Habitual Entrepreneurs (2008)

Habitual Entrepreneurs Habitual Entrepreneurs Deniz Ucbasaran Nottingham University Business School UK deniz.ucbasara...

Author: Deniz Ucbasaran | Gry Agnete Alsos | Paul Westhead

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Habitual Entrepreneurs

Habitual Entrepreneurs Deniz Ucbasaran Nottingham University Business School UK [email protected]

Gry Agnete Alsos Nordland Research Institute Norway [email protected]

Paul Westhead Durham University UK [email protected]

Mike Wright Nottingham University Business School UK [email protected]

Boston – Delft

R Foundations and Trends in Entrepreneurship

Published, sold and distributed by: now Publishers Inc. PO Box 1024 Hanover, MA 02339 USA Tel. +1-781-985-4510 www.nowpublishers.com [email protected] Outside North America: now Publishers Inc. PO Box 179 2600 AD Delft The Netherlands Tel. +31-6-51115274

The preferred citation for this publication is D. Ucbasaran, G. A. Alsos, P. Westhead R and M. Wright, Habitual Entrepreneurs, Foundations and Trends in Entrepreneurship, vol 4, no 4, pp 309–450, 2008 ISBN: 978-1-60198-112-7 c 2008 D. Ucbasaran, G. A. Alsos, P. Westhead and M. Wright

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R Foundations and Trends in Entrepreneurship Volume 4 Issue 4, 2008 Editorial Board

Editors-in-Chief: Zoltan J. Acs George Mason University [email protected] David B. Audretsch Max Planck Institut [email protected] Indiana University [email protected] Editors Howard Aldrich, University of North Carolina Sharon Alvarez, Ohio State University Mark Casson, University of Reading Per Davidsson, Queensland University of Technology William B. Gartner, Clemson University Sharon Gifford, Rutgers University Magnus Henrekson, The Research Institute of Industrial Economics Michael A. Hitt, Texas A&M University Joshua Lerner, Harvard University Simon Parker, University of Durham Paul Reynolds, Florida International University Kelly G. Shaver, College of William and Mary David Storey, University of Warwick Patricia Thornton, Duke University Roy Thurik, Erasmus University Gregory Udell, Indiana University Sankaran Venkataraman, Batten Institute Paul Westhead, Nottingham University Business School Shaker Zahra, University of Minnesota

Editorial Scope R Foundations and Trends in Entrepreneurship will publish survey and tutorial articles in the following topics:

• Nascent and start-up entrepreneurs • Opportunity recognition • New venture creation process

• Business angels • Bank financing, debt, and trade credit

• Business formation

• Venture capital and private equity capital

• Firm ownership

• Public equity and IPO’s

• Market value and firm growth

• Family-owned firms

• Franchising

• Management structure, governance and performance

• Managerial characteristics and behavior of entrepreneurs

• Corporate entrepreneurship

• Strategic alliances and networks

• High technology

• Government programs and public policy

• Technology-based new firms

• Gender and ethnicity

• Small business and economic growth

• New business financing:

• High-tech clusters

Information for Librarians R Foundations and Trends in Entrepreneurship, 2008, Volume 4, 6 issues. ISSN paper version 1551-3114. ISSN online version 1551-3122. Also available as a combined paper and online subscription.

R Foundations and Trends in Entrepreneurship Vol. 4, No. 4 (2008) 309–450 c 2008 D. Ucbasaran, G. A. Alsos, P. Westhead

and M. Wright DOI: 10.1561/0300000014

Habitual Entrepreneurs Deniz Ucbasaran1 , Gry Agnete Alsos2 , Paul Westhead3,4 and Mike Wright5 1

2

3

4 5

Nottingham University Business School, Jubilee Campus, Wollaton Road, Nottingham, NG8 1BB, England, UK, [email protected] Nordland Research Institute, NO-8049 Bodø, Norway, [email protected] Durham Business School, Durham University, Mill Hill Lane, Durham, DH1 3LB, England, UK, [email protected] Bodø Graduate School of Business, NO-8049 Bodø, Norway, Center for Management Buy-out Research, Nottingham University Business School, Jubilee Campus, Wollaton Road, Nottingham, NG8 1BB, England, UK, [email protected]

Abstract This review explores the emerging debate relating to habitual entrepreneurs. Habitual entrepreneurs (also known as experienced or, latterly, repeat entrepreneurs) are a widespread phenomenon. An entrepreneur’s business ownership experience may differ according to the number of private businesses s/he has established, inherited and/or purchased. The nature of an entrepreneur’s business ownership experience may not be homogeneous. Some habitual entrepreneurs may exit one private business before owning a subsequent one (i.e., serial entrepreneurs), while others may start/purchase and retain ownership of several private businesses concurrently (i.e., portfolio entrepreneurs). This review compares the profiles, behavior, and contributions of

habitual entrepreneurs (i.e., serial and portfolio entrepreneurs) and novice entrepreneurs (i.e., entrepreneurs with no prior business ownership experience). The theoretical and policy cases for distinguishing between different types of entrepreneur are made. Differences between types of entrepreneur are examined in terms of their human capital profiles (e.g., education, motivations, and skills). Behavioral differences are examined with regard to the acquisition of resources, opportunity identification, pursuit and mode of exploitation, and organizational strategies. Finally, entrepreneur and firm performance differences between the different types are reviewed. Policy and practitioner implications are raised and assuming an interventionist stance, the case for targeted assistance toward habitual, serial, and portfolio and novice entrepreneurs is discussed. Avenues for additional research attention are highlighted relating to the following themes: the nature of opportunities; information search; leveraging human capital; entrepreneurial teams; measures of habitual entrepreneurship; the role of the external environment; contexts for habitual entrepreneurship; and methods and data issues.

Contents

1 Introduction

1

2 Defining Novice, Habitual, Serial, and Portfolio Entrepreneurs

5

3 The Scale of the Habitual Entrepreneur Phenomenon

15

4 The Case for Distinguishing Between Different Types of Entrepreneurs

17

4.1 4.2

17 27

The Theoretical Case The Policy Case

5 Empirical Evidence

33

5.1 5.2 5.3

Human Capital Profile Differences Behavioral Differences Performance

56 71 86

6 Policy and Practitioner Implications

93

6.1 6.2 6.3

95 96 96

Opportunity Identification Information and Networks Business “Failure” Experience ix

7 Future Research 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8

The Nature of Opportunities Information Search Leveraging Human Capital Entrepreneurial Teams Measures of Habitual Entrepreneurship The Role of the External Environment Contexts for Habitual Entrepreneurship Methods and Data Issues

99 100 101 102 104 106 109 110 116

8 Conclusions

119

References

121

1 Introduction

Considerable debate continues to surround the notion of entrepreneurs and entrepreneurship. Numerous theories have been developed to explain the activities of entrepreneurs and the organizations they own (Cuevas, 1994; Westhead and Wright, 2000). Entrepreneurship theorists generally suggest that the entrepreneur is the key unit of analysis (Shane, 2000; Davidsson and Wiklund, 2001). It is very difficult to present an over-arching theory of entrepreneurship, because there is no consensus surrounding the definition of entrepreneurs or the entrepreneurial process. Definitions have focused upon “who the entrepreneur is” (i.e., the entrepreneur as a particular type of person or the entrepreneur as the product of a particular environment), or “what the entrepreneur does” (i.e., the entrepreneur as the performer of a particular role in society, entrepreneurship as a specific input in the economy, entrepreneurial events, and entrepreneurial processes) (Gartner, 1990). Enterprise scholars have traditionally focused on the profiles of entrepreneurs and what the entrepreneur does (Gartner, 1989), as well as the performance of individual entrepreneurs and firms (Westhead et al., 2005a,b,c). Venkataraman (1997, p. 120) has, however, suggested that the field of entrepreneurship research should seek “. . . to 1

2

Introduction

understand how opportunities to bring into existence ‘future’ goods and services are discovered, created, and exploited, by whom, and with what consequences.” Beyond definitional problems, an additional source of difficulty in understanding entrepreneurship stems from the heterogeneity of entrepreneurs. One notable source of heterogeneity is variations in the level and nature of entrepreneurs’ experience. The nature and impact of entrepreneurial experience, in particular business ownership experience, is attracting increasing attention (Chandler and Jansen, 1992; Reuber and Fischer, 1999; Erikson, 2003; Westhead et al., 2004, 2005a,b,c). Information relating to experience accumulated by an entrepreneur is widely used by practitioners (i.e., financial institutions and enterprise agencies) to screen applications for assistance (MacMillan et al., 1985; Westhead and Wright, 1999). In this review, we focus in particular on business ownership experience. Business ownership by key decision-makers is an important defining feature of entrepreneurship (Hawley, 1907; Gartner and Shane, 1995). Variations in business ownership experience have led to the distinction between experienced (habitual) entrepreneurs and first-time (novice) entrepreneurs. This review focuses on habitual entrepreneurs who have the potential to leverage their business ownership experience in subsequent ventures. Habitual entrepreneurs will be compared against novice entrepreneurs who do not have any prior business ownership experience to draw upon. In comparison to novice entrepreneurs, habitual entrepreneurs with prior business ownership experience may have broadened their knowledge and skill bases to ensure that they can leverage a more diverse human capital (Becker, 1975) profile. A novice entrepreneur who can only leverage the experience accumulated with reference to their current venture may be unable to move down the experience curve relating to the issues and processes associated with identifying and exploiting entrepreneurial opportunities (i.e., those relating to the start-up or purchase of businesses) (MacMillan, 1986). The wealth creation potential of habitual entrepreneurs is attracting growing research attention (Westhead and Wright, 1998a,b, 1999; Westhead et al., 2003a; Rerup, 2005; Baron and Ensley, 2006). Scott and Rosa (1996) have argued that habitual entrepreneurs are an important

3 sub-group of entrepreneurs who have the potential to make a fundamental contribution to the process of wealth creation in society. This wealth creation relates both to private returns in terms of financial gains at the personal level and for investors, as well as at the societal level through the creation of ventures that generate employment and taxation revenues that may not otherwise have occurred. Moreover, studies that specifically focus on habitual entrepreneurs should facilitate a broader understanding of the entrepreneurial process (Rosa, 1998), as well as shed light on the sources of wealth creation. Studies exploring the relationship between business ownership experience and outcomes have tended to focus on whether or not the entrepreneur has experience and/or the amount of experience (Westhead and Wright, 1998a; Baron and Ensley, 2006). These studies generally assume that more experience (i.e., extent) will be associated with superior outcomes. For example, McGrath and MacMillan (2000) provocatively asserted that repeat entrepreneurs (i.e., entrepreneurs with multiple business ownership experience, also known as habitual entrepreneurs) might have an “entrepreneurial mindset” that prompts them to search out opportunities with enormous discipline, and to pursue only the very best opportunities. There is limited empirical evidence to support these assertions. Further, there is inconclusive evidence relating to the link between an entrepreneur’s prior business ownership experience and superior levels of firm performance (Stuart and Abetti, 1990; Birley and Westhead, 1993; Westhead and Wright, 1998a,b). Previous studies have generally failed to examine whether the nature of experience (e.g., how experience is acquired and whether experience is associated with business failure (or success)) is linked to the number of business opportunities identified and the quality (i.e., wealth creation potential) of opportunities exploited. Habitual entrepreneurs can accumulate both assets and liabilities associated with their previous business ownership experience (Starr and Bygrave, 1991). Hence, it may be a myth to suggest that all habitual entrepreneurs are successful and outperform novice entrepreneurs (Ucbasaran et al., 2006a). The current stock of novice entrepreneurs is the breeding ground (i.e., pool) for future experienced habitual entrepreneurs. Some highly successful entrepreneurs may have also

4

Introduction

been associated with prior business “failures” which represent potentially valuable opportunities for learning, and the revision of expectations (Sitkin, 1992; McGrath, 1999). In response to calls for more research to focus specifically upon habitual entrepreneurs (and sub-types such as serial and portfolio entrepreneurs) (Wright et al., 1997a,b; Westhead and Wright, 1998a,b; Ucbasaran et al., 2001; Carter and Ram, 2003), several recent studies have been conducted in a number of developed economies. In this review, we examine theory and evidence relating to different “types” of entrepreneurs with specific focus on the level and nature of their prior business ownership experience. Emerging studies examining broader dimensions of “experience” are beyond the remit of this review. This review is organized as follows. The next section provides the definitions of different types of entrepreneurs adopted in this review and their justification. An examination of the scale of habitual entrepreneurship is presented in Section 3. Guided by insights from human capital theory and cognitive theories, the theoretical case for distinguishing between different types of entrepreneurs with reference to their prior business ownership experience profiles is then raised in Section 4.1. The policy case for distinguishing between different types of entrepreneurs is highlighted in Section 4.2. Assuming an interventionist stance, the case for tailoring policy assistance to the needs of specific types of entrepreneurs, rather than the provision of broad “blanket” policies to all firms, is made. Empirical evidence relating to habitual entrepreneurs is summarized in Section 5. Due to space constraints, not all the themes explored in previous studies are reviewed. This review focuses on the following themes: human capital differences, behavioral differences, and firm and entrepreneur performance. With reference to the discussed evidence base, several policy and practitioner implications are highlighted in Section 6. Despite recent research progress, several gaps in the knowledge base relating to the habitual entrepreneur phenomenon still exist. Avenues for future research are presented in Section 7. Finally, conclusions are summarized in Section 8.


