Knowledge that Transforms

This article examines the relationship between market performance and marketing control systems used by early-growth electronic component and instrument manufacturers. Essentially, “marketing control” means keeping things on track. Long pushed aside by the excitement of planning and organizing business ventures, controlling operations, particularly marketing operations, has received little attention. This is regrettable because control is the only mechanism which ensures that resources are allocated efficiently and that strategic objectives are met. Also, for the early-growth high tech company, which is already in a state of flux, developing an appropriate marketing control system is essential to its ability to meet and respond to the recurring challenges brought about by the pace at which change is occurring. In this article the author examines the issue of marketing control from a theoretical as well as an empirical perspective. First, the author presents a framework for evaluating the marketing control system within a company. The core of the framework presents the essential elements of marketing control: feedback and corrective action. Bounding the core is: 1.1. The Formal Marketing Organization. Delimits the company's capability to enact the control processes.2.2. Marketing Culture. The subjective, interpretive aspect of organizational life, which determines what control components and marketing structure are valued in the company. The framework is used to analyze the marketing control systems of 20 early-growth high tech manufacturing companies. Four hierarchical configurations of the control system elements are identified and the companies assigned to one of the following configurations: 1.I. seeking some sales.2.II. making good on sales.3.III. seeking profitable sales.4.IV. making profitable sales. Four companies possessed none of the elements of control. There were merely operations which produced results. As a consequence the companies were judged to be generally unsuccessful in focusing their resources on the markets that they wished to serve. In addition, the market performances of these firms, relative to others in the sample, were poor. Ten Stage II companies, in their attempts to expand sales and to remedy logistical problems associated with making deliveries on sales, had developed formal sales departments. Unlike the four companies which were placed in Stage III, these companies put little emphasis on the financial accountability of sales and marketing. Consequently, their abilities to evaluate or steer profit performances mitigated against their achieving high levels of market performance. Only two companies were judged sufficiently different from other companies to warrant placement in Stage IV. These companies focused on developing marketing structures and reporting procedures which provided real time feedback on market performances. Because of this, they appeared able to identify market opportunities that were defensible in the long run and in which they could exercise control over profits. In conclusion, the findings indicate that greater control of marketing operations correlates with stronger market performances. When performance is measured in terms of absolute sales, sales growth. cumulative cashflow and profitability, companies with more evolved marketing control systems perform noticeably better than do others in the sample.

This article reports a study of the future direction of the venture capital industry by examining the basic strategies and strategic assumptions of a broad sample of venture capital firms. There are three main sets of results: First, the once homogeneous venture capital industry is rapidly dividing into several different “strategic groups.” Members of these “groups” are increasingly distinguishing themselves from other groups on four basic dimensions followed by member firms: 1. Financial Resources—Equity capital comes from a greater variety of sources (five major sources) resulting in fundamentally different demands on the mission of the receiving venture capital firm. 2. Staff Resources—The way venture capital firms use staff resources, particularly regarding investee management assistance, is becoming increasingly varied across different groups. Some firms provide fewer than 2-days per year, while others provide up to 450 man-days per year per client. 3. Venture Stages—While the overall industry retains a primary interest in stage 1,2, and 3 investment, specific firms vary considerably in the distribution of investment emphasis across these three stages. 4. Use of Financial Resources-Firms in the industry are becoming increasingly differentiated in the size of minimum investments they make ($100 M to $1000 M) and in their role as a direct investor versus a “broker” for institutional funds. Practicing venture capitalists should make use of this first set of findings in two ways. First, they may find it useful to compare their firm's orientation along these four strategic dimensions with those of the firm's that comprised this study. Second, they may seek to use these four strategic dimensions as a basis on which they might examine, clarify, and/or redefine the marketing strategy pursued by their firm. A second set of results identified three goals and priorities of venture capital firms that have neither changed over time nor across increasingly different strategic groups. Annualized, after-tax return on investments of between 25% and 40% remain the most common objective across all firms. A 5-to-6 year investment time horizon and a major emphasis on the quality of the management team in evaluating new deals were universal priorities across diverse venture capital firms. A third finding in this study was that venture capital firms profess greater “certainty” about the future direction of the venture capital industry than the direction of their firm. The most notable example of this is a strong sense that industry-wide rates of return are headed downward yet few senior partners expect their firm to experience this decline. Practicing venture capitalists may be interested to peruse these results to see what trends are predicted within the venture capital industry by this subsample of that industry. Second, they should consider the finding that industry-wide rates of return are headed downward in light of the first two sets of findings to develop their own opinion about the future performance of different strategic groups within the industry. It is important to note that the sample of venture capital firms on which this study was based did not include most of the larger, older funds. Some of these funds would be characterized as “industry leaders, pace-setters, and innovators.” The sample provides a solid representation of the “broad middle” of the venture capital industry and newer entrants into the industry. While larger, older funds are under represented, their impact on future trends and strategies in the industry is captured to some extent in the set of questions about “future direction of the venture capital industry.“ Finally, the emerging strategic groups in the venture capital industry that were identified by this study may be useful information for investors as well as users of venture capital. For investors, the opportunity to participate in venture capital activity should become more clearly understood and varied. Basically, this study should help investors differentiate the strategic posture of different venture capital firms and funds on four factors rather than simply industry/geographic considerations. For users of venture capital, the results of this study suggest a possibility for multiple options that are both more accessible and more catered to specific needs. Users of venture capital should find a clearer basis on which to differentiate venture capital firms in terms of venture stage priorities, staff utilization orientations, sources and uses of financial resources. This should make for more informed “shopping” among different venture capital sources and provide a basis on which to “shop” for the most compatible firm.

