This paper provides insight for practitioners by exploring the collective process of entrepreneurship in the context of the formation of new industries. In contrast to the popular notions of entrepreneurship, with their emphasis on individual traits, we argue that successful entrepreneurship is often not solely the result of solitary individuals acting in isolation. In many respects, entrepreneurs exist as part of larger collectives. First and foremost, there is the population of organizations engaging in activities similar to those of the entrepreneurial firm, which constitute a social system that can affect entrepreneurial success. In addition, there is also a community of populations of organizations characterized by interdependence of outcomes. Individual entrepreneurs may be more successful in the venturing process if they recognize some of the ways in which their success may depend on the actions of entrepreneurs throughout this community. Thus, we urge practitioners and theorists alike to include a community perspective in their approach to entrepreneurship. We also suggest that one way of conceptualizing the community of relevance might be in terms of populations of organizations that constitute the value chain. For example, in the early film industry a simple value chain with three functions—production, distribution, and exhibition—is a convenient heuristic for considering what populations of organizations might be relevant. As we show in our case study of that industry, a community model offers insights into the collective nature of entrepreneurship and the emergence of new industries. Our basic thesis is that the role of entrepreneurship in the creation of new industries can be conceptualized in terms of the dynamics of a community of organizational populations. At least three implications of this view may be important for practitioners. First, the kind of widespread and fundamental economic and social change that has often been linked with entrepreneurship requires a variety of behaviors. While most definitions of entrepreneurship have recognized that entrepreneurship requires the introduction of innovation, they have tended to ignore the importance of behaviors that subsequently support that innovation. To encompass these important behaviors, we believe that a broad definition of entrepreneurial behaviors is justified. To capture this, the framework of entrepreneurial behaviors that we develop includes the variety of behaviors that are important to the success of a collective process of entrepreneurship. We believe that recognition of a variety of different behaviors that are important to the success of the entrepreneurial process can help practicing entrepreneurs to understand more fully the complex dynamics of new industry creation. In terms of our framework, the range of behaviors of potential importance to entrepreneurship includes all of the following: creating a firm that innovates, creating a new business that imitates the practices of others, innovating within an existing business, and imitating by creating change in an existing business. In addition, we recognize that the kinds of innovative change that support entrepreneurship in the context of new industry creation are not narrowly technological; other kinds of product and service changes as well as administrative innovations may also be relevant. Second, entrepreneurship in one part of the community often creates the opportunity for entrepreneurial activity elsewhere in the community. For example, the founding of movie palaces did not begin until feature length films appeared. The challenge for entrepreneurs is to recognize these opportunities and act on them. Third, and related, the long-term success of entrepreneurial behaviors in one population of the community frequently requires that supportive entrepreneurial behaviors occur in other populations in the community. For example, the success of feature length films was hastened by the development of distribution organizations to replace traveling shows and localized markets. Their success was also hastened by the movement away from nickelodeons towards larger, more comfortable exhibition outlets, such as theaters and show palaces. When the interdependence among populations in the community is stated this way, another challenge to entrepreneurs becomes clear: the facilitation and encouragement of supportive behaviors in other populations. We are not the first to propose that the community is important, but we contribute to this idea by showing in a specific context how various types of behaviors interact and ultimately promote entrepreneurship throughout the community. Our contribution for practitioners is twofold. We would urge practitioners to consider the variety of behaviors necessary to create, reinforce, and maintain fundamental and widespread change. Further, we would suggest that practitioners consider how activities in a broad community of organizations can set the stage for entrepreneurship and have a high impact on its ultimate success or failure. Thus, we would suggest that practitioners who seek to innovate should search broadly for opportunities and understand the importance of relations with businesses elsewhere in the community. The success of their entrepreneurial efforts may depend on the occurrence of supportive entrepreneurial changes in those businesses as well. Their ability to do this will be enhanced by a broad understanding of entrepreneurial behaviors and sensitivity to the opportunities that their entrepreneurial behaviors may create for others.

