Academic journal article Journal of Small Business Management

The Effects of Initial Location, Aspirations, and Resources on Likelihood of First Sale in Nascent Firms

Academic journal article Journal of Small Business Management

The Effects of Initial Location, Aspirations, and Resources on Likelihood of First Sale in Nascent Firms

Article excerpt

Introduction

Every year, between 4 and 6 percent of the U.S. working population is in the process of starting a new venture, although only about half of these founders succeed in creating a new enterprise (Reynolds 2000). The formation of a new venture requires crucial strategic choices about resources, products/markets, and activities that determine the ultimate success of the fledgling firm (Ucbasaran, Westhead, and Wright 2001; Aldrich 1999). Primary among these decisions is choice of location (Baum and Haveman 1997). The location decision may be stated as whether or not to start the venture from home or from a separate location. A Small Business Administration (SBA) Report noted that home-based firms represented 52 percent of all firms and about $314 billion in total receipts (over 10 percent of the U.S. economy) (Pratt 2000).

There are many reasons why firms may choose to start at home. Some entrepreneurs may wish to start and grow their ventures incrementally, minimizing the initial risk inherent in a new venture by keeping a full-time job and working on the new business part time (Bird and Jelinek 1988). Other entrepreneurs may use a home location to economize on costs or bootstrap in order to become operational more quickly (VanOsnabrugge and Robinson 2000). Family commitments, flexibility, and convenience may influence some entrepreneurs to stay home-based (Vesper 1990) whereas others may locate at home with the idea of conserving business resources (e.g., overhead, salaries) in order to focus on product development and research and development (R & D) to get to market more quickly (Bhide 2000).

Conversely, starting a business from an away location may be influenced by the early strategy of the venture. For instance, the type of venture (e.g., manufacturing businesses) may dictate the need for significant space for property, plant, and equipment. Likewise, retail or wholesale businesses may need to be accessible by customers or suppliers and, hence, may choose to locate near major highways or business centers (Bruno and Tyebjee 1982). Some founders may perceive a set of resources as more important and, therefore, may choose to locate closer to these (Lichtenstein and Brush 2001).

No matter what the motivation, the choice of locating at home or away has a direct effect on the early stages of venture development and especially on the resource assembly process (Bhide 2000). Fledgling businesses start with the endowments of their founder, a few contacts, and little else (Aldrich 1999). Resource assembly is the first step taken by entrepreneurs to begin building a resource base, and it involves gaining ownership or control over resources (Cooper 2002; Brush, Greene, and Hart 2001; Bhide 2000; Becker and Gordon 1966). The location of the business far from its resource supply may increase the costs of resource acquisition (Bruno and Tyebjee 1982) as well as the ability of the entrepreneur to gain an advantage of information, contacts, or access compared to those located closer to competitors (Barney 2002; Baum and Haveman 1997). Likewise, the proximity of a new venture to regional clusters of innovation may affect the speed with which venture-specific resources and knowledge can be accessed (Ginsberg, Larsen, and Lomi 2001) or might affect the venture's perceived legitimacy and acceptance in the sociocultural landscape (Aldrich and Baker 2001).

Similarly, resource assembly is influenced by the purposeful decisions and expectations of the entrepreneur (Penrose 1959). Research shows that entrepreneurs have a variety of goals and that not all ventures plan or are able to grow (Davidsson, Delmar, and Wiklund 2002). In nascent organizations, the nature of the opportunity, intentions of the entrepreneur, and availability of resources will determine the direction and process for acquiring and assembling resources whereas the "harnessing" of resources will vary by time and location (Katz and Gartner 1988; Scott 1987). …

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