Academic journal article Journal of Small Business Strategy

Start-Up Resources and Entrepreneurial Discontinuance: The Case of Nascent Entrepreneurs1

Academic journal article Journal of Small Business Strategy

Start-Up Resources and Entrepreneurial Discontinuance: The Case of Nascent Entrepreneurs1

Article excerpt

ABSTRACT

Built on the resource-based view of the firm, this study addresses two major research questions: (1) what resources are salient in entrepreneurial discontinuance; (2) To what extent, does the impact of resources on the odds of discontinuance vary across the nature of startup between high technology and non-technology? These questions are examined using 830 nascent entrepreneurs from the Panel Study of Entrepreneurial Dynamics (PSED). Overall, we find that not all resources are equally salient, especially when comparing technology-based and non-technology-based nascent entrepreneurs. With the exception of education and managerial experience, human capital has limited influence on discontinuance. Our results lend no support for our social capital hypothesis. Financial capital significantly decreases the odds of discontinuance. Additionally, the odds of discontinuance of technology-based and non-technology-based nascent entrepreneurs are affected by a different set of resources. Implications and future research directions are proposed.

Keywords: entrepreneurial discontinuance, PSED, technology, resource-based view

(ProQuest: ... denotes formula omitted.)

INTRODUCTION

New firms create new jobs, open up opportunities for upward social mobility, foster economic flexibility, and contribute to competition and economic efficiency (Birch, 1987). The constant churning of new business starts and closures (commonly referred to as "creative destruction") creates an atmosphere where the success of a venture is uncertain. Such dynamism leads many to state that failure is a norm, rather than the exception (Dean, Turner, & Bamford, 1997). Yet, businesses do not fail as often as conventional wisdom, according to a study by Headd (2003). According to this study, "Two-thirds of new employer firms survive at least two years, and about half survive at least four years. Owners of about one-third of the firms that closed said their firm was successful at closure." Nascent entrepreneurs suffer from the liability of newness which refers to the fact that start-ups often falter because they are not able to adjust quickly enough to their new roles and lack a track record with outside suppliers and buyers (Hagert et al, 2006; Stinchcombe, 1965).

It is impossible to talk intelligently about a theory of entrepreneurship without first acknowledging the pivotal role of entrepreneurial failure (Amaral et al, 2007; McGrath, 1999). Most of the entrepreneurship literature has focused on successful ventures, so little is known about why ventures fail. Even less is known about how they fail. Our understanding of entrepreneurship will never be complete until we have a clear understanding of what causes its discontinuation. Similarly, Timmons and Spinelli (2007) raise the question of whether there are any exceptions to the general rule of failure, or, "are we faced with a punishing game of entrepreneurial roulette?" (p. 85). Developing a deeper understanding of new venture failures would provide critical information for several key stakeholders in a new venture -individual entrepreneurs, venture financiers, and government policymakers.

An increasing number of entrepreneurial scholars are using the resource-based view (RBV) of the firm to better understand the role of resources in new venture creation and development (i.e., Chandler & Hanks, 1994; McGrath, 1996; Lichtenstein & Brush, 2001). In the theory of RBV, organizations are viewed as "bundles of resources," which are defined as both tangible and intangible assets that are tied to the firm in a relatively permanent fashion (Caves, 1980; Wernerfelt, 1984). Resources include not only the financial, physical, and human assets, but also the ability of the people in each area to formulate and implement the necessary functional objectives, strategies, and policies (Wheelen & Hanger, 2008). According to these studies, it is the identification and acquisition of resources (rather than deployment and allocation activities) that are crucial for the early stages of new venture development (Katz & Gartner, 1988; Brush & Greene, 1996). …

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