This study considers the extent to which entrepreneurs are satisfied with their businesses in their third year of business ownership. Entrepreneurial satisfaction might be viewed as a basic measure of performance. It may bear upon decisions by individual entrepreneurs about whether to invest more time and money, whether to cut back, or whether to close down. It may also influence whether entrepreneurs work effectively with their customers and employees. For researchers, the investigation of why, in particular settings, some entrepreneurs may be more satisfied than others may aid in the interpretation of past research, which has used this as a performance measure. This research draws upon a theoretical framework used in investigations of employee satisfaction. Called discrepancy theory, it suggests that individual satisfaction is determined, in part, by whether there is a “gap” between actual rewards or performance and the individual's goals or expectations. In this research, it was hypothesized that entrepreneurs emphasizing primarily noneconomic goals (such as doing the work they wanted to do) would have higher satisfaction when the business was experiencing lower levels of performance. For higher levels of performance, there would be no difference. In essence, the satisfaction of those emphasizing economic goals would vary more with economic performance. A related hypothesis was that, for this sample of start-up firms (many of which would be experiencing low levels of performance), those emphasizing noneconomic goals would have higher average levels of satisfaction. This was based upon the expectation that many start-up firms would be experiencing marginal performance, so that the “gap” between goals and performance would be greater for economically oriented entrepreneurs. The research also focused upon expectations, because one aspect of discrepancy theory suggests that satisfaction decreases if there is a gap between expectations and performance. Accordingly, it was hypothesized that, controlling for performance, entrepreneurs with higher initial expectations would subsequently have lower levels of satisfaction. Previous research suggests that membership in particular demographic groups may influence expectations. This led to hypotheses that older entrepreneurs, female entrepreneurs, and minority entrepreneurs would have lower levels of initial expectations. This, in turn, may influence later satisfaction. Thus, it was hypothesized that, controlling for performance, entrepreneurs in each of these groups would have higher satisfaction because their initial expectations would be lower. The study utilized a sample of 287 entrepreneurs who were followed over a 3-year period. The data on predictors of satisfaction were gathered in year 1, when the average owner had been in business for 11 months. The satisfaction measures were gathered 2 years later. By that time there should have been some stabilization in the routines of the business, and the entrepreneur could reflect upon historic performance and experiences in judging the extent to which business ownership had been satisfying. The data were analyzed primarily using path analysis, in which it was hypothesized that certain variables would have both direct and indirect effects upon satisfaction. It was found that the satisfaction of entrepreneurs emphasizing economic goals was not more sensitive to economic performance, at least within the range of performance considered in this sample. For this group of firms, many of which appeared to be experiencing marginal performance, those emphasizing noneconomic goals did express higher levels of satisfaction. It had been expected that those with higher initial expectations would later be less satisfied because they would have a greater expectation-performance gap. However, the opposite was found; those who were more optimistic initially were more satisfied later, even when controlling for performance. Demographic influences on initial expectations were examined. Contrary to expectations, none of the demographic traits was significantly related to initial assessment of likelihood of success. Older entrepreneurs, women entrepreneurs, and minority entrepreneurs were just as optimistic as those in other groups. The relationship between membership in these demographic groups and later satisfaction was also examined. No significant relationships were found for older entrepreneurs and minority entrepreneurs. However, there was some evidence (p = .07) that women entrepreneurs were more satisfied with business ownership. Two of the most interesting findings were those related to initial expectations and to women entrepreneurs. Contrary to discrepancy theory, those who had higher initial expectations were later more satisfied, not less. This may suggest, as Staw and Ross (1985) found in a longitudinal study of employee satisfaction, that attitudes are, in part, a function of stable individual traits. Those who had a positive view of their initial prospects later viewed the experience of business ownership more favorably, regardless of subsequent performance. For women entrepreneurs, the higher levels of satisfaction may reflect a view that they have fewer attractive alternatives; it may also be that they discover greater relative satisfaction from the day-to-day aspects of business ownership. For entrepreneurs and their advisors, the findings suggest that particular goals, attitudes, and backgrounds are likely to be associated with greater satisfaction. This may influence whether entrepreneurs stay with marginal businesses. For researchers, the study provides insight into discrepancy theory by considering its application to entrepreneurs rather than the hired employees normally studied. In addition, subjective measures of performance, such as satisfaction, have often been used in previous research on entrepreneurial performance. This study casts light on why, in particular settings, some entrepreneurs may be more satisfied than others.

