panel studies of new venture creation: a review and suggestions for future research

www.qut.edu.au

Queensland University of Technology

Panel Studies of New Venture Creation: a Review and Suggestions

for Future Research

Per Davidsson&

Scott R. Gordon

www.qut.edu.au


Paul D. Reynolds

Recipient of the 2004 “Global Award for Entrepreneurship Research”

www.qut.edu.au


Panel Studies of Nascent Entrepreneurs/ Venture Creation: Historical roots

Pre-PSEDPilots

PSED

SwPSED;Other country

sudies

e.g. Gartner (1988); Katz & Gartner, 1988;

Bhave, 1994

CAUSEEPSED 2

e.g. Sarasvathy, 2001; Shane, 2000; Baker & Nelson, 2005;

Dahlqvist, 2007

e.g. China; Switzerland

…

GEM

www.qut.edu.au


PSED-type Research: Basic Procedure

• Approach a very large, random sample of households or individuals

• Screen this sample for ‘nascent entrepreneurs’ = individuals currently involved in an active business start-up that is not yet an up-and-running firm

• Conduct a longer interview with those qualified as well as a randomly selected comparison group

• An important part of the contents concerns the initiation/completion and timing of a range of ‘gestation activities’

• Follow up over time (every 6-12 months over 12-72 months)

www.qut.edu.au


Basic Rationales• Overcome under coverage of smallest/newest

entities• Achieve international comparability• Overcome selection bias• Overcome hindsight bias/memory decay• Allow the study of process issues• Get temporal order of measurement right for causal

analysis

www.qut.edu.au


Studies of Nascent Entrepreneurs(hip)

= the study of individuals who are currently involved in a business start-up. They may or may not have started other firms before (‘nascent’ is not equal to ‘novice’)

= the study of on-going start-up efforts during their creation. They may or may not become up and running firms.

• Level of analysis issue• Representativeness of sample issue

www.qut.edu.au


Reviewed Works

• All 78 PSED-type manuscript that have been published or accepted into peer reviewed, scholarly journals

• Based on data sets from US, Canada, Netherlands, Norway and Sweden

• Plus a peep into other types of publications (not ignoring, but not striving for completeness outside of the journals)

www.qut.edu.au


Articles published by data set and journal outlet

Publishing period

1992 - 1997 1998 - 2001 2002 - 2005 2006 - 2010

Arti

cles

pub

lishe

d

0

10

20

30

40

50

Ann

ual a

rticl

e ra

te b

y ou

tlet

0

1

2

3

4

5

Total articlesNon-US articlesSSCI journalsSSCI entrepreneurship journals

www.qut.edu.au


Article Sa Gb Nc Wd Theorye Comparison FindingsCarter et al. (2003) US A 558 1 Motivation NEs vs. GPf NEs no different than GP in seeking independence, but less motivated by roles and

recognition. Male NEs likely cite innovation and financial success as career reasons.

Cassar & Craig (2009) US A 198 4 Cognitive biases NE subgroups NEs exhibit hindsight bias. Unsuccessful NEs correct their previous overestimation of

their chances of success. More highly educated exhibit less overconfidence.

Cassar (2006) US A 500 1 Human capital NE subgroups Individuals with higher levels of financial and human capital harbor greater growth intentions.

Cassar (2007) US E 170 4 Motivation NEs vs. GP Independence and self-realization are important motivations for entry. Financial motivations determine growth preferences, most strongly so for women.

Chandler et al. (2005) SE E 408 5 Social capital Team composition

over timeLarge NE teams are more likely than small NE teams to take on additional members, but not more likely to drop members.

Davidsson & Honig (2003) SE E 380 4 Social and

human capital NEs vs. GP Bridging and bonding social capital are robust predictors for engagement in NE-ship; as is general human capital and prior start-up experience.

Delmar et al. (2000) SE A 1113 1 Atheoretical NEs vs. GP Higher levels of HC are associated with NE status. Males, recent immigrants, and

those between 25-34 years, and those with role models are more likely to engage.

Diochon et al. (2005a) CA E 119 3 Eclectic Gender No gender or general human capital differences in likelihood that NEs would

abandon their venture.

Diochon et al. (2007) CA E 91 5 Attribution

theory NE subgroups NEs predominantly offer internal-stable attributions in describing positive situations.

Diochon et al. (2008) CA E 91 5 Human capital NE subgroups

Neither NEs with prior start-up experience, nor those with business education had discernibly more financial management capability than novices/no business education.

