Marketing and Entrepreneurship: Research Ideas and Opportunities

By Gerald E. Hills | Go to book overview

8
Opportunity Recognition: Lessons from Venture Capital

Jeffry A. Timmons and Daniel F. Muzyka


INTRODUCTION

The venture capitalist's success in searching for potentially successful ventures is a key determinant of performance of the fund he controls. Venture capitalists have been largely unwilling or unable to articulate the detailed characteristics they associate with successful ventures, the specifics of any formal models or frameworks they utilize, and the very mechanisms behind the successful performance of venture funds (see Stevenson et al. 1986).

Why are the characteristics associated with successful ventures so difficult to uncover? Why can't we rely on formal models such as the competitive strategy models ( Porter 1980; Hofer and Schendel 1978) to evaluate potential entrepreneurial ventures? Based on our research, a number of answers appear to be appropriate to these questions. First, systematic research into the characteristics of successful ventures has only begun, partly as a result of the unwillingness of venture capitalists to discuss them and partly as a result of the small database from which to generalize. Second, venture capitalists noted that they did not find the competitive strategy frameworks and other policy models to be directly and easily transferable to their environment.

Some of the difficulty experienced by venture capitalists might be associated with the underlying databases used by researchers. Research in industrial organization economics and strategic management has not focused on new venture development and performance. Most of the industrial organization studies have been based on firm and industry data related to large enterprises (e.g. the Fortune 500). Strategic management research, consulting, and practice have similarly provided few concrete guidelines for the use of venture capitalists identifying potentially profitable venture and have left underdeveloped the notions regarding new business creation and venturing.

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