Academic journal article Entrepreneurship: Theory and Practice

On the Interaction of Time and Money Invested in New Ventures

Academic journal article Entrepreneurship: Theory and Practice

On the Interaction of Time and Money Invested in New Ventures

Article excerpt

In this paper we try to deepen our understanding of nascent entrepreneurs. Starting a new business takes a variety of resources. Two of the most important inputs are the time and the money contributed by the entrepreneur. We focus on the issues of when and how entrepreneurs make the commitment to allocate time and money to start a venture. As a contrast to the usual qualitative or empirical studies, we believe that an analytical approach can provide a new focus and that is the approach we present here.

Most entrepreneurs take the initial steps in starting a business while working for someone else in a salaried job. It is often difficult to leave the certainty of a salaried job for the uncertainties of a new venture. In particular, the nascent entrepreneur, by staying in the existing position, can, for a given commitment of time, be assured of a given wage. To spend time in building a new business, one has to take time away from the salaried job.(1) By doing so, one earns less which means not only is there less money to support a regular standard of living but also less money to put into the new business. Hence some difficult time and money tradeoffs have to be made.

Different individuals have different levels of work tolerance. For some people 40 hours is more than a full work week while for others 80 hours might be deemed light. It is often thought that among their other requirements, entrepreneurs have to have a high capacity for work. We are interested in the extent to which individuals who have a high work tolerance have better prospects for success. Might individuals with a low work tolerance be deterred from even starting a new venture in the first place? Might there be a critical time investment that only high work tolerant individuals can attain?

We trace the pattern by which people allocate a greater proportion of time to the new venture and away from the wage job, and perhaps depending on how the venture develops, how they may reallocate time back to the wage job. Once an individual begins investing more and more time in the business, does it imply that a point will be reached where the entrepreneur will quit the wage job completely? Under what conditions might the proportion of time at the wage job be increased?

The money generated from both the wage job and from new venture profits can support various activities. It can be spent on advertising or marketing initiatives and hence build up the propensity for potential customers to buy. It can be spent on R&D and hence build up product quality. It can be spent on networking and relationship building to increase contractual possibilities and reputation. In this paper, we will use the general terminology of making "business expenditures" to cover any of these cases, namely the marketing, the R&D, and the networking scenarios.

West (1997) recently proposed a typology of the work conducted in entrepreneurship. He defined four classes of research using two dimensions. The first dimension specifies if the research is empirical or non-empirical while the second dimension classifies the research domain between macro and micro factors. Macro elements refer to "the relationships of prospective entrepreneurs to the environment and the economy which lead to the pursuit of opportunities" (p. 114). Micro elements "are those factors, conditions, and processes within entrepreneurial firms which lead to success or failure." Using West's typology, the predominant entrepreneurship literature has been empirical research on micro factors, which includes the research on characteristics of entrepreneurs and life cycle stages. For instance, Ireland (1997) notes that 78% of the papers in the 1986 proceedings of the annual Babson College Entrepreneurship Research Conference were survey research, and the proportion was still 77% in 1994.

The question addressed in this paper falls in the category of non-empirical research on micro factors, which includes the work on decision-making process. …

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