Gatewood et al. (1995) US* E 85 2 Attribution

theory GenderMale-female differences in how NEs attribute entry. Males are more likely cite external factors; females tend to be driven by internal factors, while both have stable cognitions.

Johnson et al. (2008) US E 1114 2 Cognitive style NEs vs. GP NEs are more likely to have an ‘innovator’ cognitive style than the GP. This cognitive

style is also associated with optimism as regards to sales.

Kim et al. (2006) US A 1050 1 Forms of capital NEs vs. GP Neither financial nor cultural capital discriminates NEs from the GP on entry. Human

capital is a significant advantage, especially education or managerial experience.

Liao & Welsch (2003) US A 462 1 Social capital High tech NEs vs.

othersStructural, relational and cognitive social capital leads to growth intentions. Structural social capitals' effect on aspiration is less for technology based NEs.

Liao & Welsch (2005) US A 544 1 Social capital

NEs vs. GP, high tech NEs vs. others

No quantitative differences in various dimensions of SC between NE and the GP. However patterns of association between social, relational and cognitive SC do differentiate NEs. Technology based NEs have higher relational capital.

Summary of findings on the characteristics of nascent entrepreneurs.

www.qut.edu.au


Antecedents and characteristics of the new venture creation process

ProcessB [9]

Explaining new venture creation process

outcomes

OutcomesC [13]

Characteristics of nascent entrepreneurs

PersonA [19]

Person & processD [7]

Person & outcomes

E [11]

Process & outcomes

F [10]

G [2]

www.qut.edu.au


Articles published by research topic and complexity

Publishing period

1992 - 1997 1998 - 2001 2002 - 2005 2006 - 2009

Arti

cles

pub

lishe

d

0

2

4

6

8

10

12

14

16

18

20

Ann

ual a

rticl

e ra

te b

y co

mpl

exity

0

1

2

3

4

5

6

PeopleProcessOutcomesSingle topicMultiple topics

www.qut.edu.au


FINDINGS REGARDING CHARACTERISTICS OF NASCENT ENTREPRENEURS (I)

• As regards resource endowments, results largely confirm prior research:– NEs have more Human Capital (S-E exp; Education)– Social capital more varied results. Close role model

no longer important in the US?– Household wealth; income has no or little effect (but

NEs with more money have higher aspirations) – Methods issue lurking!

www.qut.edu.au


FINDINGS REGARDING CHARACTERISTICS OF NASCENT ENTREPRENEURS (II)

• As regards motivation and cognition, the research stream has produced novel and surprising findings:– Little or unexpected difference from others in “career

motivation”– Strong evidence against push motivation (‘revenge’)– NEs are more risk averse than others!?– NEs have higher ‘Need for Closure’ – preference for

order and predictability!– Theory/representativeness issue lurking!

www.qut.edu.au


FINDINGS REGARDING CHARACTERISTICS OF NASCENT ENTREPRENEURS (III)

• The majority works in partnerships or teams• The majority of ‘teams’ is ‘romantic’• The majority of the remaining teams aren’t exactly

‘textbook’ teams, either• The functionally well-balanced team that was assembled

purely for business purposes is a rare occurrence• Theory/representativeness issues lurking!

www.qut.edu.au


Population prop. = 2/7 venturesSampling prop = 2/3 ventures(because 10/15 individuals

belong to teams)

www.qut.edu.au


Fundamental issue with investigating ‘Characteristics of Nascent Entrepreneurs’

• It’s a bit like comparing ‘holiday makers’ to other people…

• Some of whom will, of course, go on vacation next week…

• So perhaps we should be looking at ‘what does the NE experience do to the person’ rather than ‘what person characteristics make you become NE’?

www.qut.edu.au


Findings regarding new venture creation process (I): Discovery

• Relatively non-systematic search for opportunity, and processes triggered by a particular idea rather than by a wish to become a founder-manager seem to be relatively more common than systematic, textbook-like processes

• Importantly, however, this descriptive result does not necessarily have any prescriptive implications. Even if less common those ventures resulting from systematic search may achieve better outcomes

www.qut.edu.au


Findings regarding new venture creation process (I): Exploitation

• Enormous variation in duration• Enormous variation in sequence

– Liao, Welsh and Tan (2005): “firm gestation is a complex process that includes more than simple, unitary progressive paths” (2005: 15) and “a process where developmental stages are hardly identifiable” (2005: 13).

