Exploring Entrepreneurial Action Theories in Technology-based Nascent Ventures

NITIM Munich Internal Seminar

CeTIM – June 15th

13/04/11

Ferran Giones

Supervisor: Dr. Francesc Miralles

Agenda

• Introduction• Research on Entrepreneurship• Research Project

• Literature Review• Research Question• Research Design• Results & Discussion

• Further research• Conclusions

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Introduction

• Entrepreneurship as an engine of economic growth.

• Changes in society and economic environment: technology, markets dynamism, globalization…have an impact on entrepreneurship processes.

• At the same time, entrepreneurs are shaping new markets, bringing to market new technologies, producing disruptions in established environments…

• General research focus: • Why some entrepreneurs are successful and others not?• How can institutions help entrepreneurs to develop their business ideas?• What elements influence the development of an entrepreneurial venture?• What makes technology-based entrepreneurs different from other

entrepreneurs?

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Introduction

• Expected Outcomes:

• Shed light on elements to explain the perceived difficulties in crafting a value proposition and a business model in technology-based ventures.

• Contribute to current academic understanding of entrepreneurial action, providing support for theory development.

• Provide insights for nascent entrepreneurs, institutions and stakeholders interested in the development of successful entrepreneurs.

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Research on Entrepreneurship

• Research on Entrepreneurship?• Young field of research: consolidation starts around 2000, growing

fast. • Sharing strong linkages with economics, management (strategic &

small business), psychology, sociology...

• Entrepreneurship research has usually looked at entrepreneur’s traits (are they different?) and opportunity characteristics (what is an entrepreneurial opportunity?)

• Recently, there is an increased focus into processes:• How are opportunities identified? Identification Theories.• How do entrepreneurs exploit opportunities? Entrepreneurship

Theories / Entrepreneur’s action theories.

• Our research focuses on the opportunity transformation process: entrepreneur’s action theories.

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• Entrepreneurial action theories

• Study entrepreneurs’ engagement in exploiting an opportunity (McMullen & Shepherd, 2006).

• Focus in the entrepreneur as source of action and decision-making• Benefit from current research in opportunity identification

processes (Alvarez & Barney, 2007).

• Different descriptions of entrepreneurial action:• Causation: predictive logic (goal-driven) in “risk” like

environments.• Effectuation: bricolage with resources at hand in remnant

uncertain environments.

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Research on Entrepreneurship

• Entrepreneurial action theories

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Perspectives/ Categories “Causation” “Effectuation”

Entrepreneur logic

• Predictive logic -> Effects to select means (goal-driven)

• Plan (Delmar & Shane, 2003)• Design-Precedes-Execution

(Baker et al. 2003)

• Locus of control -> means to effects

• Creative, use of affordable loss

Opportunity identification

• Discovery, role of prior knowledge (Shane, 2000)

• Creation, constructivist view (Wood et al. 2010; Klein, 2008)

Instruments or mechanisms

• Business Plan (described in Honig (2004))

• Bricolage, improvisation (Baker & Nelson 2005)

• Lean start-up

Environment • Risk: uncertainty on available data (Milliken.1987) • Uncertainty (Knight, 1921)

Source: adapted from Sarasvathy (2001) and Dew et al. (2008).

Research on Entrepreneurship

Research Project Description

• Research question: • Is it difficult for technology-based entrepreneurs to

define the value proposition of their nascent ventures?• If so, what elements make it difficult?

• Outcomes:– Shed light on factors that influence the level of difficulty

perception on the definition of the value proposition in technology-based ventures.

– Insights for nascent entrepreneurs and institutions involved in successful entrepreneurship promotion.

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Research ProjectLiterature Review

• The value proposition:• Economic concept:

• Customer benefits or willingness to pay vs. economic costs (Peteraf & Barney, 2003).

• In entrepreneurship: • Value creating insight (Magretta, 2002) that articulates the

business model (Osterwalder et al., 2005; Morris & Shindehutte, 2005).

• It is unclear how value propositions are defined in current environments:

• It is subject to constant revision to regain market fit (Teece, 2010).• Emergence of alternative approaches: trial-error, experimentation,

bricolage processes (Baker et al., 2003).• Plan or storm the castle (Brinckmann, 2010)

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Research Project Design

• Research Question:• Is it difficult for technology-based entrepreneurs to find their value proposition?

• If so, are there elements to describe what makes it difficult?

• Method selection• Exploratory research: theory-building inductive field study (Miles & Huberman, 1994).

• Data collection• Semi-structured interviews with 21 entrepreneurs in nascent ventures.• Interview questions: origin of business idea?, how did you start?, how are you

developing it?