Defining habitual entrepreneurs is a conceptually difficult task. There is no widely generally accepted definition. A variety of definitions have been presented and used. It is, therefore, difficult to compare evidence from studies that have selected contrasting definitions (MacMillan, 1986; Donckels et al., 1987; Birley and Westhead, 1993; Kolvereid and Bullv˚ ag, 1993; Hall, 1995; Alsos and Kolvereid, 1998; Westhead and Wright, 1998a,b,c; Pasanen, 2003; Alsos and Carter, 2006). In this section, the operationalized categories of entrepreneurs explored in this review are discussed, but prior to this discussion the operationalized definition of an entrepreneur is presented. Entrepreneurs are defined with regard to three well-established dimensions: business ownership, a decision-making role, and an ability to identify and exploit opportunities. Business ownership and a decision-making role within the venture are recognized as important dimensions of entrepreneurship (Hawley, 1907; Marshall, 1920). Further, given the prevalence of team-based entrepreneurship (Birley and Stockley, 2000; Ucbasaran et al., 2003a), this ownership may involve minority or majority equity stakes. Emphasizing the importance of ownership, Fama and Jensen (1983) argue that classic entrepreneurial 5

6

Defining Novice, Habitual, Serial, and Portfolio Entrepreneurs

firms are those that combine residual risk bearers and decision-makers in the same individuals. By creating or purchasing an organization, the entrepreneur establishes ownership rights over the means of production. Ownership rights allow the entrepreneur to make decisions about the co-ordination of an organization’s resources. Entrepreneurs also have to assume the risks associated with business ownership (Gartner and Shane, 1995). To obtain an income or profit, the entrepreneur must own or control the resources/activities s/he co-ordinates. Entrepreneurial profit is seen as the residual between the cost of resources and the uncertain value they have once they have been combined. Entrepreneurial profit is the reward for bearing this uncertainty (Hawley, 1907). Managers with no ownership rights do not accrue entrepreneurial profits (or losses). The uncertainty arising from the co-ordination of a firm’s resources are borne by entrepreneurs (i.e., individuals with ownership rights) rather than managers. When the interests of owners (i.e., entrepreneurs) and managers are separated, the performance of the firm may be retarded by agency problems. This conflict is potentially more likely in older and larger organizations (Westhead et al., 2001), and those seeking external capital to ensure business development. Various remuneration packages (i.e., performance related pay, share options, etc.) may be offered to managers to ensure the interests of firm owners are pursued. Managers who take-up share options can gain a minority ownership stake (Bruce and Buck, 2005). However, the ownership stake may not be large enough to encourage the latter managers to adopt an entrepreneurial mindset and exhibit entrepreneurial behavior. Management buy-out (MBO) studies (i.e., firms where managers have significant ownership stakes) consistently show that firm performance can be enhanced after a MBO, and the firm can exhibit more entrepreneurial behavior (Wright et al., 1992, 2000; Zahra, 1995). These findings lend support to the view that ownership and decision-making are central to entrepreneurship. The emerging opportunity-based perspective suggests that entrepreneurship involves the identification and exploitation of at least one business opportunity (Shane and Venkataraman, 2000; Ardichvili et al., 2003). A business opportunity can relate to new firm formation or the purchase of an existing private firm (Cooper and Dunkelberg,

7 1986). Entrepreneurs can, therefore, be viewed as having a minority or majority ownership stake in at least one business that they have either created or purchased, within which they are a key decision-maker. A categorization of the nature of entrepreneurship by type of entrepreneur is summarized in Table 2.1. The entrepreneurs covered by cells 1, 2, and 3 are involved in the founding of a new independent business. Novice founders (cell 1) have only founded one business, while serial founders (cell 2) and portfolio founders (cell 3) have founded more than one business sequentially or concurrently/simultaneously, respectively. The entrepreneurs in cells 4, 5, and 6 have acquired an ownership stake in an established independent business. The term “acquirer” is used to reflect the fact that ownership in the existing business is acquired even though this may take a variety of forms. Acquirers include individuals from outside, who undertake a straight purchase or a management buy-in (MBI), and individuals from inside the firm who undertake a management buy-out (MBO). While novice acquirers (cell 4) may have only acquired a single business, serial acquirers (cell 5) and portfolio acquirers (cell 6) have purchased more than one business sequentially or simultaneously, respectively. The categorization of entrepreneur types summarized in Table 2.1 has, however, not been universally adopted in previous studies but offers a broad canvas for the development of research into entrepreneurship. Table 2.2 summarizes the habitual entrepreneur definitions previously operationalized. To allow meaningful comparisons to be made between studies, consistent definitions need to be universally opera-

Table 2.1 Types of entrepreneurs by independent business ownership experience. Multiple activity Single activity Nature of entrepreneurship Involving new businesses Involving existing business

Habitual entrepreneurs

Novice entrepreneurs Novice founders

Sequential serial entrepreneurs Serial founders

Simultaneous portfolio entrepreneurs Portfolio founders

1 Novice acquirers

2 Serial acquirers

3 Portfolio acquirers

4

5

6

Definitions operationalized Habitual entrepreneur: Previous experience of founding a new company. Habitual entrepreneur: Previous business ownership experience. Habitual entrepreneur: Individual who has had experience from multiple business start-ups and simultaneously is involved in at least two businesses. Among persons with a career as independent founding entrepreneurs, those who had created more than one venture (practicing/ex-entrepreneurs). Habitual entrepreneur: Previous experience of founding an independent business. Persons that had created and still owned at least two businesses. Multiple entrepreneurs: Persons involved in the formation of and having an equity stake and managerial responsibility in two or more ventures, where each venture had independent legal identity. Habitual founders: Founders that had established at least one other business prior to the start-up of the current new independent venture. Novice founders: Individuals with no previous experience of founding a business.

Study Cross (1981)

Storey (1982)

MacMillan (1986)

Ronstadt (1988)

Westhead (1988)

Kolvereid and Bullv˚ ag (1993)

Schollhammer (1991)

Birley and Westhead (1993)

Table 2.2 Reported definitions and prevalence of habitual entrepreneurship.

Great Britain

USA, Southern California

Norway, New Zealand, Great Britain

Wales

USA

Cleveland, England

National context Scotland

37.3%

51%

34.2%

39.9%

32.0%

(Continued)

12%a

34% 18% 13%

Reported prevalence Habitual Serial Portfolio 11.5%


Definitions operationalized Experienced business starters: Founders that had established at least one business prior to the current one. Successful multiple business starters: Experienced business starters who still owned the most recent of the prior established businesses (here: Portfolio starters). Experienced entrepreneurs: Individuals with a track record of forming, managing and owning equity stake in at least two new ventures which eventually went public. Multiple business owners: Persons who have an ownership share in more than one independent business. Novice founder: Founder who has not started previous businesses. Serial founder: Founder who has started at least one previous business, but this (these) business(es) has (have) been sold or closed down. Parallel founder: Founder who has started at least one previous business, and have retained a previous business Habitual entrepreneur: Previous business ownership experience. Serial founder: Individual who sold their original business but at a later date established or purchased another business. Portfolio founder: Individual who retained the original business he/she established but at a later date established or purchased another business. Habitual founder: Serial or portfolio founder.

Study ag Kolvereid and Bullv˚ (1993)

Starr et al. (1993)

Scott and Rosa (1997)

Alsos and Kolvereid (1998)

Taylor (1999)

Westhead and Wright (1998a)

Table 2.2 (Continued).

Great Britain

England, Australia, Malaysia

37.4%

41.8% 49.2% 38.6%

12%

23.3% 25.4% 33.7%

(Continued)

25.3%

18.5% 23.8% 4.8%

15.7%

Norway

20.1%

14% 35.8%

Reported prevalence Habitual Serial Portfolio 47.2% 31%

Scotland

National context Norway

9

Definitions operationalized Portfolio owners: Farm owners who owned one or more additional firms. Diversified activities at farms: Farms with other business activities, or other businesses own by the farmer or located at the farm. Multiple entrepreneurs: Managers that had been involved in two or more start-ups. Portfolio owners: Managers who had owner interests in two or more companies. Business group: Set of companies, which were legally distinct and controlled by the same entrepreneur (or by members of the same family). Portfolio farm households: Farm households (husband and/or wife) owning or managing another business in addition to the farm business. Portfolio owners: Individuals who owned more than one business at a time. Serial owners: Individuals who owned one business after another but effectively only one business at a time. Multiple entrepreneurs: SME owner-managers who were serial and portfolio owners simultaneously. Habitual entrepreneurs: Individuals with prior minority or majority business ownership experience either as business founder, inheritor or purchaser of an independent business who currently owned a minority or majority equity stake in an independent business that was either new, purchased or inherited.

Study Carter (1998)

Spilling (2000)

Iacobucci (2002)

Alsos et al. (2003)

Pasanen (2003)

Westhead et al. (2003a)


Scotland

Finland

Norway

Italy

Norway

National context England

43.5%

50%

28% of managers

24.9%

10%

(Continued)

18.6%

40%

30.9%

25% of firms

13% of managersb

Reported prevalence Habitual Serial Portfolio 21%


Definitions operationalized Serial entrepreneurs: Individuals who had sold/closed a business which they had a minority or majority ownership stake in, and they currently had a minority or majority ownership stake in a single independent business that was either new, purchased or inherited. Portfolio entrepreneurs: Individuals who currently had minority or majority ownership stakes in two or more independent businesses that were either new, purchased and/or inherited. Prior entrepreneurial experience: Prior experience from launching a new venture. Novice entrepreneur: Entrepreneur with no current or previous owner-management position in another business. Serial entrepreneur: Entrepreneur with previous but no current owner-management position in another business. Portfolio entrepreneur: Entrepreneur with current owner-management position in another business. Novice entrepreneurs: Individuals with no prior (majority or minority) business ownership experience, either as a business founder or a purchaser of an independent business, who currently owned a minority or majority equity stake in an independent business that was either new or purchased. Habitual entrepreneurs: Individuals who held or had held a minority or majority ownership stake in two or more businesses, at least one of which was established or purchased.

Study

Haynes (2003)

Alsos and Carter (2006)

Ucbasaran et al. (2006a,b, 2008b)


Great Britain

Norway

USA

National context

51.8%

21.5%

29.2%

29.6%

17.8%

(Continued)

22.2%

13.7%

Reported prevalence Habitual Serial Portfolio

11

Serial entrepreneurs: Entrepreneurs involved in at least two companies. Serial entrepreneurs: Entrepreneurs who founded more than one VC backed firm (previous non-VC backed firms excluded and serial and portfolio entrepreneurs not distinguished).

Bengtsson (2007)

Gompers et al. (2007)

Hsu (2007) Number of start-ups founded a Calculated from information provided in Birley and Westhead (1993). b This represents 21% of owner-managers.

Definitions operationalized Serial entrepreneurs: Individuals who had sold or closed at least one business in which they had a minority or majority ownership stake, and currently had a minority or majority ownership stake in a single independent business. Portfolio entrepreneurs: Individuals who currently had a minority or majority ownership stake in two or more independent businesses.

Study


USA

USA

USA

National context Great Britain

54%

7% to 14% depending on year

Reported prevalence Habitual Serial Portfolio


13 tionalized. With this aim in mind, the following definitions of novice, habitual, serial, and portfolio entrepreneurs have been proposed (Westhead et al., 2003b; Ucbasaran et al., 2006a): Novice entrepreneurs are individuals with no prior minority or majority business ownership experience either as a business founder or as purchaser of an independent business who currently own a minority or majority equity stake in an independent business that is either new or purchased. Habitual entrepreneurs are individuals who hold or have held a minority or majority ownership stake in two or more businesses, at least one of which was established or purchased. Habitual entrepreneurs are sub-divided as follows: Serial entrepreneurs are individuals who have sold/ closed at least one business which they had a minority or majority ownership stake in, and currently have a minority or majority ownership stake in a single independent business; and Portfolio entrepreneurs are individuals who currently have minority or majority ownership stakes in two or more independent businesses. The four broad categories of entrepreneurs can be easily operationalized. As discussed above, entrepreneurship is not a single action event, and some current novice entrepreneurs will become future habitual entrepreneurs. The business ownership experience profiles of entrepreneurs can differ with some entrepreneurs reporting a string of business “successes” or “failures”, whilst other entrepreneurs might report a mixture of business “successes” and “failures.” Additional subtypes of serial and portfolio entrepreneurs can and should be explored in future studies. Wright et al. (1997a), for example, identified the following three types of serial entrepreneurs: venture repeaters, organic serials, and serial dealmakers. In Section 7, entrepreneur heterogeneity and deviations from the utilized categories of novice, serial, and portfolio entrepreneurs are highlighted with reference to additional avenues for future research attention.

