Knowledge that Transforms

Research Summary As an important strategic tool for entrepreneurial ventures and for established corporations alike, corporate venture capital (CVC) has attracted significant research attention. However, extant studies are equivocal about CVC's performance impact, and measurement approaches vary widely. Separating CVC performance into its corporate and venture elements, we conducted a meta‐analytic structural equation model (MASEM) analysis to quantitatively synthesize 151 effect sizes from 68 studies. While results indicate that CVC does create value for both investing corporation and invested venture, they also hint at different magnitudes for, and nuanced interrelationships between, the various performance aspects. We highlight implications for CVC scholarship in terms of measurement and theory. Managerial Summary What is the bottom line impact of corporate venture capital (CVC)? While CVC is attractive to both startups and corporations, potential benefits are different for each participant—for example, capital and industry contacts for the startup, learning and financial returns for the corporation. The multiple and potentially competing benefits complicate the assessment of CVC's performance impact. Our quantitative summary of 68 empirical studies shows that CVC creates value for startups and corporations alike, but in varying magnitude, suggesting that the benefits are not equally shared between partners and across performance aspects. The nuanced distribution and interrelationship among CVC outcomes have practical implications for startup leaders and corporate investors as they enter into and manage CVC investments.

Research Summary This study explores the impact of parent university linkages on the market performance of university spin‐off firms (USOs). We argue that spin‐offs' performance is not only affected by competencies inherited from their parent universities at start‐up but also by linkages maintained over time. We longitudinally study 551 USOs established between 2000 and 2008 in Italy. Using estimations that account for attrition and endogeneity, we find that equity‐based university linkages increase USOs' market performance and that geographical proximity strengthens this effect. Furthermore, increasing technological ties between USOs' entrepreneurial teams and their parent universities has a detrimental effect on performance, especially for companies that remain geographically proximate to their parent universities. The results have implications for theory and practice related to strategic linkages, alliances, and academic entrepreneurship. Managerial Summary This study explores the extent to which university spin‐off firms (USOs) benefit from maintaining linkages with their parent universities over time. We study 551 USOs established between 2000 and 2008 in Italy, assessing their market performance (i.e., sales revenues) up to 2012. We find that USOs that maintain equity shares with their parent universities have better market performance. This positive effect is stronger for USOs located near their parent universities. In contrast, USOs that maintain close technological ties to their parent universities have worse market performance, especially if located near their parent universities. These findings are relevant to policymakers, university managers, and academic entrepreneurs interested in understanding how to effectively design and manage the different linkages between USOs and their parent universities.

Research summary This study explores the relationship between business model diversification (BMD) and firm performance from a demand‐side perspective. We focus on the addition of a business model with a high degree of demand complementarity, which we refer to as demand‐related BMD and explain the ways that such an addition can increase firm performance. We further extend theoretical understanding by first providing a comparison of demand‐related BMD to demand‐unrelated BMD, describing why we expect the former to be the more profitable form of BMD. Second, we contend that the ability to exploit demand complementarities depends on both demand heterogeneity as well as the level of demand for the added business model. Using a unique panel dataset of global retail corporations, we find evidence supportive of our arguments. Managerial summary Despite the strong recognition that many firms operate multiple business models at the same time, little is known about how business model diversification (BMD) may be associated with firm performance. Our study explores this question from a demand‐side perspective, leading us to distinguish between two BMD strategies: demand‐related BMD and demand‐unrelated BMD. We argue and show that demand‐related BMD increases firm performance and is more profitable than demand‐unrelated BMD. We also explore external market conditions under which demand‐related BMD should lead to greater performance improvements. Our results reveal that demand‐related BMD is more profitable in markets with higher demand heterogeneity—as fostered by increases in consumer incomes—and increased technology availability that enables consumers to act on their heterogenous preferences.

Research Summary Using meta‐analysis, we investigate the extent to which General Mental Ability (GMA) and Emotional Intelligence (EI) predict entrepreneurial success. Based on 65,826 observations, we find that both GMA and EI matter for success, but that the size of the relationship is more than twice as large for EI. Our study contradicts and adds important contextual nuance to previous meta‐analyses on performance in traditional workplace settings, where GMA is considered to be more critical than EI. We also contribute to the literature on cognitive and emotional intelligence in entrepreneurship. Managerial Summary While previous studies have shown General Mental Ability (GMA, cognitive intelligence) to be more important for success compared to Emotional Intelligence (EI) in traditional workplace settings, we theorize that EI will be more important in entrepreneurial contexts. Entrepreneurship is an extreme setting with distinct emotional and social demands relative to many other organizational settings. Moreover, managing an entrepreneurial business has been described as an “emotional rollercoaster.” Thus, on a relative basis we expected EI to matter more in entrepreneurial contexts and explore this assumption using a meta‐analysis of 65,826 observations. We find that both GMA and EI matter for entrepreneurial success, but that the size of the relationship is more than twice as large for EI.

