Entrepreneurship

A Guide for Growth-Oriented Entrepreneurs

Sample Chapter: Factors Influencing Entrepreneurial Activities

GROWTH-ORIENTED ENTREPRENEURSHIP PROJECT

2015-1 Edition
Dr. Alan S. Gutterman
Growth-Oriented Entrepreneur’s Guide to Entrepreneurship
2015-1 Edition published in 2015 by the Growth-Oriented Entrepreneurship Project
(www.growthentrepreneurship.org) and copyrighted © 2015 by Alan S. Gutterman
(www.alangutterman.com).

All the rights of a copyright owner in this Work are reserved and retained by Alan S. Gutterman;
however, the copyright owner grants the public the non-exclusive right to copy, distribute, or
display the Work under a Creative Commons Attribution-NonCommercial-ShareAlike (CC BY-
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sa/4.0/legalcode.

About the Project

The Growth-Oriented Entrepreneurship Project (www.growthentrepreneurship.org) engages in

and promotes research, education and training activities relating to entrepreneurial ventures
launched with the intent to achieve significant growth in scale and value creation through the
development of innovative products or services which form the basis for a successful
international business. In furtherance of its mission the Project is involved in the preparation and
distribution of Guides for Growth-Oriented Entrepreneurs covering Entrepreneurship,
Leadership, Management, Organizational Design, Organizational Culture, Strategic Planning,
Governance, Compliance, Finance, Human Resources, Product Development and
Commercialization, Technology Management, Globalization, and Managing Growth and
Change.

About the Author

Dr. Alan S. Gutterman is the founder and director of the Growth-Oriented Entrepreneurship
Project and the founder and director of the Business Counselor Institute
(www.businesscounselorinstitute.org), which distributes Dr. Gutterman’s widely-recognized
portfolio of timely and practical legal and business information for attorneys, other professionals
and executives in the form of books, online content, webinars, videos, podcasts, newsletters and
training programs. Dr. Gutterman has over three decades of experience as a partner and senior
counsel with internationally recognized law firms counseling small and large business
enterprises in the areas of general corporate and securities matters, venture capital, mergers and
acquisitions, international law and transactions, strategic business alliances, technology transfers
and intellectual property, and has also held senior management positions with several
technology-based businesses including service as the chief legal officer of a leading international
distributor of IT products headquartered in Silicon Valley and as the chief operating officer of an
emerging broadband media company. He received his A.B., M.B.A., and J.D. from the
University of California at Berkeley, a D.B.A. from Golden Gate University, and a Ph. D. from
the University of Cambridge. For more information about Dr. Gutterman, his publications, the
Growth-Oriented Entrepreneurship Project or the Business Counselor Institute, please visit
www.alangutterman.com and/or contact him directly at agutterman@alangutterman.com.
 Growth-Oriented Entrepreneur’s Guide to Entrepreneurship
Contents

PART I ENTREPRENEURSHIP

Preface

Chapter 1 Definitions and Types of Entrepreneurship

Chapter 2 Entrepreneurship, Innovation and Development

Chapter 3 Research on Entrepreneurship

Chapter 4 Factors Influencing Entrepreneurial Activities

Chapter 5 Motivational Traits of Prospective Entrepreneurs

Chapter 6 Societal Culture and Entrepreneurship

Chapter 7 Institutional Environment and Entrepreneurship

Chapter 8 Role of Entrepreneurs in Launching New Businesses

PART II EMERGING COMPANIES

Preface

Chapter 1 Characteristics of Emerging Companies

Chapter 2 Managing Emerging Companies: Critical Success Factors and Challenges

Chapter 3 Emerging Companies in Foreign Countries

PART III LAUNCHING A NEW BUSINESS

Preface

Chapter 1 Business Planning

Chapter 2 Product Development and Commercialization

Chapter 3 Initial Funding Sources

Chapter 4 Selecting and Forming the Business Entity

Chapter 5 Formation and Organization of Limited Liability Companies

Chapter 6 Formation and Organization of Corporations

Chapter 7 Initial Capital and Ownership Structure

Chapter 8 Governance

Chapter 9 Organizational Design

Chapter 10 Human Resources

Chapter 11 Protecting Intellectual Property

PART IV FOUNDERS

Preface

Chapter 1 Founders’ Traits and Skills

Chapter 2 Pre-Formation Duties and Liabilities of Founders

Chapter 3 Founders’ Relationships and Agreements

Chapter 4 Founders and Organizational Culture

Chapter 5 Founder’s Role with IPO Firms

PART V INNOVATION CLUSTERS

Chapter 1 Innovation Clusters

Chapter 2 United States

Chapter 3 United Kingdom

Chapter 4 Israel

Chapter 5 Korea

Chapter 6 Japan

Chapter 7 Nordic Europe

Chapter 8 France
Chapter 9 Germany

Chapter 10 Switzerland

PART VI ENTREPRENEURSHIP IN DEVELOPING COUNTRIES

Chapter 1 Entrepreneurship in Developing Countries

Chapter 2 China

Chapter 3 India

Chapter 4 Brazil

Chapter 5 Mexico

Chapter 6 Vietnam

Chapter 7 Middle East

Chapter 8 Africa

Chapter 9 Russia

PART VII FORMS

This is a sample chapter from Part I of this Guide and you can get your full copy of the
Guide and/or other sample chapters by contacting the Growth-Oriented Entrepreneurship
Project (www.growthentrepreneurship.org) at agutterman@alangutterman.com. The
Project also prepares and distributes other Guides for Growth-Oriented Entrepreneurs
covering Leadership, Management, Organizational Design, Organizational Culture,
Strategic Planning, Governance, Compliance, Finance, Human Resources, Product
Development and Commercialization, Technology Management, Globalization, and
Managing Growth and Change.