3 The Scale of the Habitual Entrepreneur Phenomenon

Several studies have highlighted the heterogeneity of entrepreneurs (Woo et al., 1991; Birley and Westhead, 1994; Westhead, 1995). As intimated above, one notable source of heterogeneity is variations in the level and nature of entrepreneurs’ business ownership experience. Variations in experience have led to the distinction between experienced (habitual) entrepreneurs and first-time (novice) entrepreneurs. Table 2.2 shows that habitual entrepreneurs are a widespread phenomenon. The proportion of habitual entrepreneurs identified in the United Kingdom studies ranges from 12% (Cross, 1981) to 52% (Ucbasaran et al., 2006a); this may indicate increased prevalence of the phenomenon but the differences are partly attributable to variations in operationalized definitions, and the industrial activities focused upon between studies. High proportions of habitual entrepreneurs have also been detected in the United States (51%–64%) (Schollhammer, 1991; Ronstadt, 1988), Finland (50%) (Pasanen, 2003), Australia (49%) (Taylor, 1999), Norway (47%) (Kolvereid and Bullv˚ ag, 1993), Sweden (40%) Wiklund and Shepherd (2008), and Malaysia (39%) (Taylor, 1999). Some scholars studying multiple business ownership have taken a slightly different perspective to determine the magnitude of the 15

16

The Scale of the Habitual Entrepreneur Phenomenon

phenomenon (Alsos, 2007). They focus on business groups relating to the set of businesses under control of the habitual entrepreneur (Rosa, 1998; Rosa and Scott, 1999b; Iacobucci, 2002; Iacobucci and Rosa, 2005). Iacobucci (2002) noted that 25% of Italian manufacturing firms were members of a business group created by a habitual entrepreneur (or their associated entrepreneurial team). Using secondary data relating to Italian businesses, Iacobucci and Rosa (2005) found that growth through the formation of business groups was a strategy to organize geographical extension, product diversification or market differentiation. They noted that business groups were more prevalent among larger rather than smaller firms. Iacobucci and Rosa (2005) found sectoral variations in the prevalence of business groups. Rosa (1998) and Rosa and Scott (1999a) also mapped out business clusters in Scotland, and they noted a complex picture of portfolio entrepreneurship. This discussion suggests that the “correct” magnitude of the habitual entrepreneur (or business group) phenomenon may be difficult to determine. The scale of the phenomenon is shaped by the definition selected, the industrial sector focused upon, and whether team ownership is considered. Nevertheless, the scale of the phenomenon highlighted in Table 2.2 suggests increased academic and practitioner interest is warranted to understand the profiles, behavior, and contributions of habitual entrepreneurs and their firms.

4 The Case for Distinguishing Between Different Types of Entrepreneurs

4.1

The Theoretical Case

4.1.1 4.1.1.1

Expected Differences in Human Capital and Cognitive Mindset Human Capital

We argue in this review that the behavior and performance of habitual entrepreneurs (and their firms) is shaped, in part, by their human capital profiles. Human capital theorists have explored “inputs” accumulated by entrepreneurs in relation to “outputs” (i.e., the decision to become self-employed and the size of the firm in which they have an equity stake) (Bates, 1990; Otani, 1996; Iyigun and Owen, 1998). They recognize that individuals acquire resources in particular contexts, and the resources and attitudes acquired over time may influence subsequent entrepreneur behavior. Human capital theorists suggest that individuals with broader pools of human capital resources consisting of achieved attributes and skills will be associated with increased levels of productivity (Becker, 1975). Debate surrounds the definition of human capital and studies have adopted narrow or broad views. We selected a broad human 17

18

The Case for Distinguishing Between Different Types of Entrepreneurs

capital perspective to review the literature relating to the habitual entrepreneur phenomenon. Most notably, a broad view of human capital recognizes that an entrepreneur’s demographic characteristics, achieved attributes, accumulated work and habits, and cognitive characteristics can have a positive (or negative) impact on productivity (Becker, 1993; Alvarez and Busenitz, 2001).1 Cognitive approaches offer additional insights into how individuals can acquire knowledge and skills through learning and experience. Further, cognitive theorists acknowledge and explain some of the difficulties involved in acquiring human capital through experience. The assumptions underpinning more traditional human capital approaches and cognitive approaches are different. Grounded in the discipline of economics, traditional human capital approaches, especially those that focus on education, often assume instrumental rationality. Accordingly, the economic actor makes a calculated decision about how much to invest in human capital. In contrast, cognitive theorists drawing insights from the psychological paradigm are more likely to assume situated rationality.2 This divergence in opinion may suggest the need for caution when integrating the concepts of human capital and cognition. Nevertheless, both approaches represent potentially valuable tools for understanding differences in the behavior of entrepreneurs. More recently, economists and human capital theorists have relaxed some of the assumptions surrounding rationality. For example, Becker (1993) calls for the inclusion of habits and other attributes of the individual into the concept of human capital that can have a positive (or negative) impact on productivity. It appears that not all aspects of human capital are accumulated through a conscious and calculated rational process. Human capital theorists (March, 1994; Kahneman, 2003) are 1 We

do not assume that all entrepreneurs make a positive contribution to society (Wennekers and Thurik, 1999; Heugens, 2005). Moreover, we do not assume that an entrepreneur’s human capital profile alone shapes the creation, discovery and exploitation of opportunities, and the performance of ventures owned by entrepreneurs. We recognize that socializing events can shape an individual’s goals, resources, and behavior (Stanworth and Curran, 1976), and the decisions made by actors may (positively and/or negatively) shape social structures. How society behaves and the potential role played by social structures is, however, beyond the scope of this review. 2 We thank a reviewer for making this point.

4.1 The Theoretical Case

19

now increasingly assuming bounded rationality (Simon, 1957). Taking a bounded rationality view makes it easier to accommodate cognition within a broader notion of human capital. After all, bounded rationality as a concept emerged in recognition of individuals’ cognitive limits in processing information. We, therefore, argue that the separation of human capital and cognition may be difficult. This is largely because the accumulation of human capital can be a function of an individual’s cognitive characteristics and cognitive skills, as well as being influenced by an individual’s human capital endowment. Nonetheless, wherever possible, we seek to disentangle the traditional aspects of human capital from the cognitive aspects of human capital. 4.1.1.2

General and Specific Human Capital

Because of their experience, habitual entrepreneurs may have had more opportunities to develop their human capital profiles than novice entrepreneurs. A distinction has been made between general and specific human capital (Becker, 1975, 1993). General human capital is generic to all types of economic activity (Castanias and Helfat, 2001), and has traditionally been measured in terms of an individual’s age, parental background, gender, and education (Becker, 1975; Cooper et al., 1994; Cressy, 1996). The first three of these relate to demographic characteristics. They are given by birth and cannot be changed, invested in or improved upon. Further, they reflect non-intellectual elements of human capital. Although economic rents may not be attributable to these elements of human capital, they may still have an impact on outcomes. Demographic characteristics are used as proxies for human capital when direct measures of human capital are not available. When included alongside direct measures of human capital (e.g., education) in a multivariate setting, however, these demographic proxies may reflect non-human capital attributes. Caution is warranted when interpreting the relationship between these demographic variables and outcomes when direct measures of human capital are considered. Nonetheless, in our review of the evidence (Section 5.1) we include discussion of these variables to reflect debates within the emerging literature.

20


Among more direct and intellectual measures of general human capital, education is one of the most frequently examined (Becker, 1975). Education can be an important source of knowledge, skills, problemsolving ability, discipline, motivation, and self-confidence (Cooper et al., 1994). These attributes enable highly educated entrepreneurs to cope better with problems. Managerial work experience, in addition, is a key indicator of human capital and if gained by an individual in a context where they were not an entrepreneur may be a dimension of general human capital (Castanias and Helfat, 2001). In contrast to general human capital, specific human capital has a more limited scope of applicability. Specific human capital may lose its value outside its particular domain. A number of dimensions of human capital may be particularly specific to the entrepreneurship context. In practice, it may be difficult to establish which aspects of human capital lose their value outside entrepreneurial contexts. We use the generalspecific distinction as an expositional tool and follow the distinctions used in the literature (Cooper et al., 1994; Gimeno et al., 1997; Davidsson and Honig, 2003; Ucbasaran et al., 2008a). Direct entrepreneurial experience gained by business ownership experience can contribute to entrepreneurship-specific human capital (Stuart and Abetti, 1990; Gimeno et al., 1997; Chandler and Hanks, 1998). Entrepreneurs can demonstrate entrepreneurial, managerial, and technical skills that are applicable to entrepreneurial activity (Penrose, 1959; Chandler and Hanks, 1998). These skills are often highly correlated with entrepreneurs’ perceptions of their skills in these functional areas. Entrepreneurial skills focus upon the perceived ability to create, identify, and exploit opportunities. Managerial skills relate to the ability to manage and organize people and resources. While technical skills focus upon technical expertise. Repeated business ownership experience may contribute to the development of these skills. An experienced serial or portfolio entrepreneur owning a business in the same sector as their previous/current venture, may be able to identify what is required to earn profits in the selected market more clearly than novice entrepreneurs. Obstacles to subsequent business start-up and purchase as well as barriers to business development (i.e., the liabilities of newness and small firm size) may be circumvented by habitual


21

entrepreneurs who can attain developmental milestones quicker (Starr and Bygrave, 1991). Habitual entrepreneurs may have gained important resourceacquisition skills. Entrepreneurial experience can also add to human capital through enhanced reputation and better understanding of the requirements of finance institutions. For example, they may have improved access to financial institutions such as banks, venture capitalists and informal investors, and obtain funds on better terms (Wright et al., 1997a,b; Alsos et al., 2006). Enhanced human capital from entrepreneurial experience may, in addition, be interrelated with greater social capital associated with broader and deeper networks (Shane and Khurana, 2003). As a result, some habitual entrepreneurs may benefit from business proposals being presented to them by other existing and/or potential entrepreneurs. It appears that entrepreneurs can leverage their human capital to gain access to a predictable uninterrupted supply of critical resources (such as financial and social capital) (Cooper et al., 1994; Greene and Brown, 1997). This discussion suggests that habitual entrepreneurs with prior business ownership experience are generally more able to accumulate (and utilize) additional human capital as well as other types of capital. These entrepreneurs, therefore, need to be distinguished from novice entrepreneurs. 4.1.1.3

Dominant Logic and Cognition

Reuber and Fischer (1999) have asserted that the “dominant logic” of the entrepreneur is an important component of his/her human capital. They describe a dominant logic as an information funnel through which the entrepreneur’s attention is filtered. This information funnel is akin to the entrepreneur’s cognition (Baron, 1998; Forbes, 1999). Cognitive theory is concerned with how incoming sensory stimulation (i.e., information) is “transformed, reduced, elaborated, recovered, and used” (Neisser, 1966, p. 4). Differences in cognitive processes may explain individual differences in behavior and performance. Cognitive theories, therefore, can help us understand how individuals make sense of their experiences. The cognitive characteristics (i.e., in terms of their attitudes and how they think, process information and learn)

22


of habitual and novice entrepreneurs may differ. These cognitive characteristics may influence subsequent actions and performance (Westhead et al., 2005b). Cognitive theories, including prototype theory, expert information processing theory, and information processing theory (Glaser and Chi, 1988; Fiske and Taylor, 1991; Baron, 2004) suggest that experience can shape an individual’s cognition. Habitual entrepreneurs can also learn from the feedback from entrepreneurial experience to adjust their judgment (Jovanovic, 1982; Minniti and Bygrave, 2001; Politis, 2005). By evaluating carefully the ‘’feedback” from earlier ventures (Nystrom and Starbuck, 1984), habitual entrepreneurs, can create a dynamic cycle of learning. Experience can influence an individual’s capacity to acquire and organize complex information. It provides a framework for processing information and can allow experienced entrepreneurs to foresee and take advantage of disequilibrium profit opportunities that they proactively (or reactively) identify (Kirzner, 1973; Kaish and Gilad, 1991). Highly experienced decision-makers (i.e., experts) can manipulate incoming information into recognizable patterns, and are then able match the information to appropriate actions (Lord and Maher, 1990). Further, experience-based knowledge can create “cognitive pathways” which, when followed, can lead to greater creativity (Amabile, 1997). Habitual entrepreneurs who have multiple experiences to draw upon may be more likely to rely on information processing based on heuristics than novice entrepreneurs. Heuristics are simplifying strategies (or mental short cuts) used to make strategic decisions, especially in complex situations when complete information is not available. Novice entrepreneurs may have fewer experience-related benchmarks (or mental short-cuts) to draw upon. Therefore, inexperienced individuals are more likely to adopt more analytical or systematic information processing styles (Gustafsson, 2006). Heuristic-based information processing has the advantage of speed. It also enables individuals to make decisions that allow them to exploit successfully brief windows of opportunity (Tversky and Kahneman, 1974). Without heuristic-based logic, the identification and pursuit of new opportunities can become overwhelming and costly. Further, a reliance of heuristics can reduce the