• However, there are systematic sub-group differences• Additional method challenges• Theoretical boundary challenges

www.qut.edu.au

Queensland University of TechnologyJan 1. Sep. 1May 1 Dec . 31

Sampling day

Annual prop. = 25/75Sampling prop = 50/50

www.qut.edu.au

Queensland University of TechnologyJan 1. Sep. 1May 1 Dec . 31

Sampling day

www.qut.edu.au


Methods Insights• Level of analysis issues: The sampling procedure yields a

representative sample of current nascent entrepreneurs, but a biased sample of emerging ventures or of entrepreneurial teams

• There is a problem with a substantial group of ‘dilettante dreamers’ who never put their effort to an ‘acid test’

• Another group start more ambitious ventures but take longer to get up and running – and may mistakenly appear less ‘successful’– CAUSEE: Higher tech; higher ambition take longer; retailing

and brick-and-mortar-only get up quicker (but retail have lower survival once they are up and running)

www.qut.edu.au


Outcome

Contrast

Outcome Driver

Operational

vs.

Terminated

Operational

vs.

Still Trying

Still Trying

vs.

Terminated

Characteristic 1 ++++ ++ ++++

Characteristic 2 none – – ++++

Characteristic 3 none + – – –

Characteristic 4 ++++ none none

Characteristic 5 none none ++++

Characteristic 6 none none none

CAUSEE Digression: Analysis Example

www.qut.edu.au


Methods insight:

In this type of research it is important to– Control for type of venture– Analyse different types of outcomes at different

points in time

Otherwise all sorts of confounding effects will blur our understanding

www.qut.edu.au


FINDINGS REGARDING DRIVERS OF OUTCOMES(I)

• Some 33-50% of nascent ventures ever reach an operational stage (self-perceived / regular sales)

• HC influences appear weak or inconsistent• Effects of financial endowment variables and social

capital indicators are also unimpressive…• And a cursory look at the results for motivation and

expectation isn’t very enlightening, either• …but there’s more to be said…• …and measures of actual investment of capital

(HC,FC,SC) tend to come out with positive effects

www.qut.edu.au


Why the weak overall results?• It may be overly simplistic to assume that effects on outcomes

are direct, linear and generalizable across all types of ventures, founders, and environments

• The venture and the individual are distinct levels of analysis. The respondents may not invest all their capital in the focal venture, and the venture may draw on capital from multiple individuals

• The opportunity cost structure needs to be considered when assessing the effects of human capital on outcomes

• Outcomes for independent ventures are hard to assess, predict and interpret – especially when the respondents try to start very different ventures

www.qut.edu.au


Human capital indicator

Study and effecta

TotalUSb Canadac Netherlandsd Norwayd Swedene

+ 0 - + 0 - + 0 - + 0 - + 0 - + 0 -

General human capitalf

Education 4 27 0 0 1 0 0 6 0 0 1 0 1 9 0 5 44 0Work experience 0 18 1 0 1 0 0 4 0 n/a n/a n/a 0 6 0 0 26 1Team vs. Solo/Team size

0 17 0 n/a n/a n/a 0 7 0 n/a n/a n/a 3 10 3 3 34 3

(Age) 6 23 0 n/a n/a n/a 0 3 1 1 0 0 1 13 1 8 37 2(Gender - female) 0 34 0 2 2 0 0 4 0 0 3 0 1 5 0 3 42 0(Ethnicity or minority status)

0 5 2 n/a n/a n/a n/a n/a n/a 0 1 0 n/a n/a n/a 0 6 2

Specific human capital

Management experience

1 12 3 n/a n/a n/a 1 3 0 n/a n/a n/a 1 5 0 3 22 3

Industry experience 5 11 0 0 1 0 0 4 0 n/a n/a n/a 4 19 0 9 35 0

Start-up experience 4 26 4 0 2 0 1 5 0 4 2 1 15 13 2 24 46 7

Business or start-up classes

1 9 0 0 2 0 n/a n/a n/a n/a n/a n/a 2 4 0 3 15 0

Other n/a n/a n/a 2 0 0 n/a n/a n/a n/a n/a n/a n/a n/a n/a 2 0 0

Summary of findings on outcome effects of human capital by countrya) + denotes a sig. positive effect; 0 denotes no significant effect; - denotes a sig. negative effect (p<.05); b) based on Brush et al. (2008a); Dimov (2009); Edelman et al. (2008); Liao and Gartner (2006); Liao et al. (forthcoming); Lichtenstein et al. (2007); Newbert (2005); Parker (forthcoming); Parker & Belghitar (2006); Tornikoski and Newbert (2007); Townsend et al. (in press); c) based on Diochon et al. (2005a); Menzies et al. (2006); d) based on van Gelderen et al. (2005); e) based on Alsos and Kolvereid (1998); Alsos and Ljunggren (1998); Rotefoss and Kolvereid (2005); e) based on Davidsson and Honig (2003); Delmar and Shane (2003); Delmar and Shane (2004);

Honig and Karlsson (2004); Eckhardt et al. (2006); Samuelsson and Davidsson (2009); Shane and Delmar (2004); f) We have reluctantly (hence the parentheses) followed the practice of including age, gender and ethnicity among the indicators of general HC.

