ENTREPRENEURSHIP The Engine of Growth Volume 2 PROCESS Edited by Andrew Zacharakis and Stephen Spinelli Jr. PRAEGER PERSPECTIVES Library of Congress Cataloging-in-Publication Data Entrepreneurship : the engine of growth / edited by Maria Minniti. Includes bibliographical references and index. ISBN 0-275-98986-0 (set: alk.
paper)—ISBN 0-275-98987-9 (vol 1: alk. paper)— ISBN 0-275-98988-7 (vol 2: alk. paper)—ISBN 0-275-98989-5 (vol 3: alk.04—dc22 2006028313 British Library Cataloguing in Publication Data is available. Copyright # 2007 by Andrew Zacharakis and Stephen Spinelli Jr.
All rights reserved. No portion of this book may be reproduced, by any process or technique, without the express written consent of the publisher. Library of Congress Catalog Card Number: 2006028313 ISBN: 0-275-98986-0 (set) 0-275-98987-9 (vol. 3) First published in 2007 Praeger Publishers, 88 Post Road West, Westport, CT 06881 An imprint of Greenwood Publishing Group, Inc.com Printed in the United States of America The paper used in this book complies with the Permanent Paper Standard issued by the National Information Standards Organization (Z39.
10 9 8 7 6 5 4 3 2 1 Contents Preface vii Introduction ix Andrew Zacharakis and Stephen Spinelli Jr. The Timmons Model of the Entrepreneurial Process 1 Stephen Spinelli Jr. Neck, and Jeffry A. Idea Generation from a Creativity Perspective 19 Dimo Dimov 3.
Perceiving and Shaping New Venture Opportunities through Mindful Practice 43 Andrew C. Corbett and Jeffery S. New Venture Teams 65 Gaylen N. Business Angels: Investment Processes, Outcomes, and Current Trends 87 Frances M.
Amatucci and Jeffrey E. Venture Capital Financing 109 Andrew Zacharakis and Matthias Eckermann 7. Small-Firm Growth Strategies 135 Johan Wiklund vi CONTENTS 8. Going Global 155 Pat H.
Entrepreneurial Exit 179 Monica Zimmerman Treichel and David L. Deeds Index 203 About the Set Editors 207 About the Contributors 211 Preface The editors of this three-volume set are pleased to present readers with insight into the field of entrepreneurship by some of the leading scholars around the world. Babson College, the home institution for all the editors, has been a leader in entrepreneurship education for over thirty years and is recognized by many leading publications as the top school for teaching entrepreneurship at both the MBA and undergraduate levels (thirteen years running by U. News and World Report).
Since 1999, Babson College, in conjunction with the London Business School, has led the Global Entrepreneurship Monitor (GEM) research project. GEM assesses the state of entrepreneurship activity across more than forty coun- tries around the world (comprising two-thirds of the world’s population and over 90 percent of the world GDP) and has shown that entrepreneurship can be found in all economies and that almost 9 percent of the adult population is actively attempting to launch a new venture at any given time.1 While the percentages vary by country, GEM illustrates the importance of entrepreneurship and pro- vides context as we try to better understand the entrepreneurial phenomenon. We have compiled three volumes focusing on entrepreneurship from three different perspectives: people, process, and place. Volume 1, edited by Maria Minniti, looks at the intersection of people and entrepreneurship.
Taking a broad view of entrepreneurship as a form of human action, chapters in this volume identify the current state of the art in academic research with respect to cognitive, economic, social, and institutional factors that influence people’s behavior with respect to entrepreneurship. Why do people start new businesses? How do peo- ple make entrepreneurial decisions? What is the role played by the social and economic environment on individuals’ decisions about entrepreneurship? Do institutions matter? Do some groups of people such as immigrants and women face particular issues when deciding to start a business? The volume addresses viii PREFACE these and other questions. Each chapter provides an extensive bibliography and suggestions for further research. Volume 2, edited by Andrew Zacharakis and Stephen Spinelli, examines the entrepreneurial process.
The book proceeds through the life cycle of a new venture start-up. Chapter authors tackle several key steps in the process, ranging from idea, to opportunity, team building, resource acquisition, managing growth, and en- tering global markets. These chapters identify the current state of the art in aca- demic research, suggest directions for future research, and draw implications for practicing entrepreneurs. What is clear from this volume is that we have learned a tremendous amount about the entrepreneurial process, especially over the last fifteen years.
This deep insight leads us to ask more questions and suggest new research to answer these questions. This learning is also applied in the classroom and shared in this book so that students and entrepreneurs can assess best practices. Volume 3, edited by Mark Rice and Tim Habbershon, examines place. In this volume and in the literature, place refers to a wide and diverse range of contextual factors that influence the entrepreneur and the entrepreneurial process.
We re- present these contextual factors as a series of concentric circles ranging from en- vironmental and global forces, to national and regional policies, industries and infrastructures, to cultural communities, families, and organizational forms. Chap- ters in this volume address entrepreneurship in the context of the corporation, family, and franchise. We provide insights on ethnicity and entrepreneurship in the U. Hispanic, Slovenian, and German context.
We look at the impact of public policy and entrepreneurship support systems at the country and community level, and from an economic and social perspective. We also examine the technology en- vironment and financing support structures for entrepreneurship as context issues. By placing this array of contextual factors into an ecosystem perspective, we show how entrepreneurship is a complex input–output process in which people, process, and place are constantly interacting to generate the entrepreneurial economy. It is our hope that the chapters spur the reader’s interest in entrepreneurship, that the academic who is new to entrepreneurship will see an opportunity to enter this field, and that those who are already studying this phenomenon will see new questions that need investigation.