Attorneys acting as business counselors to growth-oriented entrepreneurs who are

interested in forms, commentaries and other practice tools relating to the subject matter of
this chapter should also contact Dr. Gutterman at the e-mail address provided above.
 Growth-Oriented Entrepreneur’s Guide to Entrepreneurship (2015-1)
Part I – Entrepreneurship

PART I 1

ENTREPRENEURSHIP
Preface
Entrepreneurship has become a popular career path in developed and developing
countries, a phenomenon that has contributed to the intense interest in the subject shown
by researchers and policymakers around the world.1 In 2011, for example, the Global
Entrepreneurship Monitor, a partnership between the London Business School and
Babson College that administers a comprehensive research program to produce annual
assessments of national levels of entrepreneurial activity, estimated that there were 388
million entrepreneurs distributed around the globe and engaging starting and running new
businesses. Several factors have come into play, including the following:

 Advances in technology that allowed smaller firms to take advantage of economies of

scale that previously were only available to larger firms;
 The ability of smaller firms, because of their size, to be more flexible and responsive
to market changes;
 Implementation of government policies calculated to encourage entrepreneurial
activities and behavior;
 Support from governments and other economic units that established procurement
programs to assist small businesses;
 High unemployment rates in recent decades due to corporate restructuring and
downsizing, which have caused some workers to choose an entrepreneurial path
rather than retrain for placement in an unsteady job market as a means for dealing
with their “midlife” crisis”2; and
 Changes in typical career patterns away from expectations of long-term employment
with large firms in a single occupation toward a “flexible” labor force, a phenomenon
that has led to increased interest in entrepreneurship among those with post-secondary
education and an established career record build over several decades in the
workplace.3

1
Interestingly, studies of entrepreneurial behavior around the world have concluded that “entrepreneurs
think alike, no matter what country they call home” (The Wall Street Journal, February 6, 1992, p AI. See
also B. Berger, The Culture of Entrepreneurship (San Francisco: The Institute for Contemporary Studies,
1991).
See, e.g., A. Shapero and L. Sokol, “The social dimensions of entrepreneurship,” in C.A. Kent, D.L.
2

Sexton, & K.H. Vesper (eds.), Encyclopedia of Entrepreneurship, 81. (Englewood Cliffs, NJ: Prentice Hall,
1982); D. Birch, The job generation process (Cambridge, MA: M.I.T. Program on Neighborhood and
Regional Change, 1979); and S. Birley, “The role of new firms: Births, deaths and job generation”,
Strategic Management Journal, 7 (1986), 361–376.
3
See, e.g., P.D. Reynolds, “Sociology and Entrepreneurship: Concepts and Contributions,”
Entrepreneurship Theory and Practice, 16(2): 71-92 (1991).
 Growth-Oriented Entrepreneur’s Guide to Entrepreneurship (2015-1)
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Shane et al. suggested four important reasons for studying entrepreneurship.4 First of all,
Schumpeter argued long ago that entrepreneurship is central to the generation of 2
economic growth since it drives the innovation and technical change required for growth
to occur.5 Second, entrepreneurial action has been cited as the means for balancing
supply and demand in the marketplace.6 Third, entrepreneurship has been praised as the
process that facilitates the conversion of new knowledge and ideas into innovative
products and services.7 Finally, as described above, “entrepreneurship” is now widely
viewed as a distinct vocation and, as such, it is important and useful to gain a better
understanding of the role that entrepreneurship plays in the development of human and
intellectual capital.8

This Part provides an introduction to a number of important topics relevant to the study
and understanding of entrepreneurship and the process of creating, or giving birth to, a
new business. The chapters cover definitions and types of entrepreneurship; the
relationships among entrepreneurship, innovation and development; research on
entrepreneurship, research into entrepreneurship in multiple countries (i.e., cross-country
comparisons of the nature and extent of entrepreneurial activity such as the major studies
conducted as the Global Entrepreneurship Monitor and the Global Entrepreneurship and
Development Index) and research into cross-border entrepreneurship (i.e., international
activity of small- and medium-sized enterprises and new ventures); factors influencing
entrepreneurial activities; motivational traits of prospective entrepreneurs; the influence
of societal culture on entrepreneurial activities and attitudes regarding entrepreneurship
as a career path; the influence that the institutional environment has on entrepreneurship;
and the role of entrepreneurs in launching new businesses.

Chapter 4
Factors Influencing Entrepreneurial Activities
§4:1 Introduction

Shane et al. were particularly interested in improving the quality and conciseness of
research on how human motivations influence entrepreneurship; however, they suggested

S. Shane, E. Locke and C. Collins, “Entrepreneurial motivation”, Human Resource Management Review,
4

13 (2003), 257-279, 259.

5
J. Schumpeter, The theory of economic development (Cambridge, MA: Harvard University Press, 1934).
See also W. Baumol, “Entrepreneurship and a century of growth”, Journal of Business Venturing, 1 (1986),
141–145; E. Hagen, On the theory of social change: How economic growth begins (Homewood, IL: Dorsey
Press, 1962); and P. Kilby, “Hunting the Heffalump” in P. Kilby (Ed.), Entrepreneurship and economic
development (New York: Free Press, 1971).
6
See, e.g., I. Kirzner, “Entrepreneurial discovery and the competitive market process: an Austrian
approach”, The Journal of Economic Literature, 35 (1997), 60-85.
S. Shane and S. Venkataraman, “The promise of entrepreneurship as a field of research”, Academy of
7

