Dynamics of New

Venture Creation
 Entrepreneurial Process
 • Identify new venture opportunities or business
concepts
 • Evaluate viability of the new business concept
 • Write business plan, prepare investor
presentation
 • Build team with necessary skills and attributes
 • Raise finance
 • Build prototype / proof of concept
 • Scale up – team, customers, revenues
 • Create liquidity for shareholders
 Dominant ‘perspectives’ of entrepreneurship

Three dominant perspectives:

• ‘Functional’: Regards economic function of the entrepreneur

• ‘Personality’: Regards identification of ‘entrepreneurial’ traits and

characteristics

• ‘Behavioural’: Regards set of activities and processes associated

with new venture creation
A ‘sea-change’ in entrepreneurship theorising?
• Peter Drucker (1980) coined term ‘sea-change’. It is a change that is substantial in
magnitude, comprehensive and pervasive in its impact on all aspects of the system
affected, enduring in its influence over time, and generally rapid and discontinuous
in its occurrence

• Behavioural perspective grown in response to growing critique of personality-based

approach to understanding entrepreneurship

• Focuses on the ‘entrepreneurial process’ of new venture creation –

movement away from research that focuses on the ‘entrepreneur’:
‘The goal is not to smooth over any differences that might exist among these new ventures or
to throw these very different individuals into the same pot in order to extract the typical
qualities of the typical entrepreneur. The goal is to identify the specific variables that describe
how each new venture was created, in order that meaningful contrasts and comparisons
among
new ventures can be made’
 What is a ‘new venture’?

Gartner (1988) uses the following definition:

1. An independent entity

2. A new profit centre within a company which has other established businesses or,

3. A joint venture which satisfies the following requirements:

a) Its founders must acquire expertise in products, process, market and/or

technology
b) Results are expected beyond the first year in which the investment is made
c) It is considered a new market entrant by its competitors
d) It is regarded as a new source of supply by its potential customers
 Defining the entrepreneurial process

‘The Entrepreneurial Process involves all the functions, activities,

and actions associated with the perceiving of opportunities and the
creation of organisations to pursue them’

‘Entrepreneurship is most fruitfully defined as the relentless pursuit

of opportunity
without regard to resources currently controlled…there is an
underlying process
in entrepreneurship that starts with the identification of opportunity
and ends with
harvesting the fruits of one’s labours’ (Stevenson and Sahlman,
1989; p104).
 Key characteristics of the entrepreneurial
process

• It occurs at the level of the individual firm

• It involves a change of state
• It involves a discontinuity
• It is a holistic process
• It is a dynamic process
• It is unique
• It involves numerous antecedent variables
• Its outcomes are extremely sensitive to the initial conditions of these variables
 Key research questions for the study of the
entrepreneurial process

Key research questions for the study of entrepreneurship

Focused on the entrepreneur Focused on the entrepreneurial process

. Who become entrepreneurs? 1. What’s involved in perceiving opportunities

. Why do people become
entrepreneurs?
. What are the characteristics of
successful entrepreneurs?
. What are the characteristics of
unsuccessful entrepreneurs?
effectively and efficiently?
2. What are the key tasks in successfully
establishing new organisations?
3. How are these tasks different from those
involved in successfully managing ongoing
organisations?
4. What are the entrepreneur’s unique
contributions to this process?
 Variables in new venture creation
INDIVIDUAL
ENVIRONMENT • Need for achievement
• Locus of control
• Venture capital availability • Risk taking propensity
• Presence of experienced entrepreneurs • Job satisfaction
• Technically skilled labour force • Previous work experience ORGANISATION
• Accessibility of suppliers • Entrepreneurial parents
• Accessibility of customers or new markets • Age • Overall cost leadership
• Governmental influences • Education • Differentiation
• Proximity of universities • Focus
• Availability of land or facilities • The new product or service
• Accessibility of transportation • Parallel competition
• Attitude of the area population • Franchise entry
• Availability of supporting services • Geographical transfer
• Living conditions • Supply shortage
• High occupational and industrial differentiation • Tapping unutilised resources
• High percentage of recent immigrants in the • Customer contract
population • Becoming a second source
• Large industrial base • Joint ventures
• Larger size urban areas • Licensing
• Availability of financial resources • Market relinquishment
• Barriers to entry • Sell off of division
• Rivalry among existing competitors PROCESS • Favoured purchasing by government
• Pressure from substitute products • Governmental rule changes
• Bargaining power of buyers • The entrepreneur locates a business opportunity
• Bargaining power of suppliers • The entrepreneur accumulates resources
• The entrepreneur markets products and services
• The entrepreneur produces a product
• The entrepreneur builds an organisation
• The entrepreneur responds to government and society
From: Gartner (1988)
 The social dimension of the new venture
creation process
MOTIVATION AND
DETERMINATION
Of the individual/group, etc.
Reflected in support of family,
partners, and track record in
already trying to achieve start-ups.
Reflected also in the objectives of
the individual or group
RESOURCES
Physical resources needed (Premises,
Plant, materials, labour). Financial
Resources available and needed
From: Gibb and Ritchie (1982)
IDEA AND MARKET
Reflected in the viability of the
Idea. Whether it can be demonstrated
That it works. What needs it meets.
How it is better than others. Who are
The customers and how many of them
BASIC SUCCESS are there. And what is the competition
COMPONENTS
ABILITY
Of the individual, his/her family and
Others involved. Previous track
Record (employment and associated
Knowledge and skill) and relevance
To business. Technical and managerial
ability
 Is the study of the entrepreneur a worthwhile
pursuit?

‘Economic circumstances are important; social networks are important;

entrepreneurial teams are important; marketing is important; finance is
important; even public agency assistance is important. But none of
these will, alone, create a new venture. For that we need a person, in
whose mind all of the possibilities come together, who believes that
innovation is possible, and who has the motivation to persist until the
job is done’
Recipe for Success

 • Great Value Proposition

 • Technically Feasible Product
 • Protectable Intellectual Property
 • Sustainable Competitive Advantage
 • Large Potential Market
 • Proven Business Model
Causes of New Venture
Failure
Market

 – Small size of the potential market

 – No clear product differentiation
 – Misunderstood customer needs
 – Lack of channel support
 – Competitive response
Causes of New Venture Failure
Timing

 – Too late in the market – me too

 – Too early in the market – missionary
marketing
 Finance
 – Low Return On Investment (ROI)
Causes of New Venture Failure
Technology

 – Right features
 – Performance
 - Organizational
 – Promoter conflicts -- different aspirations
 – Poor fit between products and organization
(DNA)
THANK YOU