Knowledge that Transforms

Research Summary Building on human capital theory, this study establishes the concept of the “sharedness” of competencies in founding teams. Based on prominent entrepreneurship research, we differentiate among entrepreneurial, managerial, and technical competencies. We test our model with 1,863 founding teams of US‐based new ventures by means of a multisource dataset that uses the LinkedIn skills and endorsements sections to measure competencies in a novel way. The results suggest that strong sharedness of entrepreneurial competencies is positively related to new ventures' performance, while sharedness of managerial skills is negatively related to performance. These results have theoretical implications for human capital and entrepreneurship research and practical implications for investors and founders. Managerial Summary It is common wisdom in entrepreneurial practice that different types of competencies are required in founding teams. Our research adds to this notion that it does not only matter that different competencies are represented, but also how these competencies are represented. First, all members should have some entrepreneurial competencies, as mastering the challenges related to opportunity recognition is the major task a new venture has to address, and synergies are central to success in this regard. Second, deep expertise in managerial competencies in one or a few individuals with specialized knowledge, such as project management and managing customer relationships, is beneficial to new ventures' funding success. These findings provide important implications for founding team composition.

Research summary Agglomeration theory has long explored and asserted that similar firms locate in close geographic proximity for performance‐related benefits. However, no study has systematically assessed the literature to determine whether the relationship between agglomeration and firm performance holds. Through a meta‐analysis of 42 studies and nearly 200,000 firm‐level observations, our study estimates the relationship between agglomeration and performance, showing the importance of knowledge spillovers in this relationship. Specifically, we find although agglomeration confers innovation benefits, it does not consistently offer financial performance benefits. We also highlight several important conditions, including firm age, industry technology intensity, and economic development level that impact the agglomeration–performance relationship. Together, our work advances agglomeration theory by suggesting when, and to what extent, agglomeration holds the most promise for organizations. Managerial summary All firms must address a fundamental question before launching their firms— where to locate ? Existing thought largely suggests that locating near similar firms offers certain advantages, such as reducing search costs for skilled employees or gaining access to knowledge spillovers. By examining the body of literature on this topic, our study analyzes the collective evidence of the performance benefits of co‐location. We find that co‐location generally enhances firm innovation, but we discover it fails to increase firm financial performance, on average. And, in some cases, co‐location is detrimental to financial performance. Ultimately, we offer a variety of contingencies that help explain when co‐locating might be advantageous or disadvantageous to firms, thereby providing firm leaders and entrepreneurs with clear guidance on when (and when not) to co‐locate.

Research Summary Designing effective entrepreneurship training programs is still a challenge despite the investments in training made by governments and private institutions, and its importance for economic growth. We report a case of impact measurement of a social entrepreneurship program based on repeated randomized controlled trials (RCTs), discuss challenges of conducting repeated RCTs, and implications for policy evaluation. Impact measures from the first edition of the program showed no detectable treatment effects. The second edition was adjusted by reducing leadership training and increasing traditional entrepreneurial skills training, and had strong treatment effects on entrepreneurial activities, the creation of a new venture during the program, and subsequent start‐up activity. Employing sequential field experiments can improve entrepreneurship training programs despite the challenges of executing RCTs in the field. Managerial Summary Governments, institutions, and businesses increasingly invest in innovative entrepreneurship training programs that tackle societal problems. However, we know very little about the effectiveness of such trainings. To measure the causal impact of a social entrepreneurship training program we use an experiment where we assign one group of applicants randomly to training. A comparable group is selected randomly to not obtain the training. There were no detectable differences between the two groups the first time the program was run. After substantial changes were made, where analytical skills training was boosted at the expense of a reduction in social leadership skills training and social entrepreneurial identity development, and individualized coaching intensified, we find a large impact on entrepreneurial activities, both during the program and 3 years later.