Management Review, 25(1) (2000), 217-226. See also P. Reynolds, “New firm’s societal contribution
versus survival potential”, Journal of Business Venturing, 2 (1987), 231–246.
8
S. Zahra and G. Dess, “Entrepreneurship as a field of research: encouraging dialogue and debate”,
Academy of Management Review, 26(1) (2001), 8-11.
 Growth-Oriented Entrepreneur’s Guide to Entrepreneurship (2015-1)
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a model that may well have broader application in the design of an analytical framework
for studying the various factors that influence entrepreneurship. 9 Shane et al. believed 3
that entrepreneurship was best viewed as a “process” that occurred over an extended
period of time, rather than an isolated event or moment in time when a person decide
whether he or she should become an “entrepreneur”. This process included a number of
stages, including recognition of opportunities, development of ideas about how to pursue
the opportunity by turning it into new products or services and, finally, execution of the
activities required to harvest the desired profits from the opportunities. The execution
phase involved array of tasks and activities such as evaluating the feasibility of the
opportunity, product/service development, assembly of human and financial resources,
organizational design and “market making” (i.e., identification and pursuit of customers).
In their model, the success or failure of the entire entrepreneurial process, and the
decisions made along the way, are influenced by several important factors. The
motivational traits of the prospective entrepreneur is one of them; however, in order to
get a complete picture it is necessary to also take into account other factors that Shane et
al. felt had been ignored by previous researchers such as cognitive factors, the nature of
the opportunity and environmental conditions.10

In order to address the concerns described above regarding the inadequacies of prior
research on the relationship of human motivation to entrepreneurship, Shane et al.
devised their own “model of entrepreneurial motivation and the entrepreneurial process”
that focused on the factors that came into play at the various points where individuals
(i.e., “entrepreneurs”) transitioned from one stage of the entrepreneurial process to the
next. It was assumed that at each “transition point”, such as moving from “opportunity
recognition” to “idea development”, influences might come from one or more categories
of factors: entrepreneurial motivations, entrepreneurial opportunities and conditions and
cognitive factors.11 However, the mix of influences in play at a particular stage was not
fixed, nor was the relative importance of specific factors. Interestingly, the model did not
attempt to identify relationships between any of the factors and traditional measures of
“success” or “performance”, such as profitability or growth rates, but simply focused on
sensitizing researchers to the influences on the actions that entrepreneurs must take as
they pursue development and commercialization of their ideas. In other words, in
contrast to earlier models and assumptions Shane et al. recognized that the most relevant
effects of factors such as “entrepreneurial motivations” on venture performance and
growth may actually be more “indirect” than “direct”.12

S. Shane, E. Locke and C. Collins, “Entrepreneurial motivation”, Human Resource Management Review,
9

13 (2003), 257-279, 274-276.

10
Id. at 258 (“In our arguments, we explicitly assume that all human action is the result of both
motivational and cognitive factors, the latter including ability, intelligence and skills. We also assume that
entrepreneurship is not solely the result of human action; external factors also play a role . . .”)
11
This view was consistent with the observations of others such as Aldrich and Zimmer, who wrote that
entrepreneurial activity “can be conceptualized as a function of opportunity structures and motivated
entrepreneurs with access to resources”. See H. Aldrich and C. Zimmer, “Entrepreneurship through social
networks” in D. Sexton and R. Smilor (Eds.), The art and science of entrepreneurship (Cambridge, MA:
Ballinger, 1986), 3-23, 3.
12
S. Shane, E. Locke and C. Collins, “Entrepreneurial motivation”, Human Resource Management Review,
13 (2003), 257-279, 276 (“Motivations might be more or less stronger than these other factors in the degree
 Growth-Oriented Entrepreneur’s Guide to Entrepreneurship (2015-1)
Part I – Entrepreneurship

The elements of the analytical framework suggested by Shane et al. were similar in many 4
ways to those used by Baum et al. in studying the growth of small companies in the
architectural woodworking industry.13 Baum et al. analyzed 29 variables divided among
five different domains, including “traits and motivations”, which included motivational
factors similar to those described by Shane et al., such as hard work, tenacity and drive;
situation-specific motivation, such as goals and self-efficacy; cognitive skills; business
strategies; and environmental factors. Interestingly, consistent with the arguments made
by Shane et al., Baum et al. found that motivational factors did have an effect on the
growth of the ventures included in their study but that the effects were “indirect”,
meaning that motives came into play as influencers of other domains such as cognitive
skills, situation-specific motivation and business strategies.14 The sections that follow
combine the various factors and domains identified by Shane et al. and Baum et al. to
describe an analytical model of the entrepreneurial process that would incorporate several
key factors: entrepreneurial motivations, cognitive factors, entrepreneurial opportunities,
environmental conditions, competitive strategies and, finally, certain non-motivational
individual differences that have been shown to play an important role on the willingness
of people to engage in entrepreneurial activities.

While not explicitly incorporated into the sections below, notice should also be taken of
the “entrepreneurial process model”, which is a conceptual framework proposed by
Kantis to analyze and understand the “entrepreneurial process” and facilitate comparison
of the conditions confronting prospective entrepreneurs in different countries.15 While
conceding, as others have done, that the entrepreneurial process does not necessarily
follow a linear sequence, Kantis suggested that it was useful to analyze that process as
three stages of events which, hopefully, lead to the creation of entrepreneurs and
entrepreneurial firms.16 The first stage was “inception of the entrepreneurial venture”
and involved three key activities and related questions. First, the prospective
entrepreneur needs to acquire the motivation and skills needed to become an entrepreneur
and this raises the following questions: what are the motivating factors that first lead a
person to think about becoming an entrepreneur?; how does the entrepreneur’s immediate
social context influence the motivational process?; and where does an individual find the
motivation and skills needed to become an entrepreneur? Second, the business
opportunity for the new enterprise must be identified and researchers would like to know
the principal sources of business opportunities and how entrepreneurs find and identify
these opportunities? Finally, business planning is required during the preparatory phase

that they influence particular transitions points. In addition, there might be important and interesting
interaction effects between motivations and opportunities, [knowledge, skills and abilities] and
environmental factors.”)
13
J. Baum, E. Locke and K. Smith, “A multi-dimensional model of venture growth”, Academy of
Management Journal, 44(2) (2001), 292–303.
S. Shane, E. Locke and C. Collins, “Entrepreneurial motivation”, Human Resource Management Review,
14

13 (2003), 257-279, 273.