A steady supply of entrepreneurs who will build the growth firms of the future has always been seen as fundamental to the economic health of a country. However, as companies have grown to the point where many have balance sheets larger than many countries, the role of the Top Management Team in managing these corporate giants has also received more prominence. Unfortunately, research into the two groups of current entreprenurs and large corporation managers has been both sparse, and has followed different, though parallel, paths. This research examines their backgrounds and asks the question whether the basic assumption that they are, in fact, different is correct—who are the high flying entrepreneurs, and are they any different from successful corporate leaders? Data was drawn from three sources. A questionnaire was sent to the 167 founders listed in the July 1984 edition of Venture Magazine as the “Venture 100”—“the nation's top entrepreneurs who run the companies they founded in the past ten years”. Sixty-seven useable replies were received from 40% of the founders and 52% of the companies. Comparative data was extracted from the “Korn Ferry's International Executive Profile: A Survey of Corporate Leaders” which surveyed five senior executives from each of the Fortune 500 companies. A response rate of 47% was received from a survey of 3640 executives. Further comparative analysis was extracted from the characteristics of senior executives of all firms in five selected industries (Dairy, Mobile Homes, Tires, Footwear, and Machine Tools) as listed in Duns Reference Book of Corporate Management 1983/1984. Data was collected on personal characteristics (age, family background, and education), previous employment experience, managerial style, and work patterns. The null hypothesis of there being no significant difference between high flying entreprenurs and their counterparts in the largest U.S. corporations was not sustained. Whereas certain characteristics showed similar patterning—previous employment experience, managerial success traits—the remaining variables demonstrated significant differences. The entrepreneurs were younger, better educated, had more international experience, and worked harder than their corporate colleagues. If replicated elsewhere, the results of this study have particuloar implications for the type of educational and employment experience necessary to affect the supply of the entrepreneurs of the future.

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 article examines the prospect of a decision support system for the assessment of venture capital investments. It approaches the task of developing decision models from the perspective of the venture capitalist. Thus venture capitalists have played an active role in defining the predictor variables and in providing data on their own investments. Venture capitalists (and recent research) underscore the importance of the entrepreneur in new ventures and the predictor variables selected reflect this bias. The literature is now replete with studies demonstrating the superiority of multiattribute actuarial models over human judgment for diverse decision environments, ranging from medical science to finance. This class of behavioral decision models consists of the simultaneous consideration of several attributes relevant to a decision. Actuarial models of this kind can be applied to attribute and decision data based on the decision maker's judgments (i.e., expected outcomes) before the events transpire—termed judgment-based models. They can also be applied to data on past events or actual outcomes where known—termed environment-based models. Again, it needs to be emphasized that actuarial models, whether based on the decision maker's judgments or on the environment, usually outperform the decision maker. These general principles are applied here. Among actuarial models a particular subclass of models is called noncompensatory. In these models, a low value for one attribute cannot be compensated by a high value for another attribute. As an example. in selecting a place-kicker in football, athletic skills other than kicking ability are irrelevant. In this study, two types of noncompensatory actuarial models, conjunctive and disjunctive, are used to model both venture capitalists' judgments and the environment. Interviews with venture capitalists reveal that some place strong emphasis on one or two attributes in judging a potential investment. This type of decision-making behavior indicates a disjunctive decision process. At the same time, there can be a tendency to ensure that a prospective investment is satisfactory at a minimum the entrepreneur's tenacity/courage is a redundant variable that is sublimated in desire for success and enthusiasm/capacity for work.