23

burden of cognitive processing, which can allow the decision-maker to concentrate on novel or unique material (Hillerbrand, 1989). Habitual entrepreneurs who rely on heuristic information processing may identify more creative and innovative opportunities. On the downside, heuristic-based information processing is less accurate than information processing techniques that are more systematic and thorough. Habitual entrepreneurs may display an overreliance on heuristic principles and decision-making processes, which may not necessarily be appropriate in new situations, especially in changing environments (Das, 1981; Prahalad and Bettis, 1986). Some habitual entrepreneurs may thus be prone to some of the biases associated with heuristic decision-making (Kahneman et al., 1982; Bazerman, 1990). As a result, experience may be associated with liabilities as well as assets (Starr and Bygrave, 1991). For example, some experienced individuals may think that they know enough (Baron, 1998); infer too much from limited information because they want to confirm prior beliefs; become constrained by what is familiar to them (Rabin, 1998); and become overconfident in their judgments (Shanteau, 1992; Simon et al., 2000). When entrepreneurs utilize what they have learnt from their past experiences, it becomes harder for them to notice and react to new factors, recognize industry, technology or market changes, and to modify heuristics that worked in the past (Rerup, 2005). Experienced habitual entrepreneurs may thus attempt to repeat the same “recipes” in changed circumstances (Wright et al., 1997a). Experience and the feeling of “knowing how it is done” can be a barrier to new and potentially useful perspectives. This “liability of staleness” (Starr and Bygrave, 1991) may influence the entrepreneurial process by impairing the entrepreneur’s ability to identify new business opportunities and/or to develop business models and strategies for exploiting these opportunities (Mosakowski, 2002). Because of previous business success or failure, some habitual entrepreneurs may experience hubris or denial, respectively (Simon et al., 2000). An entrepreneur’s previous investments and repertoire of routines constrain future behavior (Minniti and Bygrave, 2001). Some habitual entrepreneurs may continue to focus upon interpersonal relationships used in the past. Further, they may employ existing resources and knowledge in the new venture, thereby

24


reducing the tendency to acquire context relevant resources (Alsos, 2007). This liability of “sameness” may hinder their ability to change (Starr and Bygrave, 1991) and adapt to changing external environmental conditions. The latter entrepreneurs may not be able to adjust their interaction and learning patterns to the demands of their new business ventures. Finally, some experienced habitual entrepreneurs, who are over-confident or who have failed in their previous venture(s) may not have accumulated sufficient resources, thereby reducing their ability and/or the flexibility to choose appropriate business opportunities a second time. Consistent with cognitive theories, the liabilities of business ownership experience suggest that habitual entrepreneurs may only imperfectly adjust their judgment in their subsequent ventures. The value of experience depends on the knowledge gained as well as how this knowledge is subsequently used. What is required is mindful use of prior experience (Rerup, 2005), and an ability to detect when it might be necessary to switch from heuristic information processing to a more systematic approach with reference to a new decision task (Ucbasaran, 2004). Recently, Gustafsson (2006) explored the mindsets of expert entrepreneurs (i.e., entrepreneurs with no less than seven to ten years of experience since their first start-up). She noted that experts demonstrated greater awareness of the nature of a decision task (e.g., level of uncertainty involved in opportunity identification), and they were able to match their cognitive processes to the task in-hand. It should be noted that while experienced habitual entrepreneurs have the potential to become expert entrepreneurs, experience is a necessary but not a sufficient condition for becoming an expert (Neale and Northcraft, 1989). Expertise implies that an individual has developed metacognition, that is, knowledge about an individual’s cognitive processing, including awareness of thinking resources and skills that culminate in the ability to direct the learning process (Hillerbrand, 1989; Metcalfe and Shimamura, 1994). Metacognitive knowledge may enable a habitual entrepreneur to avoid cognitive biases in their decision-making, which may arise when an individual inappropriately applies a heuristic to reach a decision (Bazerman, 1990). Despite this additional requirement for an individual to qualify as an expert, it is possible that


25

some habitual entrepreneurs who have the benefit of prior business ownership experience to leverage will exhibit the information processing that resembles that of experts. As highlighted in Section 2, habitual entrepreneurs are heterogeneous. A distinction has been made between serial and portfolio entrepreneurs. While there is growing empirical evidence to suggest that these two groups of habitual entrepreneurs are distinct in terms of their personal characteristics and activities (Westhead et al., 2003a, 2004, 2005a,b,c; Ucbasaran et al., 2006a), the conceptual arguments for this distinction have received less attention. This conceptual distinction can be justified with regard to Schein’s (1978) theory of career anchors. Schein explored the career anchors reported by self-employed individuals. A career anchor is defined as “the pattern of self-perceived talents, motives, and values [which] serves to guide, constrain, stabilise and integrate the person’s career” (Schein, 1978, p. 127). A distinction was made between two career anchors: the autonomy/independence anchor (i.e., a desire for freedom from rules and the control of others) and the entrepreneurship anchor. The latter anchor focuses on the creation of something new, involving the motivation to overcome obstacles, the willingness to run risks, and the desire for personal prominence. An autonomy-oriented individual may be more likely to be driven by the desire to have freedom from control by others, and is likely to be involved in one venture at a time (Katz, 1994). Serial entrepreneurs are often motivated by autonomy, independence and an interest in gaining and maintaining control (Wright et al., 1997a). To maintain a position of control, serial entrepreneurs may feel a greater need for information and are less reliant on heuristic-based thinking. In contrast, individuals with an entrepreneurship anchor are driven by the opportunity recognition process and/or wealth creation (Katz, 1994). The latter entrepreneurs tend to be involved in multiple ventures simultaneously. This latter group can be regarded as portfolio entrepreneurs. Involvement in multiple ventures suggests that the latter entrepreneurs do not require complete information to the same extent as serial entrepreneurs who seek to maintain control. Portfolio entrepreneurs may, therefore, be more strongly associated with a heuristic mode of information processing.

26


4.1.1.4

Summary

Entrepreneurs with prior business ownership experience (i.e., habitual entrepreneurs) may have had more opportunities to develop their human capital (general human capital and particularly entrepreneurship-specific human capital). Habitual entrepreneurs may have learnt from their previous business ownership successes and mistakes. Alternatively, they may have developed a number of decisionmaking biases (i.e., liabilities) that hinders their ability successfully to identify and exploit subsequent opportunities. Habitual entrepreneurs associated with exposure to multiple business ownership experiences will cite “dominant logic” or cognitive profiles that differ from those cited by novice entrepreneurs. In this review, we assume that an entrepreneur’s cognitive profile is a dimension of entrepreneurshipspecific human capital. Differences in the demographic, general, and specific human capital profiles of entrepreneurs may lead to variations in the behavior and performance outcomes reported by novice, habitual, serial, and portfolio entrepreneurs. In Section 5.1, the empirical profiles of novice and habitual entrepreneurs as well as novice, serial, and portfolio entrepreneurs are summarized with reference to these themes. Whilst appreciating that there is considerable overlap between the human capital and the cognitive approaches, we intimated above that the two perspectives have contrasting underlying assumptions. The next section explores the implications of these differences with regard to the behavior of novice and habitual entrepreneurs as well as the performance contributions made by novice and habitual entrepreneurs. 4.1.2

Expected Differences in Behavior and Performance

Numerous theoretical approaches to entrepreneurship have been proposed with the purpose of explaining what entrepreneurs do, how they behave, and the outcomes of their actions (Ucbasaran et al., 2001). Despite recent conceptual progress, many empirical studies have reported limited success in explaining entrepreneurial behavior and processes (i.e., those relating to imagination, creativity, innovativeness, opportunity identification, pursuit and exploitation, the assemblage

4.2 The Policy Case

27

and leveraging of resources to ensure business formation/purchase and development, etc.). Opportunity-based conceptualizations of entrepreneurship (Venkataraman, 1997; Ardichvili et al., 2003) have more recently been presented to address the limitations of previous approaches. Accordingly, it has been argued that entrepreneurship research should focus on explaining the entrepreneurial process, which is largely viewed as involving the identification and exploitation of opportunities (Shane and Venkataraman, 2000). Explanations of opportunity identification and exploitation have focused on the role of knowledge as well as the acquisition and processing of information by the entrepreneur (Venkataraman, 1997; Fiet, 1996). Given differences in the human capital and cognitive mindsets of novice and habitual entrepreneurs proposed in the previous section, it is reasonable to expect differences in the behavior of these two groups of entrepreneur in terms of opportunity identification and exploitation. Further, given differences in the endowment of knowledge, novice, and habitual entrepreneurs may search for different quantities and types of information with a view to identifying and exploiting opportunities. If novice and habitual entrepreneurs behave differently in the way they utilize information and identify opportunities, this may shape entrepreneur and venture performance.

4.2

The Policy Case

Policy-makers recognize that the entrepreneurial function is a vital component in the process of national and regional economic growth (Baumol, 1968; Casson, 1982; Reynolds et al., 1994; Organisation for Economic Co-Operation and Development (OECD), 1998; Department of Trade and Industry (DTI), 2004). New business formation contributes to job generation, innovation, competitiveness, lower prices and personal and societal wealth creation (Reynolds et al., 1994; Acs and Audretsch, 2003; Acs and Storey, 2004). The objectives of policy may relate to growth in employment and/or improved innovation and competitiveness. Enterprise policy aims to increase employment and other associated goals such as integrating certain ethnic minorities who

28


may otherwise have problems entering the labor market (Storey, 1982, 1994; DTI, 2004). Innovation policy aims to increase the innovativeness of the economy and as a result improve productivity, income levels, and rates of return on investment. To encourage new firm formation and business development, Government may provide “hard” (i.e., financial assistance and premises) and/or “soft” assistance (i.e., education and training) to enable entrepreneurs and firms to address obstacles (or “market failures”) (i.e., access to external finance, advantages of large firms, compliance costs, and the inability of new and small firms to pay for external support) (Bridge et al., 2003; DTI, 2004). Intervention is associated with costs and the benefits of the intervention should not solely accrue to the recipients (i.e., supported entrepreneurs and firms). Intervention may lead to the problem of “government failure” (i.e., Government funding supports entrepreneurs and firms that do not require it and whose behavior is not positively affected by the assistance) (Johnson, 2007). Rather, intervention should address areas of “market failure” where public initiatives contribute to additionality by encouraging actions that would not otherwise have been undertaken (i.e., input additionality), contributing to better results than would otherwise have been achieved (i.e., output additionality), or changing behavior in a desired direction (i.e., behavior additionality) (OECD, 2003; 2006). There is, however, some scepticism surrounding the value of “external assistance” to new and small firms (Bridge et al., 2003). To the neo-classical economist, if market failure exists, it is only a temporary phenomenon that will eventually disappear. If it is not temporary, it is not a market failure, and trying to address it will not result in a net benefit. Further, Flynn (1993) has warned that schemes supporting new firm formation may encourage negative selection (i.e., nonsurvival attributes being transferred to the next generation of firms), and the survival of competitively weak organizations. Subsidies may bring about a major bias in the process of market selection that hampers post-entry scale adjustment of new firms (Santarelli and Vivarelli, 2007). Conversely, Ferguson and Ferguson (1994) have asserted that neo-classical economic theory is an inappropriate basis for public prescriptions. The case for enterprise/industry/technology policy depends