15
H. Kantis, “A Systematic Approach to Enterprise Creation” in H. Kantis (Ed.), Developing
Entrepreneurship: Experience in Latin America and Worldwide (Washington, DC: Inter-American
Development Bank, 2005), 17-27.
16
Id. at 19-21.
 Growth-Oriented Entrepreneur’s Guide to Entrepreneurship (2015-1)
Part I – Entrepreneurship

and the inquiries focus on what information and planning tools do entrepreneurs use?
The second stage is “company start-up” and begins with the final decision to begin 5
entrepreneurial activity. Kantis suggested that it is important to understand how
entrepreneurs make the final decision to start a new business. Once the decision has been
made, the inquiry turns to understanding how entrepreneurs access and mobilize the
financial and nonfinancial resources needed to launch a business. The last of the three
stages is early development of the firm including introduction to the market of the firm’s
goods and services and management of the firm during the early years. The key
questions for this stage include what factors influence market entry; what are the main
problems confronting entrepreneurs during this phase and how to they deal with those
problems; and how do entrepreneurs finance firm operations and growth?

Having defined and explained the “entrepreneurial process”, Kantis suggests that a model
of an “entrepreneurial development system” can be created by adding in a combination of
elements and factors that have an impact, both positive and negative, on the process and,
ultimately, on the efficient development of entrepreneurs and entrepreneurial firms.
Kantis grouped these factors into a short list of categories, which he introduced and
described as follows17:

 Social and economic conditions reflect the profile of the households from which
potential entrepreneurs emerge and take into factors such as the degree of social
fragmentation, access to education, flow of information relevant to entrepreneurial
activity, income levels and overall macroeconomic conditions such as the behavior of
demand or the degree of economic stability;
 Societal culture, which is discussed extensively in this publication, influences the
formation of the “entrepreneurial spirit” and cultural values impact important factors
such as the social value ascribed to the entrepreneur and attitudes toward the risk of
failure;
 Productive structure and dynamism refers to the sector and regional profile and the
size of the existing enterprises and institutions and is considered important because it
determines the type of work and professional experience, including opportunities for
development of entrepreneurial skills and networks of relationships (see below),
which individuals can obtain prior to becoming entrepreneurs;
 Personal aspects, which refers to socio-demographic profile of the entrepreneur—
which are influenced by his or her family, educational and work environments—and
his or her entrepreneurial skills (e.g., propensity to assume risk, tolerance for hard
work, managerial capacities, and creativity);
 Networks, which include the assistance provided through his or her social networks
(i.e., friends and family), institutional networks (i.e., business associations,
institutions of higher learning and/or development agencies) and commercial
networks (i.e., suppliers and customers);
 Factor markets, which provide entrepreneurs with access to financial resources (e.g.,
bank loans, venture capital and/or government financing), skilled labor and
17
The summary description of each of the categories is based on H. Kantis, “A Systematic Approach to
Enterprise Creation” in H. Kantis (Ed.), Developing Entrepreneurship: Experience in Latin America and
Worldwide (Washington, DC: Inter-American Development Bank, 2005), 17-27, 20-22.
 Growth-Oriented Entrepreneur’s Guide to Entrepreneurship (2015-1)
Part I – Entrepreneurship

professional services (accountants, consultants, etc.) and suppliers of inputs and

equipment; and 6
 Regulations and policies that have an impact on enterprise creation, such as taxes,
procedural requirements for formally establishing a new firm and initiatives and
programs to develop entrepreneurship.

In many ways, the list of factors developed by Kantis was similar to those discussed in
the following sections. For example, the issues consumed in personal aspects and
networks can also be found in the discussion of entrepreneurial motivations, cognitive
factors and non-motivational individual differences. In addition, social and economic
conditions and societal culture are part of the relevant environmental conditions and
productive structure and dynamism determine entrepreneurial opportunities and
competitive strategies. As noted above, Kantis himself deployed his model as a tool for
cross-border comparison of entrepreneurial activities and policies.18

§4:2 Entrepreneurial motivations

The “entrepreneurial motivations” that Shane et al. included in their model were similar
to those that they had identified and analyzed in their survey of prior research discussed
above and were separated into “general” and “task-specific”. Motivations classified as
“general” included nAch, locus of control, “vision”, desire for independence, passion and
drive. The motivations classified as “task-specific” included “goal-setting” and “self-
efficacy” and were similar to those analyzed in the “situation-specific motivation”
domain of the Baum et al. study.19 Once again, it is important to emphasize the Shane et
al. believed that the influence of any of these motivations varied depending upon the
stage of the entrepreneurial process: “In some cases, all of the motivations might matter.
In other cases, only some of the motivations might matter. The relative magnitudes of
how much each motivation matters will likely vary, depending on the part of the process
under investigation. In fact, it is quite plausible that motivations that influence one part
of the process have all of their effects at that stage in the process and have no effects on
later stages in the process.”20

Baum et al. tested for the influence of traits and motives of entrepreneurs on venture
success.21 They noted that several important personality theorists, such as McClelland,
had argued that personality predispositions were important predictors of the success of
entrepreneurial ventures22 and observed that venture capitalists, whose job it is to “pick
winners” among all the proposals and opportunities presented to them by would-be

18
For further discussion, see the Part on “International Entrepreneurship” in this Guide..
S. Shane, E. Locke and C. Collins, “Entrepreneurial motivation”, Human Resource Management Review,
19

13 (2003), 257-279, 274.