Academic entrepreneurship, the creation of new business ventures by university professors, technicians, or students, is increasingly being promoted by university-based innovation centers and university business offices. It is seen as an efficient university-industry technology transfer mechanism, and, in some cases may contribute to university revenue. Whereas most entrepreneurs leave the university at time of start-up, others keep their academic postings as full-time or part-time professors. “Part time” entrepreneurship may be interesting from a university point of view, because (i) it keeps in the laboratory a creative individual, (ii) it may provide through part-time academic positions for a more efficient use of university resources, and (iii) it encourages more contacts between faculty, students, and the business world. However, manufacturing firms led by part-time entrepreneurs do not seem to be as aggressive and growth-oriented as “independent” firms. The university professor interested in the successful transposition of an idea, an invention, to the commercial sector, may therefore have to do it through licensing, or resign from the university to devote all his time and energy to the development, manufacturing, and commercialization process. And the university interested in investing in a new “academic firm” created to exploit commercially an invention made in its own laboratories should beware of keeping the academic entrepreneur on staff, or, if he stays on staff, of involving him with the management of the new company. These are the main conclusions of a study of the evolution from 1980–1981 to 1984–1985 of 38 young firms originally created by entrepreneurs while at various universities in several Canadian provinces. The results, supported by the observation of a small control group of 8 Canadian hightechnology companies, bring out a dichotomy: for firms offering technical services, the continued this project were made by Colleen Bigelow and Branko Peterman. Their help was greatly appreciated. academic posting of the firm's creator does not appear to overly affect its operations and growth; however, manufacturing firms completely independent from the university tend to g row faster. Other results support the negative correlation that seems to exist between the growth rate of sales and closeness to academic life, as measured, for example, by the use of university laboratories and equipment. Whether they are still closely connected to a university or not, the entrepreneurs in our sample do note many potential positive benefits from continuing contacts with the academic world. It is possible that the negative correlation between growth and university links observed in the sample results more from the individual characteristics of the entrepreneurs than from a negative influence by the university. As venture capitalists have long noticed, one of the main determinants of growth and success is the entrepreneur himself. The entrepreneurs staying close to the university and using university services may be less aggressive and less risk-oriented than the others.

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.

In recent years there has been an extraordinary level of entrepreneurial activity occurring in the United States. Venture start-ups, new incorporations even bankruptcies are reaching record numbers. Concurrent with the increase in entrepreneurial activity has been an effort within the Reagan Administration to privatize public sector programs designed to aid new and small, ongoing business ventures. The premise behind this movement is that private sector initiatives can better, and more efficiently, serve the needs of entrepreneurs and small business managers and can also offer new business opportunities for some entrepreneurs. At the same time, however, privatization could reduce the assistance programs currently targeting fledgling ventures, many of which are unable to afford a private consultant. The purpose of this article is to examine the economic impact of one public sector assistance program, the Small Business Development Center (SBDC), in terms of its contributions to new venture initiation in Georgia and South Carolina. The focus on the SBDC program is appropriate since over 50% of the counseling activities of most of the centers is devoted to pre-venture clients, i.e., individuals or groups considering starting a business. This study is important and timely, not only in respect to assessing the effectiveness of public sector assistance programs for pre-ventures, but also for assessing whether it is worthwhile from an economic perspective, to offer assistance to such individuals in the first place. Although it is difficult to be precise in attributing cause to effects in dynamic business ventures, our study indicates that the Small Business Development Center's client sample experienced a greater than expected number of business starts, and a higher than expected rate of survival. The results suggest that the net taxable sales, generated by these new ventures in 1984. was approximately $20 million in Georgia and $10 million in South Carolina. Results also suggest that almost 500 new jobs were created in Georgia and 600 new jobs were created in South Carolina between 1981 and 1984 as a result of successful business starts among SBDC pre-venture clients. While such figures are impressive, the bottom line of this study is that the new tax revenues generated by client firms exceeded the cost of delivering the services. Specifically, our conservative estimates suggest a $3.80 to $1.00 and $1.50 to $1.00 benefit to cost ratio for the center's pre-venture consulting services in Georgia and South Carolina, respectively. Furthermore, the value attached to the assistance received, by the entrepreneurs themselves, closely paralleled our estimates, lending additional validity to our conclusions. Resource constrained entrepreneurs can obtain effective business assistance from the SBDC free-of-charge, and the benefits to society accruing from this service far outweigh the cost of providing them.

The eminent systems philosopher, C. West Churchman, recently wrote: Morality asks of any action or policy, it is right or wrong? But another thoughtful voice must ask, does “yes” or “no” exhaust the universe? Does the “answer” have to be “yes” or “no”? Is morality in a universe of discourse where “yes” or “no” are the only two possible answer? If the mind says “yes” then where does the mind find its authority?… Morality is an endless conversation of the living with our ancestors about how to design a good world for future generations. And the conversation needs to be intelligent … If one insists on a “yes” or “no”, the conversation ends. But it should not end. This means that a definitive “yes” or “no” occurs: morality is neither absolute nor relative (Churchman 1985, p. 257).