Exploring start-up event sequences

Abstract This research analyzed new venture start-up activities undertaken by 71 nascent entrepreneurs. Nascent entrepreneurs are individuals who were identified as taking steps to found a new business but who had not yet succeeded in making the transition to new business ownership. Longitudinal data for the study comes from a secondary data analysis of two representative samples, one of 683 adult residents in Wisconsin (Reynolds and White 1993) and the other of 1016 adult residents of the United States (Curtin 1982). These surveys were conducted between 1992 and 1993, and the nascent entrepreneurs were reinterviewed six to 18 months after their initial interview. Three broad questions were addressed: (1) What activities do nascent entrepreneurs initiate in attempting to establish a new business? (2) How many activities do nascent entrepreneurs initiate during the gestation of the start-up? and (3) When are particular activities initiated or completed? Between the first and second interview, 48% of the nascent entrepreneurs reported they had set up a business in operation. Over 20% had given up and were no longer actively trying to establish a business. Almost a third of the respondents reported they were still trying to establish a firm. As a way to summarize the results and as a springboard toward some insights into the implications of this research for practice and future research, we developed the following activity profiles of the three types of nascent entrepreneurs studied. These profiles are offered as a combination of both fact and some intuition about the findings. STARTED A BUSINESS. Nascent entrepreneurs who were able to start a business were more aggressive in making their businesses real. They undertook activities that made their businesses tangible to others: they looked for facilities and equipment, sought and got financial support, formed a legal entity, organized a team, bought facilities and equipment, and devoted full time to the business. Individuals who started businesses seemed to act with a greater level of intensity. They undertook more activities than those individuals who did not start a business. The pattern of activities seem to indicate that individuals who started firms put themselves into the day-to-day process of running an ongoing business as quickly as they could and that these activities resulted in starting firms that generated sales (94% of the entrepreneurs) and positive cash flow (50% of the entrepreneurs). What is not known is how successful or profitable these new firms will be over time. For example, 50% of the firms that were started had not reached positive cash flow and these firms may have been started by individuals who were foolhardy and rushed into operation of a business that would not be sustainable. GAVE UP. The pattern of activities for the group of entrepreneurs who gave up seem to indicate that these entrepreneurs discovered that their initial idea for their businesses would not lead to success. The finding that the activity of developing a model or prototype differentiated individuals who gave up from those who were still trying would suggest that those who gave up had “tested” their ideas out and found that they would not work according to their expectations. Nascent entrepreneurs who gave up seemed to be similar in their activity patterns compared with those who started their firms, that is, individuals who gave up pursued the activities of creating a business in an aggressive manner at the beginning of the process. But as the business unfolded over time, these entrepreneurs decreased their activities and then ceased start-up activities. This group of individuals might be seen as either having the wisdom to test their ideas out before jumping into something that might lead to failure or lacking the flexibility to find more creative ways to solve the problems that they were confronted with. STILL TRYING. It would seem that those who are still trying are not putting enough effort into the start-up process in order to find out whether they should start the business or give up. Those still trying had undertaken fewer activities than individuals in the other two groups. The still trying entrepreneurs were devoting their short-term efforts toward activities internal to the start-up process (e.g., saving money and preparing a plan) and less effort toward activities that would make the business real to others. The still trying entrepreneurs may be all talk and little action. Or these still trying entrepreneurs might be involved in developing businesses that take longer for these particular opportunities to unfold. (It should be noted that there was no industry effect across the three groups.) Our advice to individuals considering business start-up is that the results seem to provide evidence that nascent entrepreneurs should aggressively pursue opportunities in the short-term, because they will quickly learn that these opportunities will either reveal themselves as worthy of start-up or as poor choices that should be abandoned. Individuals who do not devote the time and effort to undertaking the activities necessary for starting a business may find themselves perennially still trying, rather than succeeding or failing. What entrepreneurs do in their day-to-day activities matters. The kinds of activities that nascent entrepreneurs undertake, the number of activities, and the sequence of these activities have a significant influence on the ability of nascent entrepreneurs to successfully create new ventures. This study suggests that the behaviors of nascent entrepreneurs who have successfully started a new venture can be identified and differentiated from the behaviors of nascent entrepreneurs who failed. We believe that future studies will more precisely identify the kinds of behaviors appropriate for certain new venture conditions. If such contingency information can be generated, entrepreneurship research is likely to have significant benefits for entrepreneurship practice, education, and public policy.