Academic journal article Journal of Business and Entrepreneurship

Comprehensiveness in Start-Ups: The Role of the Environment in Start-Up Decision Making

Academic journal article Journal of Business and Entrepreneurship

Comprehensiveness in Start-Ups: The Role of the Environment in Start-Up Decision Making

Article excerpt

INTRODUCTION

Most people interested in entrepreneurship wonder why some start-ups survive and some fail. It is not surprising that start-up survival remains an issue of interest for academics and practitioners alike since in the last 10 years business survival rates have not changed. According to the Bureau of Labor Statistics (2015), around 50 percent of businesses fail by their 5th year of existence and only around 38 percent survive after 10 years. While there is much to learn about start-up survival, more is needed in studying the context in how entrepreneurs make decisions that affect survival or failure.

Research suggests that the decisions made by business founders in the early days of a business define the success of a venture both in the short- and long-term (Venkatatraman & Saravathy, 2001; von Gelderen, Frese, & Thurik, 2000). The strategy-making literature indicates that one of the most important factors influencing business success start-ups is the degree of which comprehensiveness, understood as how exhaustive and inclusive the decision making process is, affects how a business is created (Baird, Lyles, & Orris, 1994; Davidsson, 2013; Gruber, 2007; Talaulicar, Grundei, & Werdern, 2005). However, organizational survival does not depend on the level of comprehensiveness alone but on its interaction with the environmental conditions in which the new venture is embedded and, more importantly, on the way the founder perceives such environment. Empirical findings suggest that comprehensiveness is contingent on environmental conditions such as the level of instability, complexity, and availability of resources within each industry (Dean & Sharfman, 1996; Fredrickson & Iaquinto, 1989; Hough & White, 2003).

The lion's share of the debate among scholars on strategic decision making processes and environmental conditions has mainly focused on assessing the impact of comprehensiveness on performance in large businesses. Entrepreneurship scholarship, on the other hand, has centred the debate on the degree of formal and informal planning in start-ups and it implications on performance (e.g., Baird et al., 1994; Bourgeois & Eisenhardt, 1988; Chwolka & Raith, 2012; Delmar & Shane, 2003; O'Regan, Ghobadian, & Sims 2006; Perry, 2001). Some studies suggest that entrepreneurs will engage in strategic planning to deal with uncertain and fast-paced environments (Bourgeois & Eisenhardt, 1988; Liao & Gartner, 2006; Matthews & Scott, 1995) while others suggest that the level of uncertainty in fast-changing environments, of which start-ups are characterized to operate in, makes it virtually impossible for founders to engage in comprehensive approaches to decision making (Mintzberg, 1994; Sarasvathy, 2001; 2008). ). Despite this lively debate, little understanding exists of the decision-making processes used by entrepreneurs, particularly on the level of comprehensiveness in the decision making processes and how these processes interact with environmental forces in the initial stages of an enterprise (Gruber, 2007).

Thus, this paper examines the underlying processes by which business founders perceive their environments, especially in start-up conditions and how this perception influences the level of comprehensiveness in strategic decision making processes. The authors contend that this relationship is uniquely distinct from large organizations since large organizations have access to resources to gather and analyze information, as well as past historic data that can facilitate comprehensive decision making process, while start-up have often limited resources and time to gather and analyze information and do not have historic data to inform their decisions. Additionally, decision makers in large firms also have experiences responding to the environmental conditions in which their business operate and often the resources to respond to changes or adverse environmental conditions. …

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