Small firms are usually in constant need of funds. In addition, when they are in decline, it puts them in a weak and dependent relationship with a commercial bank. The strategy followed by the bank toward these firms is a powerful influence on their success in turnaround and their very existence. In order to identify generic strategies followed by banks, this exploratory study analyzed data on bank responses to 192 client firms. These firms have been classified as problem loans, i.e., there is an actual default or the bank perceives a potential default on their loans. As this problem in the firm arises largely out of weakness in its primary sources of payment, which is operations, problem loans are firms in the early stages of decline. Using factor analysis, four distinct strategies toward these firms were identified: (1) managerial, involving efforts to influence strategy and operations of the firm through suggestions and recommendations; (2) financial, involving efforts to safeguard the security interests of the bank by seeking additional collateral and guarantees; (3) legal, involving recovery of funds through courts; and (4) restructuring, including efforts to improve capitalization. The firms were clustered into six groups using factor scores. Thumbnail profiles of each cluster showed the groups to be distinct. Finally, three sets of contextual variables representing firm/loan characteristics, event triggers, and the bank/client relationship were used to discriminate among the clusters of firms. The variables found to be significant in discriminating among the groups and thus impacting the strategies followed toward them included: firm size, the secured status of the loan, the bank's perception of whether the decline was due to internal or external reasons, severity of the problems facing the firm, and cooperation of the client. Significantly, the extent of loss incurred by the firm and years as a client did not make a difference to the strategy used. Where reasons for decline were largely external to the firm, financial and merger strategies were preferred. When the causes were internal, managerial and legal strategies were important. Firm size was significant; banks were less inclined to adopt managerial and financial strategies toward small as against medium-sized firms. These findings point to important lessons for managers in their dealings with banks. Banks, generally, prefer to work with clients toward a turnaround rather than resorting to legal means of recovery. To take advantage of this attitude, firms need to demonstrate cooperation to secure favorable terms, as long as the bank's funds are fully secured. Moreover, because bank strategies are dependent on their perceptions of the causes of the problems, managers need to recognize the importance of providing appropriate information to create the right perception.

This article summarizes a study of 318 private entrepreneurs who have sought equity capital in amounts of $100,000 or more. These individuals are normally considered prime clients of venture capitalists. Entrepreneurs' success in acquiring funding is related to four general variable categories: (1) characteristics of the entrepreneurs including education, experience, and age; (2) characteristics of the enterprise including stage, industry type, and location (e.g., rural or urban); (3) characteristics of the request including amount, business plan, and prospective capital source; and (4) sources of advice including technology, preparation of the business plan, and places to seek funding. The study is unique because it includes many entrepreneurs who were unsuccessful in acquiring capital, thereby reducing the survey bias. In fact, only 59% of those surveyed actually acquired funding. This article provides specific insights into businesses seeking capital. For example, the entrepreneurs who are most successful in acquiring funding are those who are prepared to surrender a larger percentage of equity and who are very aggressive in going directly to a number of potential equity providers at an early stage. Contrary to common belief, older and more experienced entrepreneurs seem to have more difficulty acquiring financing. Likewise, entrepreneurs attempting to start businesses in rural areas are more apt to have difficulty acquiring equity capital in amounts of $100,000 or more. Entrepreneurs may experience difficulty in acquiring equity capital for certain business types in specific capital markets. Firms in the health/medical technology and communication fields, for example, have much more success acquiring funding in Minnesota and Wisconsin than those in electronics and factory automation. It is vital that the entrepreneur get to the proper source of capital, wherever it is to be found, as quickly as possible. This study also indicates that private investors not identified as formal venture capitalists are the primary source of financial assistance. The study revealed that the quality of advice provided to entrepreneurs may need improvement. Entrepreneurs who fail to seek assistance are less successful in acquiring equity capital. It is less clear where good advice is to be found. Attorneys appear to offer positive advice regarding marketing and referrals to non-venture capital sources. Bankers, in contrast, are more frequently associated with advice that fails to secure capital. Public agencies and university-related organizations are, in some cases, also associated with a failure to acquire capital. It may be that the weakest cases ultimately find their way to these sources of consultation. The article provides a number of specific public policy recommendations for those governments interested in improving equity capital market efficiency. For example, as entrepreneurs seeking equity capital in small amounts seem to have difficulty, public governments might choose to facilitate the movement of equity capital in smaller amounts by bundling several small requests together and then selling them to interested investors. The public might choose to improve information linkages between entrepreneurs and capitalists by educating intermediaries such as accountants, attorneys, and bankers regarding sources of equity capital or by developing publicly supported linkage networks to whom entrepreneurs might turn. Special information programs on sources of equity capital might also be instituted in rural areas or with specific groups experiencing capital access problems. Private equity capital markets are not apt to serve adequately certain types of businesses. There may be some need for providing direct capital subsidization to firms that are expanding or to those with growth potential that, for some reason, are unattractive to private capitalists (e.g., the entrepreneurs are older, the expected growth rate is slow). These businesses may have the potential of making a substantial contribution to a regional economy but lack the short-term, high-growth impact that attracts venture capitalists.