4.2 The Policy Case

29

on uncertainty, imperfect information and — as a result — the presence of transactions costs. Support for entrepreneurship has manifested itself in various forms (Bridge et al., 2003; Johnson, 2007). British government policy, for example, has moved from encouraging new firm formation (Westhead and Moyes, 1992), and the growth in self-employment (Storey, 1994), toward supporting growing firms (Storey, 1994; Westhead, 1995), and more recently to a more balanced policy agenda (Gavron et al., 1998; DTI, 2004). To maximize returns on public policy investments, attempts have been made to “target” external support to “winning firms,” that is, businesses with significant wealth creation potential (Storey, 1994). Surprisingly, the characteristics and behavior of “winning entrepreneurs” have been relatively neglected. It may, however, be more appropriate to consider the entrepreneur as the unit of analysis (Birley and Westhead, 1993; Scott and Rosa, 1996). If support for entrepreneurship is to be effective, it is vital that issues relating to the entrepreneurial process are well-understood (Westhead and Wright, 1999; Ucbasaran et al., 2001; Westhead et al., 2004, 2005c). The accumulation and utilization of “entrepreneur/entrepreneurial team” resources and skills, rather than solely “business” resources and skills, can provide fresh insights into the entrepreneurial process (Taylor, 1999). While, the “firm” rather than “entrepreneur” has traditionally been the focus of much policy attention, some recognition of the importance of the individual entrepreneur is emerging (DTI, 2004; Lundström and Stevenson, 2004). In considering the entrepreneur as a unit of policy analysis, it is necessary to appreciate that entrepreneurs are not a homogeneous entity with regard to their human capital profiles, motivations, resources, behavior, and performance. An increase in the number (stock) of businesses in an economy may not necessarily be a reliable indicator of the development of entrepreneurship. This is because different types of entrepreneur own both new and established businesses. Policy-makers and practitioners monitoring the growth in the supply of new firms need to be aware that habitual (i.e., serial and portfolio) entrepreneurs with business ownership experience own a sizeable proportion of new firms (see Section 3). Studies that judge the scale of entrepreneurship in terms of the number of new firms, but ignore the scale of serial and

30


portfolio entrepreneur activity may over-estimate the gross number of entrepreneurs, and under-estimate the contribution made by particular types of entrepreneur (Westhead and Wright, 1999). Additionality considerations relating to government support schemes imply that support should be targeted to those entrepreneurs or projects that are able to generate the greatest incremental increase in returns, however those returns might be defined (OECD, 2006; Johnson, 2007). If superior business performance is generally recorded by firms owned by serial and portfolio entrepreneurs rather than novice entrepreneurs, there might be a case to provide policy support and assistance to serial and portfolio entrepreneurs, particularly if the objective of support is to maximize returns on investments. Moreover, if inexperienced novice entrepreneurs report poorer entrepreneur and/or firm performance, there is a case to encourage them to adopt some of the skills and the behavioral characteristics of experienced habitual entrepreneurs. If, however, serial and portfolio entrepreneurs’ firms generally under-perform, there is a policy choice either to divert scarce resources away from these entrepreneurs; or to develop policies that ensure the survival of firms owned by them. In the latter case, policy-makers may benefit from understanding the barriers to learning and provide appropriate training that enables entrepreneurs to learn from failure and start successful firms next time around. Further, if the objective of policy is to increase the pool of entrepreneurs, assistance might be targeted away from successful serial and portfolio entrepreneurs toward novice and nascent entrepreneurs seeking to address obstacles to business development, as well as business opportunity identification and exploitation. Of course, if habitual entrepreneurs are already on average more successful, it might be questioned why policy support is needed. If the incremental benefits from supporting habitual entrepreneurship are greater than for nascent or novice entrepreneurs, there may be a case for facilitating and encouraging their activities. Experienced entrepreneurs have been found to have stronger intentions toward new business formation and greater abilities to carry out the business start-up process and establish a new firm (Alsos and Kolvereid, 1998). Encouraging

4.2 The Policy Case

31

experienced entrepreneurs to start new businesses may be supported with weaker incentives. The latter encouragement may, however, be more effectively provided through the tax system rather than through direct subsidies to entrepreneurs and firms. External support is primarily provided at the level of the individual entrepreneur during the business start-up process. After the business initiation hurdles have been addressed and the business has commenced trading, external support for enterprise becomes more focused on the needs of different types of businesses (i.e., high-technology firms, exporting firms, etc.). There may be a need to focus upon the entrepreneur, rather than the firm alone, throughout all stages of the entrepreneurial process. Certain types of entrepreneur may require specific (and customized) types of assistance. For example, it may be more appropriate to support habitual entrepreneurs if the policy aim is to promote innovation (evidence relating to this point is provided below). On the other hand, it may be appropriate to support and promote habitual ethnic (or female) entrepreneurs as role models if the aim is to provide access to the labor market for special and/or under-represented groups (DTI, 2004). Analysis of the heterogeneity of entrepreneurs may contribute toward the development of policies tailored to different types of entrepreneur, rather than the provision of broad “blanket” policies to all types of entrepreneur, irrespective of need or ability (Westhead et al., 2003a, 2005c). An understanding of habitual entrepreneurs has implications for the investment behavior of financial institutions. Financial institutions and professional advisers (i.e., accountants, lawyers, management consultants, etc.) tend to be aware that they have different types of customers, and some customers may be more “risky” than others. They may be prepared to provide additional advantages to customers who have a proven track record of success (i.e., successful habitual entrepreneurs). As highlighted earlier, prior business ownership experience may not be an appropriate indicator of subsequent superior firm performance. The liabilities and assets of prior business ownership experience need to be considered by practitioners such as financial institutions. Some habitual entrepreneurs may become over-confident in their abilities, and less attentive to subsequent venture development and wealth creation.

32


Others may have failed to learn from prior business ownership experiences. Examination of habitual entrepreneurs in relation to other less experienced novice entrepreneurs may aid insights into the process of wealth creation that may also benefit practitioners (Rosa, 1998; Westhead and Wright, 1999). In the following section, the evidence base relating to novice, habitual, serial, and portfolio entrepreneurs is discussed. Building on this evidence base and assuming an interventionist stance, a case for more balanced support toward novice, serial, and portfolio entrepreneurs is suggested in Section 6.


There are examples of studies highlighting habitual entrepreneurs in the 1970s and 1980s. Over the last decade, the number of studies focusing on habitual entrepreneurs and the serial and portfolio sub-types has increased substantially. A summary of published articles relating to habitual entrepreneurship is presented in Table 5.1. This table does not present an exhaustive list of all published articles, and not all the themes explored in the presented studies are highlighted. The purpose of this section is to provide an overview of the literature relating to habitual entrepreneurship. The early studies generally measured the prevalence of the habitual entrepreneur phenomenon. Until the late 1990s, there was a relative dearth of empirical evidence relating to the resources and behavior of habitual entrepreneurs. Several studies that are more recent have detected statistically significant differences between novice and habitual entrepreneurs, as well as between novice, serial, and portfolio entrepreneurs with regard to their profiles and the firms they own. Differences have been noted with regard to their personal backgrounds and motivations, their human capital profiles, cognitive mindsets, access to resources, opportunity identification and exploitation processes, as 33

Prevalence of habitual entrepreneurs. Characteristics of entrepreneurial careers.

Impact of entrepreneurial and management experience on early business performance.

Ronstadt (1988)

Stuart and Abetti (1990)

Lamont (1972)

Research questions Behavior differences between first and second time entrepreneurs. Reasons for performance differences.

No specific theoretical perspective stated.

Hypotheses/ propositions derived without linkage to specific theoretical perspectives.

Theoretical perspectives No specific theoretical perspective stated.

Quant. X

X

X

Longit.

Qual.

Type of study

X

X

X

Valid sample size 24

Personal interviews with chief executives of new technical ventures

52

Database 1,537 College alumni, practicing/exentrepreneurs

Data collection method Data from technologybased enterprises

Method

Table 5.1 Summary of the research questions explored in habitual entrepreneur studies. Cr.-sec

Factor analysis, general linear model

Descr. statistics

Type of analysis Descr. statistics

(Continued)

Firm performance: Entrepreneurial experience measured with regard to the number of previous new venture involvements and the level of the management role played in such ventures were significantly associated with superior early business performance.

Prevalence: Substantial number of multiple venture entrepreneurs. Second venture often created early in entrepreneurial career. The existence of a corridor principle: The act of starting a new venture allows an entrepreneur to see new opportunities. Entrepreneur performance: Multiple ventures associated with longer entrepreneurial careers.

Key findings Firm characteristics: Experienced entrepreneurs have learned. Experience is reflected in product orientation, substantial initial financing, and balance of business skills.


Dyke et al. (1992)

Schollhammer (1991)

The impact of seven dimensions of owner experience on firm performance.

Research questions The incidence of multiple entrepreneurs. The impact of experience on new venture performance. Industry relatedness of multiple ventures.



Quant. X

X

X

X

Cr.-sec

Qual.

Type of study Longit.


Survey among businesses from five industries

Data collection method Survey

386

Multiple regression

Valid Type of sample size analysis 138 Descr. statistics, correlations

Method

(Continued)

Firm performance: Number of previous start-ups positively related to superior performance. Number of years of previous business ownership not related to performance. Industry differences in relationships between experience and performance.

Key findings Prevalence: Multiple entrepreneurs were highly prevalent but the incidence rate declined rapidly. Successive venture formations were generally in the same or a related industry as the prior venture. Firm performance: The two year survival rate of multiple venture initiatives was lower than for single venture initiatives. Successful prior experience improved the survival rate, while prior failures reduced the survival rate. Unrelated diversification of successive venture initiatives tended to improve subsequent venture performance.

35

Differences between novice and experienced business founders with regard to personal characteristics, resource acquisition ability, and business performance. Negative and positive consequences of entrepreneurial experience to subsequent ventures.

Kolvereid and Bullv˚ ag (1993)

Starr et al. (1993)

Birley and Westhead (1993)

Research questions Differences in characteristics between habitual and novice entrepreneurs.




Quant. X

X

X

Qual.



X

X

X

Cr.-sec Case studies based on IPO prospectuses and media exposure

Postal survey

Data collection method Postal survey. Matched samples

3

209 (24%)


Method

Comparative descriptives

Descr. statistics Chi-sq.

Type of analysis Bivariate analyses, discriminant analysis

(Continued)

Process performance: Different types of process milestone achievements linked to prior entrepreneurial experience, including fund raising capacity and initial startup resources, time required to achieve milestones, resource expenditures, returns to investors and the entrepreneur’s personal investment and financial gains.

Entrepreneur characteristics: Experienced founders were more resourceful than novices. Experienced founders tend to get involved in more complicated environments with regard to their new businesses. Firm performance: No differences regarding performance.

Key findings Entrepreneur characteristics: Habitual entrepreneurs started younger, reported heroes as role models and relied upon financial support from family and friends. Firm performance: No differences regarding performance.


Research questions The role of expertise in the relationship between experience and performance.

Assessed the quantitative importance of multiple business ownership to new firm formation.

Reuber and Fischer (1994)

Scott and Rosa (1997) Rosa and Scott (1999b)


Theoretical perspectives Situated learning approach.

Quant. X

X

Longit.

Qual.

Type of study

X

X

Cr.-sec


Dunn & Bradstreet data for new Scottish firms, Survey data, Registry of Scottish high growth companies

Data collection method Postal survey, biotech/ telecom firms

7,316 600 209


Method

Descript. statistics

Type of analysis Correlations, multiple regression

(Continued)

Prevalence: Multiple business owners highly prevalent across business types, and substantial linkages between businesses. Firms owned by multiple owners were generally incorporated and larger. Men were more likely to be multiple business owners. Motivation: A significant number of new companies were part of growth strategies rather than de novo start-ups.

Key findings Firm performance: Owners’ expertise was more strongly correlated with firm performance than owners’ experience. Experience associated with superior performance.

37

Wright et al. (1997a)

Wright et al. (1997b)

Motivations and characteristics of types of serial entrepreneurs. The role of professional advisers and financiers reported by serial entrepreneurs.

Research questions The role of serial entrepreneurs to the venture capitalist industry.


Theoretical perspectives Hypotheses/ propositions derived without linkage to specific theoretical perspectives. X

Quant. X

Qual.



X

X

Cr.-sec

Valid Type of sample size analysis 55 (48.7%) Bivariate and 23 (57.5%) multivariate analyses

In-depth 13 interviews with serial entrepreneurs

Data collection method Postal survey of venture capitalists. Postal survey of venture capitalists with experience of serial entrepreneurs

Method

(Continued)

Motivation: Motivations varied between first and subsequent ventures with there being implications for subsequent managerial behavior and entry mode. Search processes varied across serial entrepreneurs and reflected differences in motivation. Firm performance: Performance of subsequent ventures was either positively or negatively linked to prior experience. Resources: The role of active investors changed between the first and subsequent ventures.

Key findings Resources: Venture capitalists infrequently funded previously funded entrepreneurs, but they used serial entrepreneurs as consultants or to lead management buy-ins. Variations among venture capitalists with regard to how they valued entrepreneurial experience. Some indication that the venture capitalists assessed both assets and liabilities of entrepreneurial experience. Firm performance: No evidence of superior performance cited by serial entrepreneurs relative to novice entrepreneurs.


Carter (1998)

Alsos and Kolvereid (1998)

Enumeration of enterprises created by farmers. Characteristics of portfolio, diversified, and monoactive farm owners.

Research questions Business gestation processes of novice, serial and parallel business founders. Probability of starting a business.


Theoretical perspectives Weick’s (1979) theory of organizing.

Quant. X

X

Qual.

Type of study

X

Longit.