Research Summary Using causal and effectual decision‐making logics ambidextrously leads to positive firm‐level outcomes, such as enhanced new venture performance. However, what makes an entrepreneur more or less likely to apply this ambidextrous use? We address this unanswered question by introducing family financial support as a corresponding antecedent. Taking a family embeddedness perspective, we further theorize that our proposed relationships are weaker when the entrepreneur exhibits a strong internal locus of control. Analyzing a sample of 1,460 student entrepreneurs from 19 countries confirms our general reasoning and offers valuable contributions to different streams of literature. Managerial Summary Using both causal and effectual decision‐making logics simultaneously in the founding process has been shown to enhance new venture performance. It is unknown, however, what makes an entrepreneur more likely to apply this “ambidextrous” use of causation and effectuation. In the present paper, we suggest that the more entrepreneurs rely on family financial support for creating their new venture, the more likely is their engagement in the ambidextrous use. Moreover, we believe that this relationship depends on whether entrepreneurs have a strong internal locus of control or not. We generally confirm our expectations by analyzing a global sample of student entrepreneurs. Thus, we encourage entrepreneurs to be aware of the important underlying dynamics that arise when creating a business with “family money.”

Research Summary New venture leaders play a key role in crafting media communications to best represent the firm to the outside world. These decisions and behaviors have critical implications for performance. Building on entrepreneurial identity and strategic disclosure research, we explore the interplay between founder CEOs and firm media strategy in their effects on IPO. We use natural language processing and textual analysis on a sample of 76,883 press releases, providing insights into the media communications of founder CEOs of 2,276 US VC backed high‐technology firms during the period from 1985 to 2009. Results suggest that greater volume and use of positive terms in media statements positively mediate the effects of founder CEOs, increasing the likelihood of firm IPO. Our findings offer important contributions to entrepreneurship research. Managerial Summary The purpose of this article is to explore how new venture leaders may influence the external representation of their startups and subsequently impact performance outcomes such as IPO. Specifically, we examine differences between founder CEOs and professional CEOs in how they personally identify with the venture, portray the venture in the media, and thus affect the likelihood of the venture going public, being acquired, or being liquidated. Through analysis of press release statements of VC‐backed high‐technology startups, we find that startups with founder CEOs issue more press release statements, incorporate more positive language in these statements, and have a higher likelihood of IPO than those with professional CEOs. These results imply that the media strategy of founder CEOs may be more beneficial for new ventures.

Research abstract We introduce an assembly perspective of entrepreneurial action in early‐stage projects, developed in a process model of microsocial network dynamics. The model comprises four conceptual elements: (a) an initial entrepreneurial projection or goal, which motivates and guides network‐based action, and evolves as the venture unfolds; (b) knowledge articulation to make the entrepreneurial projection relevant to diverse stakeholders; (c) combinatorial action, which entails joining people and resources in new combinations and that may reshape the project; and (d) network expansion by which stakeholder relationships develop and generate distributed momentum. This approach integrates and extends foundational theoretical perspectives in entrepreneurship studies—bricolage, effectuation, and opportunity creation—and draws on recent developments in social network process theory to specify the model. Managerial abstract How do entrepreneurs use social networks in early‐stage projects? We introduce a conceptual model for how entrepreneurs initiate and adapt network activity as they pursue their entrepreneurial project. In its early stages, a new venture begins with the crystallization of an “entrepreneurial projection” that motivates and guides action. Then, the entrepreneur's action consists first of the articulation of that projection to appeal to potential stakeholders such as investors, employees, and other collaborators. Second, the entrepreneur is simultaneously connecting diverse stakeholders in different clusters of support critical to the project's continued growth. Finally, the entrepreneur generates momentum by expanding her network by recruiting new stakeholders. As this entrepreneurial activity unfolds, the entrepreneur continually adjusts her projection and subsequent actions in response to diverse stakeholder feedback.

Research Summary Grounding on the literature on resource dependence, board political capital, and principal–principal conflicts, I conceptualize governmental minority shareholding as a governance strategy through which ventures access information about future policy shifts and better calibrate their decisions before policy implementation. I test these arguments on multicountry firm‐level longitudinal data about European venture capital (VC)‐backed and comparable non‐VC‐backed companies. By means of a difference‐in‐differences methodology and exploiting the staggered announcement of tax reforms across countries, I show that public VC‐backed companies after a tax reform announcement show higher productivity than non‐VC‐backed ventures, and this effect lasts 4 years. After decomposing productivity, the post‐announcement effect of public VC backing is mainly due to both an output effect (sales value increase) and an enhanced efficiency in the labor factor. Managerial Summary Ventures facing market uncertainty may benefit from having a governmental minority shareholder on board. Governmental minority shareholders bring political capital in the form of information about future business‐related policy changes, as well as connections to debt capital providers. Plus, their minority status makes conflicts with the entrepreneur (and other shareholders) less likely. In this way, after a policy reform announcement, entrepreneurs backed by governmental minority shareholders (such as public venture capitalists) can better predict market changes and react more quickly than comparable non‐backed firms to those changes. In sum, governmental minority shareholding represents an effective governance strategy for ventures to reduce their uncertainty and access information and resources that would be out of reach for both the ventures and all other types of shareholders.

