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Dynamics of New

Venture Creation
Entrepreneurial Process
 • Identify new venture opportunities or business
 • Evaluate viability of the new business concept
 • Write business plan, prepare investor
 • 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


• ‘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
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

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

• 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

effectively and efficiently?
. Why do people become
entrepreneurs? 2. What are the key tasks in successfully
establishing new organisations?
. What are the characteristics of
successful entrepreneurs? 3. How are these tasks different from those
involved in successfully managing ongoing
. What are the characteristics of organisations?
unsuccessful entrepreneurs?
4. What are the entrepreneur’s unique
contributions to this process?
Variables in new venture creation
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
Reflected in the viability of the
Of the individual/group, etc. Idea. Whether it can be demonstrated
Reflected in support of family, That it works. What needs it meets.
partners, and track record in How it is better than others. Who are
already trying to achieve start-ups. The customers and how many of them
Reflected also in the objectives of BASIC SUCCESS are there. And what is the competition
the individual or group COMPONENTS


Physical resources needed (Premises, Of the individual, his/her family and

Plant, materials, labour). Financial Others involved. Previous track
Resources available and needed Record (employment and associated
Knowledge and skill) and relevance
To business. Technical and managerial
From: Gibb and Ritchie (1982)
Is the study of the entrepreneur a worthwhile

‘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

 – Small size of the potential market

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

 – Too late in the market – me too

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

 – Right features
 – Performance
 - Organizational
 – Promoter conflicts -- different aspirations
 – Poor fit between products and organization