Table 5.1 (Continued). Cr.-sec X

Postal survey of farm owners

Data collection method Telephone survey of nascent entrepreneurs identified by household screening

296 (29.6%)


Method

Bivariate analyses

Type of analysis Bivariate analyses

(Continued)

Prevalence: High prevalence portfolio entrepreneurship in the farm sector, particularly among younger and better trained farm owners. Additional business activities can be viewed as a continuum from diversification to ownership of a portfolio of businesses. Entrepreneur characteristics: Portfolio farm owners were younger and better trained in agriculture, management, marketing and finance. Firm characteristics: There was an increase in strategic complexity within the businesses owned by the portfolio group.

Key findings Start-up process Differences between the types of founders related to the number of activities undertaken and the timing of these activities. Entrepreneur performance: Parallel founders were more likely to succeed in establishing a new business as compared to serial and novice founders. Serial founders were more likely to give up the start-up effort than novice and parallel founders.

39


Rosa (1998)

Characteristics and behavioral differences between novice, serial, and portfolio founders.

Research questions Creation/ acquisition of multiple ventures as entrepreneurial process versus management process of diversification. Characteristics of processes. Relationship between prior entrepreneurial experience and performance.



Quant. X

X

Qual.



X

X

Cr.-sec Postal survey

Data collection method Case studies. Personal interviews and secondary data

621


Method

Bivariate analyses Discriminant analysis

Type of analysis Business genealogies, Life history analyses

(Continued)

Entrepreneur characteristics: Habitual entrepreneurs not a homogeneous group: Differences between portfolio and serial, founders with regard to parental background, work experience, age at first business start-up, motivation, attitudes to entrepreneurship and sources of funds utilized. Firm performance: No performance differences between types of founders.

Key findings Entrepreneur characteristics: Identified dimensions of habitual entrepreneurs: Background and nature of habitual entrepreneur, nature of venture stared, strategies used to create and manage businesses. Business clusters were complex and often involved partnerships between owners. Behavior: No consistent link between type and entrepreneurial behavior. Process/strategies: The process of multiple business ownership was generally an entrepreneurial one. Strategies were variable and diverse in building business clusters, but entrepreneurial diversification predominated.


Carter (1999)

Westhead and Wright (1998c)

Incidence of portfolio entrepreneurship in the farm sector. Contribution of portfolio farmers to enterprise and employment creation.

Research questions Characteristics and performance of novice, serial, and portfolio entrepreneurs in rural and urban areas.


Theoretical perspectives Hypotheses/ propositions derived without linkage to specific theoretical perspectives.

Quant. X

X

Longit.

Qual.

Type of study

X

X

Cr.-sec


Postal survey of farm owners

Data collection method Postal survey

296 (29.6%)


Method

Descr. statistics

Type of analysis Bivariate analyses Discriminant analysis

(Continued)

Prevalence: Many farmers were involved in a wide range of entrepreneurial activities. Outcomes: Additional business activities made a substantial contribution to both the number of enterprises and employment creation in rural areas.

Key findings Entrepreneur characteristics: Several differences between novice, serial, and portfolio entrepreneurs regarding personal background, work experience, motivations, personal attitudes and financing. More differences between the entrepreneur types in urban than in rural areas. Firm performance: No performance differences between types of founders in rural and urban areas.

41

Rosa and Scott (1999a)

Research questions Diversification as a growth strategy. Types of diversification strategies.

Theoretical perspectives No specific theoretical perspective stated. X

Qual.

Quant.



X

Cr.-sec Data collection method Case studies. Personal interviews and secondary data


Method

Type of analysis Business genealogies, Life history analyses

(Continued)

Key findings Strategies: Several diversification strategies were identified among high-growth firms, indicating that growth was associated with the formation of multiple businesses. The most successful entrepreneurs pursued related diversification. Unrelated diversification was associated with hobbyist kinds of diversion or with succession plans. Some business clusters were built by investor entrepreneurs who also became managerially involved in the firms in which they invested. Cluster growth was linked to new business creation rather than acquisition of existing firms. Survivalist diversification (i.e., diversification out of trouble) was cited. Behavior: Serendipity played a role in opportunity identification among expansion motivated entrepreneurs who were consciously open to new business activities. Entrepreneurs faced with difficulties were more proactive in seeking out diversification opportunities.


Iacobucci (2002)

Carter (2001)

Assessed the importance of business groups in the Italian manufacturing sector. Causes of growth through business group formation.

Research questions Differences between farmers regarding their propensity to participate in additional business activities: Differences between monoactive farmers, structural diversifiers and portfolio business owners.



Quant. X

X

Longit.

Qual.

Type of study

X

X

Cr.-sec


Database of manufacturing firms. Survey of business groups

Data collection method Postal survey of farm owners

424 21

Valid sample size 296 (29.6%)

Method

Descr. statistics

Type of analysis Descr. Statistics Multivariate analysis

(Continued)

Prevalence: Business groups were widely present among firms in Italy. Strategy/motivation: Business group formations were frequently the result of the firm’s growth policy, and were less often result of entrepreneurial dynamics or capital accumulation process of the entrepreneur/family. Low degree of diversification in business activities of groups and high coherence in their growth processes. Entrepreneurial dynamics were more important in early stages.

Key findings Entrepreneur characteristics: Portfolio business owners were younger and better trained in agriculture, management, marketing, and finance than monoactive farmers. They were more positive to new market opportunities, had stronger appreciation and sensitivity to customer needs, and were more willing to engage in new ventures. Firm characteristics: Increased strategic complexity in businesses owned by portfolio owners. They owned larger farms and additional businesses.

43


Haynes (2003)

The relationships among prior job dissatisfaction, the use of entrepreneurial and other types of experience and outcomes.

Theoretical perspectives Opportunity based view Resource based view Rural sociology view.

Research questions Alsos et al. What are the (2003) motivations of farmers starting new business activities, and how are differences in motivation related to the characteristics of the new business venture?

Quant. X

X

Qual.



X

X

Cr.-sec Telephone interviews with business founders

Data collection method Personal in-depth interviews

195

Valid sample size 16 portfolio farmers/ farm households

Method

Bivariate analyses

Type of analysis

(Continued)

Resources: Experienced entrepreneurs who stayed in the same sector were more likely to have leveraged their prior experience. Their businesses reported were larger in terms of initial employee size and they used multiple sources of capital, and exhibited a corporate form. Firm performance: New ventures owned by experienced entrepreneur reported higher sales levels.

Key findings Entrepreneur and firm characteristics: Heterogeneity among farm-based entrepreneurs. Three types of farm-based entrepreneurs were identified based on their main motivation for starting additional business activities: The pluriactive farmer, the resource exploiting entrepreneur and the portfolio entrepreneur. The three types differed in terms of how the process of identifying and exploiting new business opportunities is carried through and the outcomes of this process.


Ucbasaran et al. (2003c)

Pasanen (2003)

Differences between habitual and novice entrepreneurs with regard to opportunity identification behavior.

Research questions Prevalence of multiple entrepreneurs among successful firms in peripheral locations. Characteristics of firms owned by multiple entrepreneurs and single business owners. No specific theoretical perspective stated.


Quant. X

X

Longit.

Qual.

Type of study

X

X

Cr.-sec


Postal survey of independent firms


773 (17.9%)


Method

Bivariate analyses


(Continued)

Behavior: Habitual entrepreneurs identified more opportunities and more innovative opportunities. They were more likely to have used information from financiers, employees, and consultants. Habitual entrepreneurs were more likely to cite the following attitudes to opportunity identification: opportunities emerged in connection with problems, that one opportunity led to another, and they enjoyed opportunity search.

Key findings Prevalence: Successful firms were frequently owned by multiple entrepreneurs. Firm characteristics: Multiple entrepreneur firms reported higher levels of growth. Multiple entrepreneur firms were highly prevalent among innovative growth firms. Firms in the entrepreneur’s portfolio may or may not be related.

45


Ucbasaran et al. (2003b)

Compared novice, serial and portfolio entrepreneurs with regard to financing resources, organizational skills, and firm performance.

Research questions Links between prior business ownership experience and information search behavior and business opportunity exploitation. Differences between habitual starter and habitual acquirer entrepreneurs.

Resource-based view.

Theoretical perspectives Human capital perspective.

Quant. X

X

Qual.

Type of study

X

Longit.


X

Cr.-sec Postal survey of independent firms

Data collection method Case studies

354 (12.2%)

Valid sample size 8

Method

Bivariate analyses

Type of analysis

(Continued)

Resources: Portfolio entrepreneurs had more diverse experience and more resources than either serial or novice entrepreneurs. They also gave greater importance to certain organizational skills as well as toward managerial competence and human capital resources. Firm performance: Portfolio entrepreneurs reported higher business growth.

Key findings Behavior: Prior business ownership was associated with resource accumulation, information search and opportunity recognition behavior. The links differed between habitual starters and habitual acquirers. Resources: Business ownership experience related human capital was associated with assets and liabilities. Entrepreneurs increased their human capital if they learnt from their experience. Differences between habitual starters and habitual acquirers.


Carter et al. (2004)

Prevalence, contextual factors and strategic use of multiple income sources and portfolio activities. Types of entrepreneurs differentiated by degree of engagement in portfolio activities.


Theoretical Research questions perspectives Identification of Opportunity Alsos and Kaikkonen types of based view of (2004) opportunity entrepreneurgeneration ship processes. In what way is prior knowledge and experience of the entrepreneur related to types of processes?

Quant. X

Qual. X

Longit.

Type of study

X

X

Cr.-sec


Postal survey of business owners

Data collection method Personal in-depth interview

18,561 (14.3%)

Valid sample size 59 opportunity generation processes identified from interview with 31 farmers/ farm households

Method

Key findings Opportunity identification: Four types of opportunity identification processes were identified based on two dimensions: active search or passive serendipity, and objective discovery or subjective creation. Differences between the types of processes were found with relation to the source of opportunity, the use of prior knowledge, the extent of innovation, the markets approached and the growth potential of identified opportunities.

(Continued)

Latent Prevalence: class Multiple income sources were analysis across the business size spectrum and across all industry sectors. Circumstances and context shaped the functions of multiple income sources. Motivation: Portfolio activities used as a mechanism to facilitate growth and wealth accumulation or survival. Multiple incomes facilitated business entry and exit as well as business stability.

Type of analysis

47

Iacobucci and Rosa (2005)

Westhead et al. (2004)

Explore group formation through entrepreneurial diversification: The direction of growth and diversification as well as the relationship between diversification policy and business group formation.

Research questions Differences between novice, serial and portfolio entrepreneurs. Implications for policy.



Quant. X

X

Qual.

Type of study

X

Longit.


X

Cr.-sec Secondary data of independent large firms


66


Method

Descr. statistics


(Continued)

Strategy: The running of a group of companies by the same entrepreneur was not only induced by the geographical extension of their operation and by diversification. It was also encouraged by the differentiation policy aimed at serving different market segments within the same sector. This is different from the diversification policy of large, managerial firms.

Key findings Policy: Novice, serial, and portfolio entrepreneurs cited human capital profile and behavior differences. Practitioners should consider targeting resources toward serial and portfolio entrepreneurs who have the desire and ability to be significant wealth and job creators. Need to address barriers to subsequent business ownership by serial and portfolio entrepreneurs.



Research questions Differences between novice, serial, and portfolio entrepreneurs with regard to their decisions, actions, performance and aspirations.

Theoretical perspectives Reuber and Fischer’s founders’ experience conceptual framework

Quant. X

Qual.


Table 5.1 (Continued). Cr.-sec X



Method

Type of analysis Bivariate analysis

(Continued)

Key findings Behavior: Portfolio and serial entrepreneurs used more information sources, and they used their prior business ownership experience to leverage information from networks. Differences in search and opportunity recognition behavior. Experienced entrepreneurs focused more on customer needs and claimed that they more alert to additional business opportunities. Portfolio entrepreneurs identified more opportunities. Entrepreneur performance: Portfolio entrepreneurs compared to novice entrepreneurs drew more money out of their businesses. The intention to establish/acquire an additional business in the future was more frequently cited by portfolio entrepreneurs.

49

Westhead et al. (2005b)

Research questions Assets and liabilities of prior business ownership experience cited by serial and portfolio entrepreneurs. Differences in cognition reported by novice, serial and portfolio entrepreneurs.

Theoretical perspectives Cognitive theory Human capital perspective

Quant. X

Qual.



X

Cr.-sec Data collection method Postal survey


Method

Type of analysis Bivariate analysis

(Continued)

Key findings Resources: No differences between serial and portfolio entrepreneurs with regard to the assets and liabilities of prior business ownership. Portfolio entrepreneurs cited more equity partners than novice and serial entrepreneurs. Entrepreneur characteristics: Some differences between novice, serial and portfolio entrepreneurs with regard to attitudes to entrepreneurship. Portfolio entrepreneurs perceived themselves as being more creative and innovative than novice entrepreneurs. No differences between serial and portfolio entrepreneurs with regard to creativity and innovation.


