The Origin and Evolution of New Businesses

The Origin and Evolution of New Businesses

The Origin and Evolution of New Businesses

The Origin and Evolution of New Businesses


Few would deny the crucial role that entrepreneurs play in our increasingly global economy--but exactly what is this vital, yet loosely defined business force we call the entrepreneurial spirit? This landmark study is the first to examine analytically the nature of the opportunities that entrepreneurs pursue, the problems they face, the traits they require, and the social and economic contributions they make. Until recently, entrepreneurs have been largely ignored in modern economic theory. But at the dawn of a networked age, marked by the advent of e-business and the home office, there's no question that entrepreneurs have recaptured the popular imagination. Studies now show that most men and women dream of starting their own businesses rather than rising through the corporate ranks. Yet in spite of increased attention by many of today's leading business schools, entrepreneurship has remained largely a mystery, an apparantly intuitive sense of values possessed by certain individuals. This book targets the issues central to successful start-up ventures, such as endowments and opportunities, planning versus adaptation, securing resources, corporate initiatives, venture capital, revolutionary ventures and the evolution of fledgling businesses. Focusing on hard data and evaluations of numerous start-up businesses, including many of today's major industry leaders, this book presents a new economic model--a key to understanding the guts, determination, luck and skills that constitute the underpinnings of corporate success. Written in clear, concise prose, The Origin and Evolution of New Businesses goes behind the charts and graphs of business theory to the true heart of success. It is essential reading for business students, would-be entrepreneurs, or executives wanting to incorporate the vitality of the entrepreneurial spirit into their organization.


This chapter examines how founders of promising businesses persuade customers, employees, suppliers, and other resource providers to participate in their ventures. Section 1 analyzes the problems that entrepreneurs face, and Section 2 analyzes some offsetting or mitigating factors. Section 3 discusses the strategies entrepreneurs adopt to secure resources.

The meager endowments that make it virtually impossible for many entrepreneurs to raise significant capital also make it difficult for them to attract customers, employees, suppliers, and other such resource providers. But whereas investors may be dispensable, these other sources of revenue and inputs are not. Securing these resource providers thus represents a critical problem for start-ups, which we will explore in this chapter.

Resource providers can face considerable risks in doing business with a start-up. If a new business fails, for instance, customers may suffer serious disruptions, former employees may not be able to return to their old positions, and suppliers may not be able to collect on their receivables. Unlike well-capitalized corporations, entrepreneurs cannot, however, easily underwrite others' risks or provide credible signals of their competence or staying power. Therefore, rather than offer insurance, entrepreneurs often provide quick gratification of immediate needs to resource providers with limited alternatives, unusual preferences or a myopic disregard for longterm consequences.

Scope. I will focus primarily on customers and, to a lesser degree, on employees and suppliers. in most of the start-ups I studied, customers appeared to face the greatest risk. For example, clients who retained FactorFox to execute a direct-mail campaign were at risk not just for the fees they would pay Factor-Fox but also for the much larger costs of printing and mailing the materials. Similarly, the exposure of Advent Software's customers extended well beyond the purchase price of Advent's portfolio management software. If the software was flawed or if Advent went out of . . .

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