We hope that practitioners and students will glean best practices as they work in entrepreneurial ventures and that the prescrip- tions within these chapters will help them succeed. We also think that these volumes can help policymakers get a firmer grasp on entrepreneurship and the potential it has to spur economic growth within a country, state/province, and town. En- trepreneurship operates in an ecosystem that is reliant upon all the audiences of these volumes. As we gain better understanding of the ecosystem, we all benefit.
Autio, Global Entrepreneurship Monitor: 2005 Executive Report (Babson Park, MA: Babson College and London Business School, 2006). Introduction Andrew Zacharakis and Stephen Spinelli Jr. We are pleased to present the second volume of Praeger Perspectives on Entre- preneurship. Entrepreneurship: The Engine of Growth contains the research and thinking of eminent scholars in the field of entrepreneurship.
Whereas Volume 1 of this set looks at the intersection of the individual and entrepreneurship and Volume 3 looks at the intersection of the physical place and public policy with entrepreneurship, this volume examines the entrepreneurial process: the pattern of phenomena that starts with creativity and ideas and progresses through growth and harvest. It encompasses opportunity, teams, and resources, and the behavior that brings those components together into a business. The entrepreneurial process is generally viewed from the perspective of new venture creation. How- ever, it is so deeply embedded in the development of our economic and social well-being that the concepts covered in the volume can be applied to most existing businesses and social entities.
The entrepreneurial process is a global experience. Babson College and the London Business School lead a contingent of forty universities in a worldwide study of individuals’ propensity to start and grow businesses. The Global En- trepreneurship Monitor (GEM) annually issues forty national reports, a global report, and special issues such as women in entrepreneurship and venture capital (VC) investment.1 The report continues to show high rates of entrepreneurial activity around the world. In the United States, 9 percent of the population is actively attempting to start a business, termed nascent entrepreneurship.
Another 5 percent of the U. population are owners of established businesses less than forty-two months old. That means more than 16 percent of the U. population are involved in the entrepreneurial process at any point in time.2, 3 These statistics tell us that it is important for both individuals and nations to understand the new venture process if we hope to build and sustain our economic well-being.
x INTRODUCTION This volume is designed to describe the entrepreneurial process in both ho- listic terms and in its components; from idea to exit and the steps inbetween. Chapter 1, by Spinelli, Neck, and Timmons, lays out the framework in the Timmons model. This model is well defined in entrepreneurship research and has been used in entrepreneurship education for over thirty-five years. Dimov then examines idea generation, described in chapter 2 as intertwined with opportunity recognition and supported by Corbett and McMullen’s following chapter on opportunity.
Chapters 4, 5, and 6 look at the team and resource elements laid out in the Timmons model. Chandler reviews the research on entrepreneurial teams and provides direction for future research as well as implications for practicing entrepreneurs. Amatucci and Sohl examine angel financing while Zacharakis and Eckermann review VC financing. Wiklund moves us to the next phase after the team and financing are in place; venture growth strategies.
Because the factors of influence in entrepreneurship, customers, supply, financing, and so on, are global in nature, Dickson describes international entrepreneurship as an extension of growth strategies and in terms of high potential vision of a firm’s impact and scope. Finally, Treichel and Deeds conclude with an overview of trade sale (being acquired) and initial public offering (IPO) exit mechanisms. Exit, sometimes termed harvest, is seen as a liquidity event for investors, not as an exit for the entrepreneur. Entrepreneurship is sometimes referred to as an ecosystem, a network of peo- ple, places, and behaviors that seek and exploit opportunities.
We expect that the major players in that system, academics, students, support professionals,4 and practicing entrepreneurs will find this book of use. For academics, the volume reviews the research on significant perspectives of entrepreneurial activity and suggests direction for future research. Students will find that the chapters uncover and explore the underlying mechanisms central to the entrepreneurial process. Support professionals will better understand the expectations and goals of their clients.
Finally, entrepreneurs will learn from leading scholars, many of whom have entrepreneurial experience, the state of the art on new venture creation, growth, and launch. We hope that the Praeger Perspectives on entrepreneurship will provide a useful resource that you refer to again and again. In chapter 1, Spinelli, Neck, and Timmons lay out the Timmons framework of the entrepreneurial process. This model has been widely taught for almost three decades as it has evolved through the various editions of Timmons’ New Venture Creation.5 In the chapter, they describe how opportunity, team, and resources are joined in a symbiotic process leading to the creation of a venture.
In particular, Spinelli et al. articulate the importance of balancing the opportunity, resources, and team elements inherent in all new start-ups. While this chapter asserts that the entrepreneurial process starts with opportunity identification, it is clear that the model captures the iterative nature of opportunity recognition, team- building, and resource acquisition. The dynamic shaping of the opportunity influences and is influenced by marketplace feedback, team input, and the re- sources controlled and sought.
INTRODUCTION xi We used the Timmons model as a guiding framework to target and identify chapter authors to further explore issues related to the entrepreneurial process. Specifically, chapters 2 and 3 drill into the idea and opportunity recognition com- ponents. Chapter 4 adds greater depth on team issues. Chapter 5 looks at ac- quiring equity capital from angels whereas chapter 6 examines VC.
We believe the Timmons model, as asserted by the chapter authors, consistently maps the entrepreneurial process, the texture and complexity of which is increasingly strengthened by continuing academic research.