Westhead et al. (2005c)

Research questions Differences between novice, serial and portfolio entrepreneurs with regard to characteristics, behaviors and performance contributions.


Quant. X

Longit.

Qual.

Type of study

X

Cr.-sec




Method


(Continued)

Key findings Entrepreneur characteristics: Portfolio entrepreneurs had more diverse experiences. They were more motivated by the challenge of starting a business and less by personal prospects. A larger proportion of firms owned by portfolio entrepreneurs were team starts. Portfolio entrepreneurs were more innovative but they cited less joy in starting new businesses. Behavior: Portfolio entrepreneurs used a wider range of information sources and identified more opportunities. They cited more positive attitudes towards opportunity identification. Resources: Portfolio entrepreneurs acquired more initial financial capital than serial and novice entrepreneurs, but invested a lower share of personal savings than serial entrepreneurs. They were less likely than novice entrepreneurs to perceive that financing was easy. Portfolio entrepreneurs were more likely to focus on organizational skills. Firm performance: Portfolio entrepreneurs offered more attractive growth prospects than other entrepreneurs.

51

Alsos et al. Do novice, serial and (2006) portfolio entrepreneurs differ when it comes to their ability to identify opportunities and acquire resources when starting a new business? Do such differences lead to different performance in new businesses started by novice, serial and portfolio entrepreneurs?

Alsos and Carter (2006)

Research questions Extent of resource transfer from the farm business into new venture. Influence of resource richness of the farm on resource transfer. Association between resource transfer and new venture performance.


Theoretical perspectives Resource-based view

Quant. X

X

Qual.

Type of study

X

Longit.


X

Cr.-sec Postal survey Telephone follow up interviews


410/354


Method

Key findings Resources: Extensive resource transfer between farm and new venture, particularly if new venture is farm related. Higher extents of resource transfer if farm is resource rich. Resource transfer is positively and negatively associated with profitability, depending on type of resources transferred. Transfer of more general physical resources is associated with better profitability, while transfer of specific organizational and knowledge resources is associated with poorer profitability.

(Continued)

Multivariate Resources: analysis Serial and portfolio entrepreneurs acquire more financial capital, are more often part of a start-up team and identify more opportunities than novice entrepreneurs. Firm performance: Serial and portfolio entrepreneurs achieve higher early growth in their businesses in terms of sales turnover and employment compared to novice entrepreneurs. When resource access is controlled for, no differences in early firm growth are detected between the three types of entrepreneurs.

Type of analysis Multivariate analysis


Gompers et al. (2007)

Eesley and Robert (2006)

Theoretical perspectives Human capital, social capital, and financial capital

Schumpeterian Are successful (skill) versus entrepreneurs more likely Knightian to succeed in (risk/luck) theories of their next entrepreneurventures than ship first-time entrepreneurs and entrepreneurs who have previously failed?

Research questions What factors condition the likelihood that an entrepreneur starts a second firm?

Quant. X

X

X

X

Longit.

Qual.

Type of study

X

Cr.-sec


Archival data on Venture backed serial entrepreneurs

Data collection method Survey of alumni from MIT

9,932 entrepreneurcompany pairs of which 1,124 serials

Valid sample size 1,789 entrepreneurs

Method

Univariate, probit, OLS, WLS

Type of analysis Univariate and Hazard Rate Analysis

(Continued)

Successful entrepreneurs are more likely to succeed in their next ventures than first-time entrepreneurs and entrepreneurs who have previously failed, suggesting performance persistence is at least in part attributable to skill and not just luck. Successful serial entrepreneurs do not achieve higher valuations than other entrepreneurs. VC funds investing in successful serial entrepreneurs have higher returns. A company started by a serial entrepreneur with successful track record is more likely to succeed if funded by a top-tier VC or one in the lower tier; suggesting previously successful entrepreneurs derive no benefits from value added services of more experienced VCs.

Key findings Entrepreneurs with highest probability of starting a second venture start first firm soon after graduation, are divorced,are in an R&D intensive industry, first firm was acquired and raised initial capital for first firm from business angels and have greater access to financial resources; Entrepreneurial experience increases likelihood of success as measured by firm revenues.

53

Mosey and Wright (2007)

Wiklund and Shepherd (2008)

How do differences in human capital derived from entrepreneurial experience of academic entrepreneurs (nascent, novice, habitual) influence ability to develop social capital that can address barriers to venture development?

Research questions What factors influence the choice of business founders to create additional independent organizations for entrepreneurial activity or to undertake it internally within existing firms? What organizing modes are used by entrepreneurs of new businesses? Human and social capital theory

Theoretical perspectives Resource-based view; human and social capital theory

Quant. X

X

Qual.

Type of study

X

X

Longit.

Table 5.1 (Continued). Cr.-sec Interviews and archival

Data collection method Mail survey

24 academic entrepreneurs & 18 business development officers

Valid sample size 2,253

Method

Type of analysis Probit; Heckman 2-step analysis

(Continued)

Networks: Habitual entrepreneurs have broader social networks and more effective in developing network ties to gain equity finance and management knowledge. Nascent and novice entrepreneurs likely to encounter structural holes between scientific research networks and industry networks, constraining ability to recognize opportunities and gain credibility for their fledgling ventures.

Key findings Characteristics and resources: Founders with higher education, habitual founders, business network membership, and links with support agencies more likely to engage in portfolio entrepreneurship; habitual founders more likely to use and independent firm for organising entrepreneurship than novices who tend to organize portfolio entrepreneurship within their existing firm.


Univariate and probit

method issues quantitative studies qualitative studies cross-sectional studies longitudinal studies

4,998 serial entrepreneurs

Type of analysis Univariate, probit, OLS

31 8 33 6

Failed serial entrepreneurs more likely than successful serial entrepreneurs to get funding from the same VC that funded their first venture; repeat relationships more likely if entrepreneur’s start-up is similar to previous start-up, if VC is older and if start-up located outside California.

Key findings Prior founding experience, especially financially successful experience increases likelihood of VC funding via a direct tie and level of venture valuation.

Abbreviations: Quant = Quantitative study, Qual = Qualitative study, Longit = Longitudinal study, Cr.sec = Cross-sectional study. ∗ Empirical studies published in journals or as book chapters. A Google scholar search was used to identify studies, using the following search terms: habitual entrepreneur, serial entrepreneur, portfolio entrepreneur, multiple entrepreneurs, multiple business owners, repeat entrepreneur, ownership experience and entrepreneurial experience.

Summary Number of Number of Number of Number of

Archival

12 27

X

X


Method

Data collection method Survey of applicants to an entrepreneurship laboratory program

Summary theoretical perspectives Number of studies with specified theoretical perspective Number of studies with no specific theoretical perspective stated

X

X

Quant.

39

Asymmetric information and relationship banking

Theoretical perspectives Human and social capital theory

Qual.

Number of empirical studies in total

Bengtsson (2007)

Hsu (2007)

Research questions How does prior entrepreneurial experience influence likelihood of receiving VC finance and affect venture valuation? What determines repeat relationships between entrepreneurs and VCs?

Longit.

Type of study Cr.-sec


55

56

Empirical Evidence

well as entrepreneur and firm performance. Table 5.1 shows that most studies have keyed into issues relating to the human capital profiles of entrepreneurs, the behavior of entrepreneurs, and the performance contributions of firms and entrepreneurs. In this section, the evidence base is discussed with regard to these three key broad themes. Tables 5.1 and 5.2 indicate the methods used in studies of habitual entrepreneurship (Alsos, 2007). Entrepreneurship scholars have suggested that old and new research questions should be explored with reference to a variety of data sources and methods (Hofer and Bygrave, 1992; Westhead and Wright, 2000; Davidsson, 2003). Theoretically grounded and longitudinal studies that test hypotheses have been called for (Chandler and Lyon, 2001). Most habitual entrepreneurship studies have used quantitative methods and cross-sectional information has generally been gathered. Relatively few qualitative and mixed method studies have been conducted. Data and method issues relating to future studies are raised in Section 7.8.

5.1

Human Capital Profile Differences

In this section, differences between novice and habitual entrepreneurs as well as between novice, serial, and portfolio entrepreneurs are discussed with regard to their demographic characteristics (i.e., gender, age, and parental background), together with their general (i.e., education and managerial experience) and specific human capital profiles (i.e., entrepreneurial team experience, motivations, perceived skills, and cognitive mindsets). 5.1.1

Demographic Characteristic: Gender

Women are generally associated with lower levels of human capital with regard to education and training outputs (Becker, 1993). Some women with narrower education and employment experience profiles may have had fewer opportunities to develop relevant contacts, skills, and resources to identify and exploit business opportunities (Cooper et al., 1994). During their study of novice and habitual independent firm founders, Kolvereid and Bullv˚ ag (1993) noted that very few women became habitual entrepreneurs. (Rosa and Hamilton, 1994), in

Scottish habitual entrepreneurs study Westhead et al. Novice, serial, and (2003a) portfolio entrepreneurs.

Novice and portfolio founders.

Rural and urban areas. Novice, serial, and portfolio entrepreneurs.

Westhead and Wright (1998c, 1999)

Norwegian SARIE Kolvereid and Bullv˚ ag (1993)

Novice, serial, and portfolio founders.

Novice and habitual founders.

Sub-samples


Study British SARI Birley and Westhead (1993)

Gross sales (1996 and 1999), absolute and percentage change in gross sales and the same measures standardized by business age, percentage of gross sales exported, and weighted subjective performance score. Number of full time and total employees (1996 and 2001), absolute and percentage employment change, as well as the same measures standardized by business age.

Full time employment at start-up and time of survey, employment growth, sales level, percentage sales growth, percentage profit growth and assessed profit performance relative to competitors.

Sales revenue, sales revenue change, profitability, profitability change, performance relative to competitors, and percentage of sales exported.

Sales level, percentage increase in sales, level of profitability, percentage increase in profit, assessed profit performance relative to competitors, exporters, umber of total employees (nominal and standardized) at start-up and time of survey, and standardized absolute employment change.

Sales level, percentage increase in sales, level of profitability, percentage increase in profit, and assessed profit performance relative to competitors.

Performance measures

(Continued)

Portfolio entrepreneurs reported significantly higher gross sales (1996/1999) and standardized gross sales (1996) than novice and serial entrepreneurs, as well as higher standardized gross sales (1999) and greater absolute change in gross sales and standardized gross sales than novice entrepreneurs. No statistically significant differences with reference to the other measures. Portfolio entrepreneurs reported significantly higher employment (1996 nominal and 2001 nominal/ standardized) for both full-time and total employees, as well as higher absolute and percentage employment growth (nominal and standardized, full-time and total) than other entrepreneurs.

No statistically significant differences between the two types of founders.

No statistically significant differences between the three types of founders in the rural sample and the urban sample.

No statistically significant differences between the three types of founders.

No statistically significant difference between novice and habitual founders.

Findings

Table 5.2 Summary of the habitual entrepreneur studies focusing upon firm and entrepreneur performance.

5.1 Human Capital Profile Differences

57

Novice, serial, and portfolio entrepreneurs.

Westhead et al. (2005c)

Early business growth based on annual sales turnover. Early business growth in employees (ln).

Norwegian study on farm owners Rønning and Diversified farmers, portfolio farmers Gross annual household income. Kolvereid (2006) with farm-related enterprises, portfolio farmers with non farmrelated enterprises and farmers with external employment.

Norwegian study of new business start-ups Alsos and Novice, serial, and portfolio Carter (2006) entrepreneurs

Findings Portfolio entrepreneurs were more likely to have drawn more than £75,000 and less likely to have drawn less than £5,000 out of the business compared to novice entrepreneurs. No significant differences in reported change in standard of living.

(Continued)

Portfolio farmers with non-farm related enterprises and farmers with external employment reported significantly higher household income than other respondents.

Serial and portfolio entrepreneurs obtained larger early business growth in their new businesses in terms of sales turnover and employment. When resource access is controlled for in multivariate model, no differences in early business growth between the types of entrepreneurs are sustained.

Differences related to some of the performance measures, but in total no support for hypotheses suggesting that habitual entrepreneurs performed better than novice entrepreneurs, nor that portfolio entrepreneurs performed better than serial entrepreneurs.

Gross sales, change in gross sales, absolute Portfolio entrepreneurs reported significantly higher and percentage employment change, gross sales, employees and employee growth than amount drawn out by entrepreneur, and other entrepreneurs, and significantly higher sales perceived profit performance relative growth than novice entrepreneurs. Portfolio to competitors. entrepreneurs were more likely to have drawn more than £75,000 out of their surveyed businesses, and to rate their performance higher than competitors compared to novice entrepreneurs.

Performance measures Amount drawn out of business by entrepreneur previous 12 months and self-reported change in standard of living.

