear weak or inconsistent • Effects of financial endowment variables and social capital indicators are also unimpressive… • And a cursory look at the results for motivation and expectation isn’t very enlightening, either • …but there’s more to be said… • …and measures of actual investment of capital (HC,FC,SC) tend to come out with positive effects

  22. Why the weak overall results? • It may be overly simplistic to assume that effects on outcomes are direct, linear and generalizable across all types of ventures, founders, and environments • The venture and the individual are distinct levels of analysis. The respondents may not invest all their capital in the focal venture, and the venture may draw on capital from multiple individuals • The opportunity cost structure needs to be considered when assessing the effects of human capital on outcomes • Outcomes for independent ventures are hard to assess, predict and interpret – especially when the respondents try to start very different ventures

  23. Summary of findings on outcome effects of human capital by country a) + denotes a sig. positive effect; 0 denotes no significant effect; - denotes a sig. negative effect (p<.05); b) based on Brush et al. (2008a); Dimov (2009); Edelman et al. (2008); Liao and Gartner (2006); Liao et al. (forthcoming); Lichtenstein et al. (2007); Newbert (2005); Parker (forthcoming); Parker & Belghitar (2006); Tornikoski and Newbert (2007); Townsend et al. (in press); c) based on Diochon et al. (2005a); Menzies et al. (2006); d) based on van Gelderen et al. (2005); e) based on Alsos and Kolvereid (1998); Alsos and Ljunggren (1998); Rotefoss and Kolvereid (2005); e) based on Davidsson and Honig (2003); Delmar and Shane (2003); Delmar and Shane (2004); Honig and Karlsson (2004); Eckhardt et al. (2006); Samuelsson and Davidsson (2009); Shane and Delmar (2004); f) We have reluctantly (hence the parentheses) followed the practice of including age, gender and ethnicity among the indicators of general HC. Effect of Human Capital on Outcomes (operational-still trying-terminated)

  24. Methods Insight • We should stop looking for direct, linear and very broadly generalizable effects with respect to a single outcome variable • We need to model contingent relationships and assess multiple outcome variables over time in order to disentangle the intricacies and arrive at sounder interpretations

  25. RESULTS ON BUSINESS PLANNING AND OUTCOMES

  26. FUTURE RESEARCH…

  27. FUTURE RESEARCH…

  28. FUTURE RESEARCH…

  29. FUTURE RESEARCH…

  30. FUTURE RESEARCH…

  31. Panel Studies of New Venture Creation • Are a Great Innovation! • Are Practically Feasible! • Entail Quite a Number of Conceptual and Methods Related Challenges! Thank You!

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