Research Summary Focusing on latent customer needs as the essential substance of entrepreneurial opportunities, this study examines the determinants of the identification of such opportunities. Based on organizational learning theory, we explore the effects of experiential market learning (EML) and vicarious market learning (VML), and the contingency of such effects on different dimensions of environmental uncertainty in an emerging economy: demand uncertainty of the task environment and legal inefficiency of the institutional environment. The model was tested through survey among 238 firms in China. We find that both EML and VML facilitate the identification of latent customer needs, while they interact with environmental uncertainty in different ways. This study makes substantial contributions to the extant literature on opportunity identification, strategic entrepreneurship, and the origin of entrepreneurial opportunities. Managerial Summary Latent customer needs, which customers are not aware of or unable to articulate, serve as a catalyst for firm growth and are integral to the business model design. How can firms identify such essential entrepreneurial opportunities? We investigate this question in an emerging economy in which latent needs are more frequently encountered and find that both learning from direct market experience (EML) and learning from other firms' market experience (VML) increase the likelihood of identifying latent needs, while VML is more influential than EML. Facing high demand uncertainty, firms should rely more on VML than EML to identify latent needs, whereas in an uncertain institutional environment with a weak legal system, firms should place less emphasis on VML and more on EML in the identification of latent needs.

Research Summary We analyze the impact of informal entrepreneurship on innovation in emerging markets. Building on agency and imprinting theories, we introduce the concept of informality costs, that is, the higher agency costs from adverse selection and moral hazard problems caused by a firm's informal creation. These informality costs become imprinted and affect internal agency relationships among employees and managers and external agency relationships with suppliers and distributors, constraining the firms' incentives and ability to innovate even after formalization. As a result, informally created firms engage more in imitative and less in innovative new product development. We further propose that changes in ownership and the innovation environment alter the persistence of informality costs. Specifically, foreign firm and business group ownership reduces the persistence of informality costs and results in more innovativeness, while state ownership heightens informality costs and leads to less innovativeness. Moreover, improvements in national innovation systems decrease informality costs, strengthening the innovativeness of informally created firms. Managerial Summary We study how the informal creation of new ventures in emerging economies affects their innovation after they become formal firms. We propose that informally created new ventures suffer from informality costs established as a result of being informal at the beginning of their lives that reduce their incentives and ability to innovate. As a result, these firms tend to introduce new products that are imitative rather than innovative. We also propose that changes in the firm's ownership and in the national innovation system alter the persistence of informality costs and their impact on innovation. First, informally created new ventures acquired by foreign firms or private business groups have reduced informality costs and innovate more, while those acquired by the state have enhanced informality costs and imitate more. Second, national innovation system improvements reduce informality costs and support innovativeness.

Research Summary This study aims to broaden the understanding of effectuation and causation by investigating their effectiveness for small and medium enterprises (SMEs) in the emerging market context during adverse economic conditions. We embrace a holistic view of the performance implications of these behavioral logics, theorizing and empirically testing their impact not only on the level of firm performance but also on its variability. The findings suggest that emerging market conditions create significant contingencies in the relationships between effectuation, causation, and firm performance, substantively affecting their effectiveness. In particular, we demonstrate that for the firms affected by adverse conditions, causation brings marginal performance improvements while also making it highly unreliable (variable), whereas effectuation leads to performance improvements coupled with higher reliability. Managerial Summary Entrepreneurial actions can be based on one of two behavioral logics: causation (rigorous forward‐looking analysis, relying on well‐prepared plans, pre‐defined goals, and required resources) or effectuation (leveraging the existing resources and controlling the environmental uncertainty through creating new markets, products, and opportunities). We investigate the effectiveness of these logics for Russian SMEs navigating adversity in the emerging market context. The results suggest that causation leads to performance improvements, yet these become marginal and highly unreliable if a firm finds itself in adverse conditions. Effectuation, on the other hand, is a costly and unreliable strategy in stable times, yet leads to reliable performance improvements in volatile contexts.