Venture capital investing differs in important respects from investment decisions involving the securities of Fortune 500 companies, or decisions to purchase established companies, which are generally made in accord with widely recognized financial models. Investing in new ventures involves a high level of uncertainty as well as a high risk of failure. Venture capital investing is characterized by high variability in the outcomes of new ventures and in the performance of venture capital portfolios. Venture capital investing decisions are complicated by a general lack of quantifiable financial and market data for early-stage ventures, and investment decisions remain hostage to unanticipated competitors, market shifts, and financial cycles. Some observers have suggested that venture capital investment decisions are primarily subjective assessments. While the question of risk in venture capital investing has been addressed on an ad hoc basis in several empirical studies, there has been little effort to develop a theoretical framework of risk perceptions and risk-reduction strategies. Despite differences in investor experience, investment preferences, and tolerance for risk, venture capital managers share many common perceptions of the risks involved in investing in new ventures and the distribution of those risks over the venture-capital-funded phase of development. Venture capital managers also utilize many common behaviors and strategies in adapting to these risks. These perceptions and reactions to risk in investing, and strategies for controlling risk can, in theory, be used to construct a behavioral framework that can predict how venture capital managers will behave in choosing between various investment opportunities in order to minimize risk and to maximize potential returns. In an attempt to begin to identify various elements of such a behavioral framework of venture capital reactions to risk, the authors have drawn upon psychological risk theory of decision-making under uncertainty, including classic expected utility theory, later modifications to that theory by Kahneman and Tversky (1979). and Coombs and Huang's (1970) “portfolio approach” to risk, that are applicable to venture capital investing. These expected behaviors to risk have been used in conjunction with empirical studies of venture capital investment and portfolio outcomes, distributions of investments within portfolios, and venture capitalist perceptions of risk, to propose nine hypotheses about how venture capital managers behave in making investment decisions. These hypotheses include differences in variation and magnitude of returns for early-stage versus later-stage ventures, explanations of how risk distributions change over the stagewise development of new ventures, differences in the behavior of “aggressive” versus “conservative” investors in screening investment prospects, and strategies utilizing a lower “ideal level of risk” to reduce the chances of achieving negative or sub-normal final portfolio returns.

This article reports a study of the effect of aggressive entry by firms venturing into new industrial markets. There are three main sets of results: First, there is a significant correlation between the competitive attractiveness of the target industry and the initial share objective set by the corporation venturing into that industry. Second, the downstream share objective, set at the launch of the venture is significantly correlated with several key marketing strategy and investment strategy options made by the firm at the start of operations. Third, if most of these key strategy decisions are made under the assumption that a high share position will rapidly be achieved, their resulting performance, in terms of both market share and ROI, is superior to firms which enter with less aggressive share aspirations. These results are particularly appealing to the large established firm which has the resources and thus can both afford to absorb the cost of failure and afford to make significant front-end investments in aggressive initial marketing expenses and investments in initial plant capacity. For such firms a feasible strategy for a new venture into an industrial market could be to: if possible (but not essential) seek industries/markets to enter which are less likely to provoke rivalrous responses; set aggressive market share targets; invest aggressively in initial plant capacity; develop aggressive sales force, sales promotion, advertising, service quality, and/or pricing programs relative to competitors, as appropriate to the particular industry being entered. The reason we suggest that the programs be aggressive as appropriate is that different strategic options are likely to be more effective in one industry than another. For instance, aggressive advertising and sales promotions could be more effective for consumables, while aggressive sales calling programs and superior service delivery could be the more effective route for capital goods businesses.