Effect of Human Capital on Outcomes (operational-still trying-terminated)

www.qut.edu.au


Methods Insight

• We should stop looking for direct, linear and very broadly generalizable effects with respect to a single outcome variable

• We need to model contingent relationships and assess multiple outcome variables over time in order to disentangle the intricacies and arrive at sounder interpretations

www.qut.edu.au


www.qut.edu.au


Outcome measure and effecta

TotalMaking Progress

Continuation

vs. non-continuation

Reachingfirst sales

Operational vs. terminated

Operational vs. any other

statusReaching

profitability+ 0 - + 0 + + 0 - + 0 - + 0 - + 0 - + 0 -

- Completed business plan of any form

8 6 0 3 3 0 0 4 0 2 3 1 0 3 0 0 1 0 13 20 1

- Composite measure of extent of planning

2 0 0 1 1 0 n/a n/a n/a n/a n/a n/a 0 4 0 n/a n/a n/a 3 5 0

- Sequence measure of early planning

n/a n/a n/a 6 2 0 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 6 2 0

RESULTS ON BUSINESS PLANNING AND OUTCOMES

www.qut.edu.au


FUTURE RESEARCH…Issue / Category

Users of existing data sets may want to consider…

Designers of new data sets may in addition want to consider…

Statistically representative and/or theoretically relevant sampling

Excluding ‘dilettante dreamers’

Ways to deal with ‘modest venture’ dominance

Testing for non-response and attrition biases

Correcting through weighting the cases (individual and team levels)

Correcting through weighting down or eliminating cases (already) of long duration (venture level)

Applying methods for obtaining high initial and continued response rates

Dealing with decline of landline phones

Obtaining a larger sample to allow more sub-sample analysis

Obtaining a narrower, more homogenous and/or higher-potential sample for stronger theory testing

Including additional categories (e.g., social enterprise)

www.qut.edu.au





Level of analysis issues

Consistently applying an explicit level of analysis from sample restriction through use of explanatory, control and outcome variables

Applying the hitherto under-utilized team level

Explicitly modeling influences or effects on different levels

Designing the entire project with (a) specific level(s) in mind

Basing the design on the realization that the venture may draw on resources from more than one individual and, conversely, that the founder(s) may invest their resources in endeavors other than the focal venture

Including more other-than-venture level outcome indicators

www.qut.edu.au





Dealing with process heterogeneity

Controlling for initial stage of development

Re-organize the data set based on project time line

Checking that assumed outcome ‘milestones’ really can be regarded process outcomes (i.e., occur late)

Applying higher level of abstraction to gestation activity patterns

Double-checking data on activities pre-dating the first interview

Further refining conceptualization and operationalization of gestation activities

www.qut.edu.au





Dealing with other heterogeneity issues

Using well thought through control variables

Applying sub-sample analysis

Modeling contingent effects (e.g., moderation; mediation)

Obtaining a larger sample to allow more sub-sample analysis (cf. above)

Obtaining a narrower, more homogenous and/or higher-potential sample for stronger theory testing (cf. above)

Including controls/moderators/mediators not available in existing data sets

www.qut.edu.au





Choice and interpretation of dependent variables

Using several, carefully selected outcome indicators

Refraining from unwarranted ‘success’ or ‘failure’ labeling of outcome indicators

Distinguishing among indicators of engagement, persistence, and success, respectively

Paying attention to heterogeneity in process duration

Including improved measures of engagement, persistence, and success (and duration)

Including more other-than-venture level outcome indicators (cf. above)

Probing further into reasons for and losses associated with termination (individual and venture level)

www.qut.edu.au


Panel Studies of New Venture Creation

• Are a Great Innovation!• Are Practically Feasible!• Entail Quite a Number of Conceptual and Methods

Related Challenges!

Thank You!

panel studies of new venture creation: a review and suggestions for future research

Documents

nascent entrepreneurship

study of individuals

financial success

entrepreneurship research

financial motivations

type research

important motivations

active business startup