Initial conditions or process of development? Critical incidents in the early stages of new ventures

Abstract

Past research on new venture creation has focussed on initial conditions of start-ups or on the process of evolution. However, few studies have investigated the transitory stage when initial conditions changeover to a process of evolution. The aim of this paper is to investigate critical incidents infant new ventures face in this transitory stage. The paper covers two areas. First, a review of selected process models of new venture creation is conducted. Results from this review concludes that existing models as described in the literature are associated with several weaknesses: they oversimplify the phenomenon studied as they most often focus on one aspect only and they do not deal with how entrepreneurs adapt to specific situational conditions. Furthermore, the review indicates that the starting-point of a process often is hard to specify and characterize. Second, an empirical study based on the critical incident technique is reported on. On the basis of interviews with founders and entrepreneurial service providers related to the companies 65 critical incidents were identified. This equals an average of 8.1 incidents per company during a period of 6-18 months. Financing and recruiting were the most frequent and most important activities to manage. Then follows reference/first customer in third place. A common pattern of occurring incidents was identified among the ventures. However, in relation to the first round of venture capital financing a strategic choice was made. Either the companies followed a growth strategy and recruitment and organizational development were key goals, or the company focussed on building a patent portfolio. A tentative model is suggested that describes this process in detail.

Venture gestation paths of nascent entrepreneurs: Exploring the temporal patterns

“…More recently, Kaulio (2003) investigated 65 critical incidents based on his interviews with founders and entrepreneurial service providers related to the companies. He found that financial and recruiting were the most frequent and most important activities to manage.…”

“…While both stage models and activity-based models such as Carter et al (1996), Gatewood et al (1995), Kaulio (2003) and Reynolds and Miller (1992) have made significant contribution to our understanding of the important process of venture creation, there are a few limitations to these studies in particular and the research of venture creation process in general. First, existing studies assume a linear, unitary process, which begins with the recognition of a business opportunity and culminates with first sales and first hires.…”

“…Studies have attempted to explain the creation of new ventures from an array of theoretical perspectives, such as economics (Brenner, 1987), psychology (Bird, 1992;Katz, 1992), and population ecology (Aldrich, 1990(Aldrich, , 1999, to name just a few. However, despite the growing literature in this area (i.e., Bhave, 1994a,b;Carter, Gartner, & Reynolds, 1996;Kaulio, 2003;Reynolds & Miller, 1992), few studies have explored the venture creation process empirically.…”

Capabilities development and deployment activities in born global B-to-B firms for early entry into international markets

“…Pragmatists prefer to buy from a reputable and established technology leader and are concerned about the quality and reliability of new technologies, the infrastructure needed to support these products, their systems interfaces, and the reliability of the service that is on offer by the new firm (Moore, 1991). This challenge is viewed as a 'chasm' to be crossed, needing useful market development strategies to address the concerns of pragmatists (Moore, 1991;Kaulio, 2003;Papovic & Fahrni, 2004;Papovic, 2005). Whilst the hi-tech marketing literature has grown in significance particularly in understanding consumer behavior in relation to high-tech products, studies specifically examining how high-tech firms cross the chasm have been limited except for a handful of studies (eg: Muller & Yogev, 2006;Vakratsas & Kolsarici, 2008) which examined the presence of dual markets (early adopters and mainstream customers) suggested in Moore's (1991) work.…”

Assembling resources when forming a new business

“…The how (i.e., the new business formation process) appears the least explored (Gilbert, McDougall, & Audretsch, 2006). Prior research approaches new business formation mainly from an internal perspective and treats the formation as a one-way process from opportunity discovery to opportunity exploitation by individual entrepreneurs (Kaulio, 2003).…”