20
Id. at 275.
21
J. Baum, E. Locke and K. Smith, “A multi-dimensional model of venture growth”, Academy of
Management Journal, 44(2) (2001), 292–303.
J. Hollenbeck and E. Whitener, “Reclaiming personality traits for personnel selection”, Journal of
22

Management, 14 (1988), 81-91; and D. McClelland, “N-achievement and entrepreneurship: A longitudinal

study”, Journal of Personality and Social Psychology, 1 (1965), 389-392.
 Growth-Oriented Entrepreneur’s Guide to Entrepreneurship (2015-1)
Part I – Entrepreneurship

entrepreneurs, had consistently emphasized how much weight they gave to “entrepreneur
characteristics” as key indicators of profitable investments.23 The problem, from a 7
research perspective, was that studies had shown a relatively weak relationship between
the traits and motives of entrepreneurs and venture performance and that traits and
motives were not nearly as important to venture success as organizational and industry
variables.24 Baum et al. believed that the influence of individual-level traits and motives
of entrepreneurs had not been properly recognized because they did not work in isolation
from other factors and prior studies had not included the proper traits. 25 In their study
they supplemented the pool of entrepreneurial traits by adding tenacity, pro-activity and
passion and tested not only for a direct relationship of traits and motives on venture
growth but also for the relationship that traits and motives had on other influencers of
venture growth (i.e., “indirect effects”). While they did not find support for the
hypothesis that, with all other antecedents of venture growth controlled, the greater the
tenacity, pro-activity and passion for work of a venture’s CEO, the greater the venture’s
growth, they did find evidence that these individual-level traits and motives did have a
strong influence on several other factors relevant to venture growth, including general
competencies, situation-specific motivation and competitive strategies.26

As mentioned above, Baum et al. created and tested a separate dimension for several
situational-specific motivations, including “vision”, growth goals and self-efficacy.27
These motivations were distinguished from the other entrepreneurial traits and motives
because they had previously demonstrated “significant empirical relationships with
business performance” and had been celebrated by researchers as important for planning
and venture performance.28 Baum et al. did indeed find confirmation for the hypothesis
that “[t]he greater the situationally specific motivation of a venture’s CEO with respect to
vision, growth goals, and self-efficacy, the greater the venture’s growth”.29 Apparently,
these traits and motivations had a much greater direct effect on venture growth than the
more “general” traits and motives tested by Baum et al.; however, those general traits and
motives did have a significant influence on the strength of the situational-specific

I. MacMillan, R. Siegel and P. SubbaNarisimha, “Criteria used by venture capitalists to evaluate new
23

venture proposals”, Journal of Business Venturing, 1 (1985), 119-128.

T. Begley and D. Boyd, “Psychological characteristics associated with performance in entrepreneurial
24

firms and smaller businesses”, Journal of Business Venturing, 2 (1987), 79-93; M. Low and I. MacMillan,
“Entrepreneurship: Past research and future challenges”, Journal of Management, 14 (1988), 139-151; W.
Sandberg and C. Hofer, “Improving new venture performance: The role of strategy, industry structure and
the entrepreneur”, Entrepreneurship Theory and Practice, 16 (1987), 73-90.
25
J. Baum, E. Locke and K. Smith, “A multi-dimensional model of venture growth”, Academy of
Management Journal, 44(2) (2001), 292–303, 292.
26
Id. at 299-300.
27
Id. at 293.
M. Low and I. MacMillan, “Entrepreneurship: Past research and future challenges”, Journal of
28

Management, 14 (1988), 139-151; and B. Bird, Entrepreneurial behavior (Glenview, IL: Scott, Foresman,
1989). Also, one of the core elements of motivation in charismatic leadership theory is “vision”. See B.
Bass, Handbook of leadership (New York: Free Press, 1990).
J. Baum, E. Locke and K. Smith, “A multi-dimensional model of venture growth”, Academy of
29

Management Journal, 44(2) (2001), 292–303, 293, 297, 301 (citing A. Bandura, Self-efficacy: The exercise
of control (New York: W.H. Freeman, 1997); and E. Locke and G. Latham, A theory of goal setting and
task performance (Englewood Cliffs, NJ: Prentice-Hall, 1990)).
 Growth-Oriented Entrepreneur’s Guide to Entrepreneurship (2015-1)
Part I – Entrepreneurship

motivations.30 The general competencies of entrepreneurs also had a large influence on

their situational-specific motivations. Situational-specific motivations also had a 8
significant influence on elements of the competitive strategies selected by entrepreneurs
which, in turn, ultimately influenced venture growth. Specifically, Baum et al. argued
that organizations led by highly motivated entrepreneurs often reflected the character of
these entrepreneurs as evidenced by the choices made regarding organizational structures
and processes and the bias toward recruiting goal-oriented employees.31

§4:3 Cognitive factors

According to Locke, all action is a result of the integration or combination of

motivational and cognitive factors and thus it was necessary and appropriate for Shane et
al. to include certain cognitive factors—knowledge, skills and abilities (“KSAs”)—in
their analytical framework.32 They explained that entrepreneurs must have “some
knowledge”, particularly knowledge about the industry and markets in which they are
involved and the technology that is relevant to the projected success of the
entrepreneurial activities. In addition, entrepreneurs must have certain skills, the range of
which depends on the circumstances, which can be called upon during the various stages
of the entrepreneurial process. Shane et al. listed skills such as “selling and bargaining,
leadership, planning, decision making, problem solving, team building, communication
and conflict management”. Shane et al. mentioned that entrepreneurs can hire persons to
fill in gaps in their own “skill set”; however, they believed that entrepreneurs cannot rely
on others for the knowledge about the industry and technology that is crucial for setting
the right course during the entrepreneurial process. Finally, entrepreneurs needed certain
abilities, such as intelligence, in order to acquire and process the knowledge and develop
and use the skills referred to above.