Research Summary Does embeddedness in global social networks elevate or diminish individuals' propensity to found new ventures? I analyze entrepreneurial entry among a large, cross‐country sample of skilled return migrants, all of whom had worked abroad in the United States before returning to 98 different home countries. My findings reveal that maintaining stronger cross‐border social ties—that is, relationships to former colleagues abroad—leads returnees to be more likely to found new ventures in their homelands. However, the positive effects of cross‐border social ties diminish with greater institutional distance between the returnee's home country and the United States. The findings have implications for research at the intersection of social networks, international migration, and entrepreneurship. Managerial Summary When it comes to founding a venture, social networks are often critical in helping prospective entrepreneurs identify new market opportunities and resources. Which types of networks are most beneficial in helping people become entrepreneurs, however, still remains a question. This paper asks whether having social connections to individuals across countries makes one more likely to become an entrepreneur, and if so why? Studying skilled return migrants, I find that returnees who maintain stronger social ties to those they met while working abroad are more likely to start companies, but only if there is sufficient similarity between the market environments of the returnee's home country and the country where the returnee worked abroad.

Research summary Entrepreneurship training is an effective means to promote business creation. We examine the effect of entrepreneurship training in conjunction with capital constraints, which entrepreneurs frequently experience in the context of developing countries and emerging economies. We develop a theoretical model that explains how entrepreneurship training attenuates the negative effect of capital constraints on business creation by developing financial mental models. To test our model, we conducted two longitudinal, randomized field experiments in developing countries. Our studies show a moderation effect of entrepreneurship training on the relationship between capital constraints and business creation. Results reveal that financial mental models mediated this moderation. The study demonstrates the role that entrepreneurship training plays in dealing with capital constraints in entrepreneurship in developing countries and emerging economies. Managerial summary A major barrier for entrepreneurship is capital constraints. In the context of developing countries and emerging economies, where people experience severe capital constraints, the common thinking suggests improving access to capital as the major solution for overcoming capital constraints in business creation. Our study provides empirical evidence for a different point of view: It emphasizes the importance of entrepreneurship training as an effective means to cope with capital constraints when starting businesses. Our findings show that entrepreneurship training reduces the negative effect of capital constraints on business creation through financial mental models. This implies that entrepreneurship training improves participants' financial mental models and hence supports them in starting businesses despite capital constraints. Consequently, we recommend promoting entrepreneurship training to overcome capital constraints in business creation.

Research Summary This study focuses on the dilemmas that social entrepreneurs encounter and the practices used to manage dilemmas over time. Using a multi‐method approach involving event structure analysis and an inductive multiple case study, we find that four key organizational practices—asset multiplication, leveraging human capital, building social embeddedness, and affordable quality—embody the jugaad elements of frugality and inclusivity. Adding to the social entrepreneurship literature, this study demonstrates that the jugaad approach is conceptually distinct from bricolage and relevant to the study of social enterprises' resource mobilization processes. Managerial Summary How do social enterprises encounter and manage dilemmas over time in emerging markets? The present study responds to this question, finding that social entrepreneurs mobilize resources and overcome dilemmas using the practices of jugaad , the “Indian method” of problem‐solving. These jugaad practices can be used to build and allocate resources and create trade‐offs among the jugaad elements of frugality and inclusivity. Based on our results, we recommend that social entrepreneurs pay close attention to how to proceduralize human assets, which would allow these entrepreneurs to build training systems that are highly task‐focused and replicated across functions. We also encourage social entrepreneurs to work in rural markets and seek wider resource pools within these markets by building social embeddedness in rural communities.