• Data Analysis• Coded key points, into concepts and category in an abstraction process (Allan, 2003).• Cross-interview analysis into a common group of categories.

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Research Project Sample

Nascent venture name Industry

P01 - Electonix Electronics

P02 - Usability Internet

P03 - HHRR Software Software

P04 - Medical Coding IT services

P05 - Innovation Services 1 IT services

P06 - Venturing IT services

P07- eRecovery eHealth

P08 - TDTBox Digital TV

P09 - WaterPower Renewable Energy

P10 - ChinaTravel eTravel

P11 - Laserpower Optic devices

P12 - Contengia IT services

P13 - Security Systems IT services

P14 - Creativity IT services

P15 - UbiquousWifi Telecom devices

P16 - Outsourcing IT services

P17 - Innovation Services 2 IT services

P18 - ElectroComputer Electronics

P19 - Data Secure Software

P20 - Ebusiness IT services

P21 - DigitalDevices IT services

• Based or connected with Technova incubator at La Salle Barcelona.

• Less than 3 years operating.• Diverse industries• Most of them with a high IT

intensity, in processes and products or services.

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1. Identification of key points in each interview and codification.

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Research Project Data Analysis

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2. Emergence of concepts through analysis of interview key points:

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Research Project Data Analysis

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3. Construction of categories: from a set of categories we expected to see to the data driven final set of categories.

- Each case can add a category or sub-category to the growing list.

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Research Project Data Analysis

Cross- analysis of Interview P-05

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4. Iterating between literature and emergent categories:• Idea of iterative contrast with existing literature to find support

for the emerging elements:

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Research Project Data Analysis

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• Resulting in a category and sub-category set:

- Elements that are perceived as important in the process of crafting the value proposition/business idea/business model.

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Cross-Case Analysis

Main Categories Sub-Categories

Financial Resources External funding

Founder seed funding

Investor knowledge

Business Strategy Market orientation / vision

Set Priorities

Revenue Model

Management Uncertainty

Control Risk/Loss

Product/Technology Market Fit

Decision making mechanism

Instruments

Entrepreneur Prior Experience / Knowledge

Attitude /Motivation / Confidence

Social Network/Team

Family business links

Situation

Control focus

Opportunity Previous Employer / existing clients

Idea identification

Search Information

Environment Changes in Environment

Technology resources Patents

Research Project Data Analysis

Research ProjectResults & Discussion

• Resulting elements help to explain the perceived difficulties to define the value proposition:

• Entrepreneur experience:• Experience as a knowledge resource does not reduce uncertainty in

technology-based ventures (in line with Teece (2010)).• To navigate through the difficulties, motivation and positive affect

guide the value proposition search through bricolage and improvisation mechanisms (in line with Baker et al. (2003).

• Opportunity nature:• Technology-based opportunities influence persistent uncertainty

perception (in line with McMullen & Shepherd (2006)). • Focus on technology development makes it more difficult to find the

market fit (consistent with Bhide (2000)).

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• Resulting elements help to explain the difficulties to define the value proposition (cont’d):

• Funding access:• Business plan formal requests do not fit with entrepreneurs’ needs

(in line with Honig (2004)).• Use of resources at hand related to adoption of flexible planning

mechanisms (in line with Sarasvathy (2001)).

• Technology resources:• Ambivalent effect: seen as a rigidity in the value proposition

search process, despite they are a visible resource for the nascent venture legitimating efforts.

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Research ProjectResults & Discussion

• Entrepreneurs in Technology-based ventures experience difficulties to define their value proposition.

• Research sheds light on perceived influencing elements:• Entrepreneur experience, opportunity nature, funding access

and technology resources.• Data shows unexpected influences taking into account current

entrepreneurial action theories.

• Relevant implications for both institutions and entrepreneurs:• Identification of multidimensional influences of elements in the

entrepreneurship process.

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Research ProjectConclusions

Further Research

1. Review the data collected using a different perspective (case-study like approach):• What were the difficulties at the beginning to find the business

model?• Which actions were made (described using entrep. theories)?• What are the difficulties now? Have they changed? Why?

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Further Research

2. Study another problem in the field:• Problem:

• Why do entrepreneurs decide not to join incubators/entrepreneurship support programs?

• Why is it a problem?• Institutional interest to accelerate the business idea exploitation

into a successful commercial venture. • Lack of market knowledge makes it difficult to exploit technology

potential value, find valuable applications.• Reduce network of nascent entrepreneurs makes it difficult to access

to resources, and accelerate the market validation of their ideas.

• Research approach:• Exploratory interviews with contrast cases: joined and not joined.• Capture information on the perceptions that motivated the

decision, and decision mechanisms.

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