For years, researchers have hypothesized that new ventures develop in a fairly predictable chronological process by evolving through various functional and strategic developmental stages. However, cross-comparable longitudinal data from large numbers of ventures are still not available to validate these “stages of development” hypotheses. The study sought to determine whether venture capital firms, which have extensive experience with the longitudinal development of new ventures, operate in accord with a common theory about how this process operates. These findings also represent a first step toward empirically validating various elements of “stages of development” theories. The study analyzed the perceptions of the CEO or managing partner of 73 U.S. venture capital firms about key features of the development process for new businesses. Venture capital firms were asked whether they differentiated stages in the development process. For each such stage information was elicited on what the stage was called, distinguishing characteristics of ventures in that stage, key developmental goals or benchmarks typically accomplished in that stage, and the major risks involved. Sufficient consensus was found on these aspects of the development process for a “venture capital model” of this process to be constructed. The model consists of five sequential stages: 1) “seed” ; 2) “start-up” ; 3) “second stage” ; 4) “third stage” ; and 5) “exit stage.” Strong consensus was found on distinguishing characteristics of ventures in early stages of development, key developmental goals or benchmarks in various stages, and major developmental risks associated with each stage. Consensus on developmental characteristics diminished somewhat in later stages, presumably because of differential rates of development among investees, as well as differing degrees of success in accomplishing earlier objectives. Nevertheless, sufficient differences in functional characteristics remained to clearly distinguish later stage investees from early stage investees, and to enable differentiations in maturity between “third stage” and “exit stage” investees. The venture capital developmental model exhibits both similarities and differences from “stages of development” paradigms. First, the venture capital model is primarily strategic and market-oriented in focus. It gives lesser emphasis to the elements of organizational structure, management style, and management specialization than some “stages of development” theories, although these elements are identified by venture capitalists as potential areas of risk should problems arise. Second, like “stages of development” paradigms, the venture capital model is universal and not venture specific. Venture capital firms appear to view all potentially feasible business concepts, despite differences in product, organizational complexity, rate of development, or ultimate size, as passing through the same process sequence, albeit at different speeds and with varying degrees of success. Third, the model, while reflecting the financial objectives of venture capital investors, is primarily shaped by the naturally occurring functional development of investees. It does not represent arbitrary requirements imposed on investees to segment the developmental process into steps that would not otherwise occur. The development of venture capital investees is influenced by the strategic and financial objectives of venture capital firms. Thus the model does not necessarily mirror the strategic and dynamic elements of the development process for firms that are not intended by their founders to grow rapidly and then go public or be acquired by a larger corporation, or for ventures that must depend upon internally generated funds or bank loans to finance development. The venture capital model, representing perceptions of 73 venture capital firms derived from longitudinal data for many hundreds of new ventures, appears to empirically confirm the concept of an evolutionary progression through key functional and strategic steps, which is a central element of most “stages-of-development” hypotheses. The study did not go into sufficient depth, however, to provide detail on the influence of factors such as organizational structure and management styles and control systems on development. These factors are central elements in several “stages of development” theories, and are arguably of critical importance in the growth, survival, and financial success of new ventures.

This paper analyzes the question: What does it take for science parks and technology districts to evolve and grow? We propose an analytical framework to examine the gestation, evolution, and sustainability of science parks and related but broader regional phenomena such as technology districts. The framework comprises three aspects of a science park's development: growth mechanisms, level of technological capabilities, and nature of its integration with national or global markets. The main growth mechanisms we identify are government-led infrastructure provision, agglomeration effects, and continual self-renewal through the creation of new businesses. We apply this framework to analyze Singapore's science park strategy and the recent One-North initiative.

Does an additional year of formal education affect the decision to become an entrepreneur? Using human capital theory as a conceptual lens, we explore three channels through which it might: productivity, certification, and health impacts. To test the mechanisms and uncover whether there are causal relationships between these variables, we exploit two exogenous changes to British compulsory schooling laws that generated sharp across-cohort differences in years of education. Using a fuzzy regression discontinuity design, we estimate that the reforms significantly reduced self-employment. We go on to explore which channels best explain this finding, and discuss implications for scholars and policymakers. • A Regression Discontinuity Design is used to obtain causal estimates of the relationship between high school education and adult entrepreneurship. • The study exploits as a natural experiment legal reforms to the national minimum school leaving age in Britain. • Estimates indicate a negative relationship between an additional year of schooling and engagement in self-employment. • The findings cast doubt on the notion that the additional schooling affected self-employment through productivity or credentialing channels. • Policy implications might be most applicable to developing countries where governments are exploring whether to raise school leaving ages.

This editorial provides guidance to authors considering submitting papers with economics content to Journal of Business Venturing. The aim of the journal is to publish high-impact articles on entrepreneurship which combine methodological rigor with comprehensibility (‘accessibility’). Since many economics articles are technically demanding, accessibility to non-technical readers can be a major challenge for authors. This editorial provides some advice for authors of such articles to make their articles more closely targeted on the core interests of the journal's readership and more accessible to non-technical readers. To this end, the editorial suggests that potential authors might benefit from adopting one of the following ‘3R’ strategies: ‘Remove’, ‘Reduce’ or ‘Relate’. It is hoped that this editorial provides useful and actionable guidance for economics researchers submitting theoretical and empirical papers to Journal of Business Venturing.