As with the “entrepreneurial motivations”, the KSAs are needed in order for
entrepreneurs to navigate the entrepreneurship process and Shane et al. noted that not
only did the KSAs come into play in making the best decisions at each stage of the
process but also in the development of an overriding “vision” for entrepreneurial
activities, including formulation of a viable strategy for the firm. 33 Inclusion of these
cognitive factors in the model was consistent with the findings of other researchers that
have highlighted the importance of certain types of knowledge and skills on various
phases of the entrepreneurial process, particularly the start-up and resource assembly and

30
Id. at 294, 299 (confirming hypothesis that “[t]he greater the tenacity, proactivity, and passion for work
of a venture’s CEO, the greater his or her situationally specific motivation with respect to vision, goals, and
self-efficacy”).
31
Id. at 301 (citing D. Hambrick and P. Mason, “Upper echelons: The organization as a reflection of its top
managers”, Academy of Management Review, 9 (1984), 193-206).
32
Id. at 275.
33
Locke referred to “vision” as the “capacity of the human mind to discover, through creative thought,
solutions that had not existed before” and noted that vision often stepped in when traditional financial
methods of assessing and mapping an opportunity would not be helpful (e.g., when Jobs first developed the
mass market for personal computers or Walton planted the seeds for discount retailing). Id. at 263 (citing
E. Locke, The prime movers: traits of the great wealth creators (New York: AMACOM, 2000)).
 Growth-Oriented Entrepreneur’s Guide to Entrepreneurship (2015-1)
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organization stages.34 Motivations are linked to cognitive factors in that motivations

provide entrepreneurs with the incentive and drive to acquire the necessary KSAs and 9
take the actions necessary to implement the vision and associated strategies.

KSAs were also part of the foundational principles for the “individual competencies”
domain in the Baum et al. model.35 Baum et al. actually broke out this domain into two
categories: “general” competencies, which included an array of so-called “organizational
competencies” such as oral presentation skills, decision-making ability, conceptualization
ability, diagnostic use of concepts, use of power and “opportunity recognition”; and
“specific competencies”, which included technical skills and industry skills.36 They
found that the general competencies of a venture’s CEO, particularly with respect to
organizational skills and opportunity recognition, did not have a material positive
relationship on venture growth; however, they did influence situation-specific
motivations and the selection process for competitive strategies. On the other hand,
specific competencies were found to have a direct positive relationship with, and effect
on, venture growth.37 In their own words, Baum et al. explained: “We speculate that an
entrepreneur’s technical and industry competencies are an important form of expert
power that facilitates the implementation of the entrepreneur’s vision and strategy. We
can further hypothesize that these entrepreneurial skills may serve as sources of
competitive advantage that rivals find difficult to identify and imitate.”38

Notice should be taken of the work of Nassif et al., who studied entrepreneurship from a
dynamic perspective in order to gain a better understanding of the values, characteristics
and actions over time as they launch and develop their businesses.39 Based on their
analysis of work by various researchers on the types and characteristics of Brazilian small
business entrepreneurs, Nassif et al. developed an entrepreneurial process dynamics
framework that included and distinguished “affective aspects”, which were most
important during the earliest stages of the entrepreneurial process, and “cognitive
aspects”, which became more important relative to the affective aspects as time went on
and the business matured. Affective aspects included perseverance, courage, willpower,
initiative, willingness to take risks, personal motivation, facing challenges, passion for
the business, autonomy, self-confidence and independence. Cognitive aspects included

Id. at 275 (citing T. Bates, “Entrepreneur human capital inputs and small business longevity”, Review of
34

Economics and Statistics, 72(4) (1990), 551-559; and C. Schoonhoven, K. Eisenhardt and K. Lyman,
“Speeding products to market: waiting time to first product introduction in new firms”, Administrative
Science Quarterly, 35 (1990), 177-207).
35
Id. at 293.
36
Id. (citing B. Bird, Entrepreneurial behavior (Glenview, IL: Scott, Foresman, 1989); R. Boyatzis, The
competent manager (New York: Wiley, 1982); G. Chandler and E. Jansen, “The founders’ self-assessed
competence and venture performance”, Journal of Business Venturing, 7 (1992), 223-236; and L. Herron
and R. Robinson, “Entrepreneurship skills: An empirical study of the missing link connecting the
entrepreneur with venture performance”, Paper presented at the annual meeting of the Academy of
Management, San Francisco, 1990)).
37
Id. at 299-301.
38
Id. at 300-301.
39
V. Nassif, A. Ghobril and N. Siqueira da Silva, “Understanding the Entrepreneurial Process: A Dynamic
Approach”, Brazilian Administrative Review, 7(2) (April/June 2010).
 Growth-Oriented Entrepreneur’s Guide to Entrepreneurship (2015-1)
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assumption of calculated risks, ability to establish partnerships, defining goals and

planning skills, knowing one’s limits and eloquent communication skills. 10

§4:4 Entrepreneurial opportunities

Shane et al. argue that the nature of entrepreneurship, including the decisions made with
regard to entrepreneurial actions and even deciding whether or not entrepreneurship is an
appropriate and desired path, depends upon the specific “opportunity” confronting the
would-be entrepreneur.40 They defined “entrepreneurial opportunities” as “situations in
which new goods, services, raw materials, and organizing methods can be introduced and
sold at greater than the cost of their production”.41 The problem, of course, is coming up
with a reasonable estimate of the “expected value” of an opportunity since, by definition,
an opportunity is all about potential rather than guarantees. One issue, of course, is that
there is wide range of activities that would fit within this definition of opportunity: grand
and bold initiatives that seek to establish whole new industries (e.g., the early
biotechnology firms) as well as more modest undertakings such as starting a new
business in an established industry to exploit a small, yet potential profitable, market
niche.42 In addition, the value of opportunities not only varies across industries but one
also finds variations in opportunity values within industries. Still another factor that must
be considered is how the entrepreneur “interprets” the opportunity. The Internet, for
example, has generated a wide array of new business models from e-tailing targeting
millions of potential customers to sole proprietors looking to make their mark through
web site design or consulting on online advertising. Finally, “solutions” clearly matter—
if an entrepreneur develops a product, service or method that is creates more sales and/or
lower production costs than he or she can rightly assign a high value to that opportunity.

It is assumed that an individual will generally not pursue opportunities unless they have
value to the individual and a “valuable opportunity for an individual is one that generates
a level of profit that exceeds the entrepreneur’s opportunity cost, a premium for the
illiquidity of money, time and effort expended, and a premium for bearing risk and
uncertainty”.43 Obviously, this formulation allows that some opportunities will have
more value than others for a particular entrepreneur and that the same opportunity may be
valued differently by different entrepreneurs due.44 It does not necessarily mean that

S. Shane, E. Locke and C. Collins, “Entrepreneurial motivation”, Human Resource Management Review,
40

13 (2003), 257-279, 269.