Research summary Although the study of entrepreneurs' stress has encompassed nearly 40 years, the literature to date is marked by ambiguity, conflicting results, and the absence of a cohesive theoretical framework with which to describe stress phenomena. In response, the current investigation extends the challenge hindrance stressor framework to the context of entrepreneurship, testing how challenge and hindrance stressors impact entrepreneurs' well‐being and performance. Our meta‐analytic results show that challenge stressors enhance entrepreneurs' performance, but hindrance stressors harm entrepreneurs' well‐being. Additionally, comparison of our meta‐analytic results with findings on nonentrepreneurs suggests that entrepreneurs experience better outcomes from challenge and hindrance stressors than do nonentrepreneurs. Our findings have important implications for the utility of measuring and categorizing specific stressors and the value of individual‐level characteristics in coping with stressors. Managerial summary Entrepreneurs face many stressors as they start and run their ventures. However, prior research provides conflicting evidence regarding the impact of stressors on entrepreneurs and on the performance of their ventures. To address this conflicting evidence, we theorize that entrepreneurs' stressors can be categorized as either challenges (i.e., those that promote growth or mastery) or hindrances (i.e., those that promote loss or prevent mastery) and that each category of stressor differentially influences entrepreneurs' well‐being and venture performance. Using meta‐analysis, we found that challenge stressors increase performance whereas hindrance stressors had no significant effects on performance. Further, challenge stressors had no significant effects on well‐being, whereas hindrance stressors negatively affected well‐being. Finally, we identify important differences in these relationships between entrepreneurs and nonentrepreneurs.

Research Summary We examine a learning‐by‐doing methodology for iteration of early‐stage business ideas known as the “lean startup.” The purpose of this article is to lay out and test the key assumptions of the method, examining one particularly relevant boundary condition: the composition of the startup team. Using unique and detailed longitudinal data on 152 NSF‐supported lean‐startup (I‐Corps) teams, we find that the key components of the method—hypothesis formulation, probing, and business idea convergence—link up as expected. We also find that team composition is an important boundary condition: business‐educated (MBA) members resist the use of the method, but appreciate its value ex post. Formal training in learning‐by‐thinking methods thus appears to limit the spread of learning‐by‐doing methods. In this way, business theory constrains business practice. Managerial Summary Lean startup methodology has rapidly become one of the most common and trusted innovation and entrepreneurship methods by corporations, startup accelerators, and policymakers. Unfortunately, it has largely been portrayed as a one‐size‐fits‐all solution—its key assumptions subject to little rigorous empirical testing, and the possibility of critical boundary conditions ignored. Our empirical testing supports the key assumptions of the method, but points to business education of team members as a critical boundary condition. Specifically, MBAs resist the use of the method despite being in a strong position to leverage it. Results from a post hoc analysis we conducted also suggest that more engagement with the method relates to higher performance of the firm in the 18‐month period following the lean startup intervention.

Research summary Despite knowledge about the importance of intermediaries in filling institutional voids, we do not understand how intermediaries facilitate institutional change. This research demonstrates how intermediaries use six rhetorical legitimation strategies—logos, ethos, pathos, autopoiesis, teleological, and anthropos appeals—to influence institutional change in Abia, Nigeria, that facilitate small‐to‐medium‐enterprise (SME) development in the region. While the first five rhetorical legitimation strategies are used in both developed and emerging economies, the sixth strategy—anthropos appeals, which reflect the communal character of many African cultures—seems to be unique in this context. Our findings contribute to the literature by extending our understanding of the role of rhetorical legitimation strategies in bringing about institutional change, use of rhetoric to communicate entrepreneurial opportunities, and significance of nonmarket strategies for SMEs. Managerial summary SMEs influence economic development in emerging economies but face many constraints. This research examines how intermediaries help reduce constraints SMEs in Nigeria encounter by facilitating institutional changes, through the use of six legitimation strategies (logos, pathos, ethos, autopoiesis, teleological, and anthropos). Also, this research explains how the institutional changes encourage the government to fill voids that generate beneficial outcomes to SMEs, emergent local intermediaries, the general public, and the government itself. Finally, this research finds that market actors in Nigeria use an Anthropos legitimation strategy when appealing to individuals in the local market to help with SME development. This strategy, which taps into the communal character of many African cultures and interestingly has some parallels with Confucianism philosophy, seems to be unique in emerging economies.