Id. at 260-261 (citing S. Shane and S. Venkataraman, “The promise of entrepreneurship as a field of
41

research”, Academy of Management Review, 25(1) (2000), 217-226, 220).

42
Established industries may also be reenergized and transformed by entrepreneurs testing new business
models, such as Sam Walton’s disruptive activities in the retail sector and the new organizing models in
that same sector deployed by a wide array of “e-tailors”. Id. 261-262.
43
Id. (citing S. Venkataraman, “The distinctive domain of entrepreneurship research: an editor’s
perspective”, in J. Katz and R. Brockhaus (Eds.), Advances in entrepreneurship, firm emergence and
growth, Vol. 3 (Greenwich, CT: JAI Press, 1997), 119-138).
44
Shane et al. observed that variations in the opportunities that various entrepreneurs might pursue were
not being taken into account by researchers studying the effects of motivation on entrepreneurial decisions.
They suggested, among other things, that “researchers could explore settings in which potential
entrepreneurs pursue reasonably identical opportunities”, such as comparing the motivations of persons
 Growth-Oriented Entrepreneur’s Guide to Entrepreneurship (2015-1)
Part I – Entrepreneurship

entrepreneurs will always choose the opportunity that has the highest “value” since that
decision will be influenced by the motivations that are most important in the 11
entrepreneur’s decision making process at the particular time; however, studies have
shown that entrepreneurs are more likely to pursue an opportunity based on a condition or
asset that is likely to generate extraordinary returns (e.g., patented technology, large
market opportunity and/or high margins).45

Ultimately, the value of entrepreneurial opportunities only becomes clear in hindsight

once the entrepreneurial process has played out and each of the stages in that process
have been navigated and completed. At each point along the way information is
gathered, and decisions are made, that influence the assessment of the value of the
opportunity and there may come a point where an opportunity ceases to be “valuable” for
the entrepreneur because, for example, the anticipated level of profits no longer exceeds
the entrepreneur’s estimate of the opportunity costs that will need to be borne over the
remaining stages of the entrepreneurial process. All of this does necessarily dissuade the
boldest of innovators from moving forward in situations where it is impossible to
quantify the value of an opportunity simply because what is being attempted has never
been done before. Shane et al. reminded that Jobs in the PC industry and Walton in
retailing were able to take advantage of opportunities through entrepreneurial actions that
turning nothing more than a potential market for a product or service that had not been
created into tangible industries in which values could eventually be assigned to the
anticipated outputs of their actions. For Jobs, he not only had to develop the technical
solution (i.e., a computer with a reasonable design cost) he also had to create a new
“mass market” through a combination of design features, easy-to-use software, pricing
and marketing. Walton had to test and prove the viability of his “discounting” strategy
and fend off the responses of his existing competitors as well as new competitors that
entered the market after Walton took the first steps.46

§4:5 Environmental conditions

There has been a large amount of research on the impact of environmental conditions on
entrepreneurship and many of these studies have found indications that the success of an
entrepreneurial activity, as measured by the firm growth, is influenced by things such
“(1) political factors (e.g., legal restrictions, quality of law enforcement, political stability
and currency stability); (2) market forces (e.g., structure of the industry, technology
regime, potential barriers to entry, market size and population demographics); and (3)
resources (e.g., availability of investment capital, labor market including skill
availability, transportation infrastructure and complimentary technology)”.47 Shane et al.

interested in purchasing a McDonald’s franchise against those of persons preferring to tapped to manage a
company-owned McDonald’s outlet. Id. at 270.
45
S. Shane, “Technology opportunities and new firm creation”, Management Science, 47(9) (2001), 1173-
1181. For further discussion of the “characteristics of entrepreneurial opportunities”, see C. Christiansen,
The innovators dilemma (Cambridge, MA: Harvard Business School Press, 1997).
S. Shane, E. Locke and C. Collins, “Entrepreneurial motivation”, Human Resource Management Review,
46

13 (2003), 257-279, 261-262.

47
Id. at 260, 275-276. Other environmental factors mentioned by Shane et al. included the age of the
industry, the condition of capital markets and the overall health of the economy. See also, e.g., H. Aldrich
 Growth-Oriented Entrepreneur’s Guide to Entrepreneurship (2015-1)
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argued that it would be interesting and useful to study whether the motivations of
entrepreneurs led to different types of entrepreneurial actions and decisions under 12
different environmental conditions.48 They also noted that in order to gain a clearer
understanding of the influence on motivations on the entrepreneurial process the impact
of environmental conditions would need to be controlled, perhaps by limiting sampling to
firms in the same industry pursuing comparable market and technological opportunities.

Baum et al. also analyzed environmental conditions and focused on three dimensions
relating to the environment: dynamism, which is the level of environmental
predictability, including the rate of market and industry change and the level of
uncertainty that firms must endure due to forces that are out of their control; munificence,
which refers to the support provided by the environment for organizational growth; and
complexity, which is measured by the concentration or dispersion of organizations in the
environment.49 Somewhat surprisingly, Baum et al. did not find sufficient evidence to
support their hypothesis that a firm’s environment is related to venture growth.
Specifically, operating in a stable, munificent and simple environment did not guarantee
that a firm would achieve the highest growth.50 Environmental factors did have a
significant, positive influence on competitive strategies but not as much as the traits,
general competencies and situation-specific motivations of the entrepreneurs leading the
firms.51 Baum et al., noting the somewhat surprising “relatively low impact of the
environmental domain on venture growth”, suggested that perhaps CEOs of smaller firms
have more control over the growth and performance of their firms than had previously
been suggested by several “macro theories” such as those posited by Hannan and
Freeman and Pfeffer and Salancik.52

§4:6 Competitive strategies

Shane et al. argued that it was important for researchers to study and analyze the role that
individual motivations played in the specific decisions that entrepreneurs made at certain
points during the entrepreneurial process—in other words: how do the motivations of the
entrepreneurs influence the choices that they make regarding “business strategies”.53
Shane et al. offered several scenarios. First, they suggested that an inventor with a high

and G. Wiedenmayer, “From traits to rates: An ecological perspective on organizational foundings”, in J.

Katz and R. Brockhaus, Sr. (eds.), Advances in entrepreneurship, firm emergence, and growth, Volume 1
(Greenwich, CT: JAI Press, 1993), 145-195; and H. Aldrich, Organizations evolving (Beverly Hills, CA:
Sage, 2000).
48
Id.
49
Id. at 293-294 (citing G. Dess and P. Davis, “Porter’s (1980) generic strategies as determinants of
strategic group membership and organizational performance”, Academy of Management Journal, 27
(1984), 467-488 and H. Aldrich and G. Wiedenmayer, “From traits to rates: An ecological perspective on
organizational foundings”, in J. Katz and R. Brockhaus, Sr. (eds.), Advances in entrepreneurship, firm
emergence, and growth, Volume 1 (Greenwich, CT: JAI Press, 1993), 145-195).
50
Id. at 301.
51
Id. at 299.
52
Id. at 301 (citing M. Hannan and J. Freeman, “The population ecology of organizations”, American
Journal of Sociology, 82 (1977), 929-964; and J. Pfeffer and G. Salancik, The external control of
organizations (New York: Harper & Row, 1978)).
53
Id. at 272.
 Growth-Oriented Entrepreneur’s Guide to Entrepreneurship (2015-1)
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level of self-efficacy might be more likely to take an aggressive approach regarding

exploitation of his or invention, such as going to the trouble of forming their own firm, 13
while an inventor with an invention of equal “value” but lower self-efficacy might prefer
to pursue profits indirectly through the efforts of others by selecting a strategy of
licensing the invention to others who take on the additional tasks found along the path of
the entrepreneurial process. Another example would be the influence of the
entrepreneur’s “need for independence” on financing strategies: entrepreneurs scoring
high on the measure might be more motivated to self-finance their firms to avoid having
to put up with the “interruptions” from outside investors while entrepreneurs scoring
lower on that measure would not be uncomfortable with giving up some control over
their businesses in exchange for capital (e.g., venture capital investment).

Baum et al. studied the relationship of a firm’s competitive strategy to its performance.
Baum et al. conceived of “competitive strategy” in terms of three broad business-level
choices suggested by Porter as alternative viable approaches for dealing with
environmental forces: “focus” strategies, which target a particular set of customers,
segment of a product line or geographic market; “low-cost” strategies, which involve
construction of efficient-scale facilities and aggressive pursuit of cost reductions; and
“differentiation” strategies, which are based on attempting to create and market
innovative, high-quality products and/or services industry-wide.54 According to Porter,
in order for firms to have a chance at being successful they need to pick and follow one
of these strategies and failure to do leaves them “stuck in the middle” and doomed to
failure.55 Baum et al. found evidence supporting Porter’s proposition (i.e., that a firm’s
competitive strategy will be related to performance and that the firms with the highest
growth were those that emphasized either a focus, low-cost or differentiation strategy).56
Interestingly, they also found that choices regarding competitive strategy were heavily
influenced by the traits, general competencies and situation-specific motivations of the
entrepreneurs responsible for making the decisions about firm strategy. 57 This finding
was consistent with theories holding that personal characteristics of entrepreneurs are
determinants of their personal strategies and that these personal strategies are, in turn,
determinants of the strategies of the organizations that they found and lead.58

§4:7 Non-motivational individual differences

While Shane et al. focused on motivational differences among prospective entrepreneurs,

they acknowledged that non-motivational individual differences have been shown to play
an important role in the willingness of people to pursue entrepreneurial activities. For
example, researchers have found evidence that a person’s decision to become an
54
Id. at 293 (citing M. Porter, Competitive strategy (New York: Free Press, 1980); and G. Dess and P.
Davis, “Porter’s (1980) generic strategies as determinants of strategic group membership and
organizational performance”, Academy of Management Journal, 27 (1984), 467-488).
55
Id. at 293 (citing M. Porter, Competitive strategy (New York: Free Press, 1980), 42).
56
Id. at 297, 301.
57
Id. at 301.
58
Id. (citing A. Bandura, Self-efficacy: The exercise of control (New York: W.H. Freeman, 1997); and E.
Locke and G. Latham, A theory of goal setting and task performance (Englewood Cliffs, NJ: Prentice-Hall,
1990)).
 Growth-Oriented Entrepreneur’s Guide to Entrepreneurship (2015-1)
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“entrepreneur” may depend on things such as the person’s opportunity cost59, which is
actually built into the definition of “entrepreneurial opportunity” used by Shane et al.; his 14
or her stocks of financial capital60; the social ties that he or she may have with
investors61; and the person’s career experience62. There does not, however, appear to be
much research on how these non-motivational factors specifically influence particular
stages of the entrepreneurial process. Presumably a large stock of personal financial
capital and/or close social ties with investors would be helpful in collecting capital for the
firm but these “advantages” may be of value during other stages of the process.

59
R. Amit, E. Meuller and I. Cockburn, Journal of Business Venturing, 10 (1995), 95-106.
60
D. Evans and L. Leighton, “Some empirical aspects of entrepreneurship”, American Economic Review,
79 (1989), 519-535.
61
H. Aldrich and C. Zimmer, “Entrepreneurship through social networks”, in D. Sexton and R. Smilor
(Eds.), The art and science of entrepreneurship (Cambridge, MA: Ballinger, 1986), 3-23.
62
A. Cooper, C. Woo and W. Dunkleberg, “Entrepreneurship and the initial size of firms”, Journal of
Business Venturing, 3 (1989), 97-108.