British habitual entrepreneurs study Ucbasaran et al. Novice, serial, and portfolio Weighted performance based on (2006b) entrepreneurs. importance attached to 6/12 Habitual entrepreneurs with previous performance indicators and the level failure and habitual entrepreneurs of satisfaction with each of these with previous success. indicators. Absolute and relative employment change, absolute and relative sales change, profit relative to competitors, money taken out of the businesses, as well as absolute and standardized by the number of businesses.

Sub-samples Novice, serial, and portfolio entrepreneurs.

Study Westhead et al. (2004)



Entrepreneurial experience: The number of years of business and ownership experience prior to owning the current firm. Start-up experience: The number of previous businesses which the owner helped to start.

Start-up experience: The number of firms in total the owner has helped to start.

Entrepreneurial experience (yes/no). Start-up experience. Number of previous start-ups.

Dyke et al. (1992)

Reuber and Fischer (1994)

Haynes (2003)

Delmar and Shane (2004)

Hazard of disbanding.

Annual sales.

Weighted subjective performance scores relating to financial, international, sales and overall performance. Percentage change in number of employees, total sales, and annual income.

Annual total sales, number of full time employees, annual income, profit growth, and employment growth.

Study Experience measure Performance measures Studies reporting entrepreneurial experience as independent variable Stuart and Abetti Entrepreneurial experience: Standardized composite measure including (1990) composite measure sales growth, employment growth, including involvement in profitability and productivity. previous ventures, number Standardized composite measure including of ventures started, number meeting plan, employee satisfaction, of successful ventures, and overall evaluation of progress, the role played in such survivability of the firm, ability to ventures. attract capital and cash flow.


New ventures pursued by more experienced firm founders had a lower hazard of disbanding than new ventures pursued by less experienced founders. Each prior start-up undertaken by a venture team reduced the hazard of disbanding by 22%.

ANOVA tests showed significant relationship between entrepreneurial experience and annual sales.

Positive significant correlations between start-up experience and weighted financial performance and employment growth. No significant correlations with the other performance measures.

Separate analysis for industry sectors revealed: Food retail: Entrepreneurial experience correlated with employment growth. Food wholesale: Entrepreneurial experience correlated with number of employees and employment growth. Start-up experience correlated with total sales and number of employees. Food manufacturing: Entrepreneurial experience correlated with total sales and annual income. Start-up experience correlated with employment and profit growth. Furniture manufacturing: No significant correlations. Computer services: Entrepreneurial experience correlated with annual income. Start-up experience correlated with total sales, number of employees and annual income.

Entrepreneurial experience was significantly associated with performance.

Findings


59

60

Empirical Evidence

addition, found that a larger proportion of male rather female ownermanagers owned more than one business. A survey of entrepreneurs in rural (i.e., businesses located in an area with less than 10,000 people) and urban areas conducted in Great Britain by Westhead and Wright (1998c) found that over 86% of novice, portfolio, and serial founders with surveyed businesses located in rural areas were male. Westhead et al., detected that habitual founders of firms in urban areas were significantly less likely to be female than was the case for novice urban founders. In contrast, Westhead et al. (2003b) failed to detect any significant differences between novice, serial, and portfolio entrepreneurs in Scotland with regard to the gender of the respondents. Over fourfifths of the respondents in each of the entrepreneur groups were male. 5.1.2

Demographic Characteristic: Age

Age is strongly associated with more diverse work experience (Aldrich, 1999). Work experience can enable more mature individuals to accumulate attitudes and skills required for careers in entrepreneurship (Bates, 1990; Cooper et al., 1994). As found elsewhere (Birley and Westhead, 1993), Kolvereid and Bullv˚ ag (1993) noted that habitual founders started their first business at a younger age than novice founders. Supporting this viewpoint, Westhead and Wright (1998c) found that portfolio and serial founders with surveyed firms located in rural areas were significantly younger than novice rural founders when they started their first firms with little difference reported between the average ages of the two types of habitual founders. However, at the time of the survey, Westhead and Wright detected that novice and portfolio rural founders were significantly younger than serial rural founders. As found with respect to their rural sample, Westhead and Wright noted that portfolio and serial urban founders were significantly younger than novice urban founders when they started their first businesses, with little difference detected between the two types of habitual urban founders. Westhead et al. (2003b) compared the ages of surveyed entrepreneurs at the time of the survey in Scotland. No statistically significant differences were recorded between novice, serial, and portfolio entrepreneurs with regard to their current age.


5.1.3

61

Demographic Characteristic: Parental Background

The entrepreneur may externally access human capital. Curran et al. (1991) detected individuals whose parents were owners of small firms tended to follow their parent’s footsteps, and subsequently became business owners themselves. With regard to their rural sample, Westhead and Wright (1998a) found that a larger proportion of serial rather than portfolio and novice founders were drawn from a professional parental background. A larger proportion of rural portfolio founders, rather than novice and serial rural founders, came from a managerial parental background. However, no statistically significant differences were detected between the three groups of urban founders with regard to their parental background. Westhead et al. (2003b) noted that a larger proportion of portfolio entrepreneurs in Scotland, rather than serial or novice entrepreneurs, reported that one of their parents had experience as business owners. Consequently, a relatively higher proportion of portfolio entrepreneurs had access to the knowledge, financial resources, and/or social networks generally more available to individuals drawn from business ownership parental backgrounds. Respondents were also asked to indicate the occupation of the parent who had been the main income earner. No statistically significant differences were recorded between novice, serial, and portfolio entrepreneurs with regard to the occupation of the parental main income earner. 5.1.4

General Human Capital: Education

Supporting the evidence presented by Donckels et al. (1987), Kolvereid and Bullv˚ ag (1993) found habitual entrepreneurs, and specifically portfolio entrepreneurs, in Norway were more likely to have obtained higher education qualifications. Westhead and Wright (1998a) reported that while there was no difference in the education level of novice entrepreneurs and serial entrepreneurs, portfolio entrepreneurs reported higher levels of education than the other two types of entrepreneurs. Also, Westhead and Wright (1998c) explored the profiles of entrepreneurs in rural and urban areas in Great Britain. With regard to the rural sample of founders, they detected no significant

62

Empirical Evidence

differences between novice, serial, and portfolio rural founders in terms of their education level. However, with reference to their urban sample of founders they found that portfolio urban founders were significantly more likely to have obtained a postgraduate university degree than novice and serial urban founders. Conversely, Westhead et al. (2003b) did not detect any significant differences between the education levels of novice, serial, and portfolio entrepreneurs in Scotland. Ucbasaran et al. (2006a) noted a similar finding with reference to a British sample of novice, serial, and portfolio entrepreneurs. Recently, Eesley and Robert (2006) detected that the early timing of initial firm start-up after graduation was more strongly associated with repeat (or habitual) entrepreneurship than an entrepreneur’s level of education. 5.1.5

General Human Capital: Managerial Experience

The nature of previous work experience can have a profound influence upon a potential entrepreneur’s decision to establish/own a business, as well as its location, characteristics, and performance (Cooper, 1981). Gimeno et al. (1997) have argued that the level of attainment in previous jobs is important. The development of a portfolio of businesses, as in the case of portfolio entrepreneurs, suggests a need for greater managerial skills than might be expected in the case of novice and serial entrepreneurs. It is generally assumed that portfolio entrepreneurs are more likely to have had a managerial or an executive professional position immediately prior to the start-up of the surveyed business (Donckels et al., 1987). Westhead and Wright (1998c) found no statistically significant differences among novice, portfolio, and serial founders in rural areas in Great Britain with regard to their employment position prior to the start-up of the surveyed business. Over 49% of rural founders in each of the three groups had held managerial or professional positions. Similarly, no significant difference was recorded with regard to the number of organizations the three types of rural founders had worked for prior to the start-up of surveyed businesses. Westhead and Wright (1998c), in addition, compared the work experiences of founders with surveyed firms located in urban areas in Great Britain. Contrary to expectation,


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they detected that novice urban founders were not significantly less likely than portfolio and serial urban founders to have held a managerial or professional position prior to the start-up of the surveyed businesses. However, Westhead and Wright (1998c) found that habitual urban founders, particularly serial founders, had worked for more organizations before the start-up of the surveyed firms than novice urban founders. Westhead et al. (2003b) explored the managerial backgrounds of entrepreneurs in Scotland. A statistically significant difference was detected between novice, serial, and portfolio entrepreneurs in terms of their job status immediately before starting/owning the surveyed business (i.e., because serial and portfolio entrepreneurs had managed their previous business). Most notably, a larger proportion of portfolio entrepreneurs, rather than novice and serial entrepreneurs, reported that their last job had been a managerial position. A larger proportion of serial entrepreneurs, rather than other entrepreneurs, indicated that they had been self-employed prior to gaining an equity stake in the surveyed business. They also detected that habitual entrepreneurs, particularly serial entrepreneurs, had worked in more organizations on a full-time basis than novice entrepreneurs. Similarly, Ucbasaran et al. (2006a) noted managerial experience differences between entrepreneurs in Great Britain. Portfolio and serial entrepreneurs reported higher levels of managerial human capital than novice entrepreneurs with regard to the number of organizations worked for and the highest job status.

5.1.6

Specific Human Capital: Entrepreneurial Team Experience

An entrepreneur can compensate for his/her personal human capital deficiencies by attracting other individuals with more diverse human capital to join the entrepreneurial ownership team (Ucbasaran et al., 2003a). Attracting additional equity partners into the entrepreneurial team can enable a solo entrepreneur to accumulate human capital. A partner may be able to offer a wider range of skills and knowledge as well as financial resources. The team aspect of entrepreneurship may be important in providing the resources and skills needed to establish and

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Empirical Evidence

maintain ownership stakes in multiple businesses (Slevin and Covin, 1992). The resources required to develop a portfolio of businesses suggest that portfolio entrepreneurs may require contributions from a greater number of partners than do serial or novice entrepreneurs. Portfolio entrepreneurs may be able to establish and own multiple businesses because they use partners, whereas novice and serial entrepreneurs may establish and/or own a business without a partner. Partners can reduce some of the liabilities associated with firm newness and small size. They can provide legitimacy to a business principally owned by a serial entrepreneur, whose reputation may have been tarnished due to a prior business ownership failure. In addition, partners can provide successful (and unsuccessful) habitual entrepreneurs with a greater depth of expertise, as well as access to wider networks. Westhead and Wright (1998c) found with regard to their sample of rural founders in Great Britain, that a significantly larger proportion of habitual rural founders reported that they had established their new businesses with an additional shareholder or partner. This significant difference was not detected with regard to the urban sample of founders. Alsos et al. (2006) noted that serial and portfolio founders rather than novice founders in Norway more frequently cited team start-ups. Westhead et al. (2003b) detected that firms in Scotland owned by portfolio entrepreneurs had more equity partners than firms owned by novice or serial entrepreneurs. In order to avoid biases resulting from previous experience, and increase their awareness in decision-making, many portfolio entrepreneurs preferred to be a “team”, rather than a “solo” owner of a private firm. Portfolio entrepreneurs who have equity stakes in two or more businesses may use partners as a means of delegating responsibility, as well as gaining access to a greater depth of expertise and broader networks. Recently, Ucbasaran et al. (2006a) detected that portfolio entrepreneurs in Great Britain more frequently cited the prevalence of team ownership to start or purchase surveyed businesses (34%, 36%, and 41% cited by novice, serial, and portfolio entrepreneurs, respectively). Despite this evidence, we know little about the extent to which habitual entrepreneurs maintain the same partners from one venture to the next, and the reasons why changes occur.


5.1.7

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Specific Human Capital: Motivations

Gimeno et al. (1997) suggest that the motivations for establishing a new venture can be viewed as a component of venture-specific human capital. The initial reasons leading to the ownership of a business can, in part, influence the development trajectory of a business (O’Farrell and Hitchins, 1988; for a dissenting view see Birley and Westhead (1994)). Motivations may, therefore, have an impact on the behaviors and strategies selected by different types of entrepreneurs. Scholars have detected a diverse range of motivations cited by habitual entrepreneurs; a desire for independence and autonomy and the desire for (personal) wealth creation (Wright et al., 1997a) and motivations related to the operation of an existing business (i.e., need for more income and the desire to grow the business activities) (Alsos and Carter, 2006). Rosa and Scott (1999a) interviewed habitual entrepreneurs regarding “how” and “why” each business was added to the business group. The motivations cited related to the wish to diversify into a new market; to spread risk or to overcome potential adversity; business creation as a challenge or a hobby; to protect a new area or brand name; to ring fence a geographical diversification; to ring fence risk; to add value to existing ventures owned by the entrepreneur; to assist a friend or relative; to launder money; profits and/or family assets; to avoid paying taxes; and to cut costs and enhance internal efficiencies. Iacobucci (2002) explored the reasons why some entrepreneurs start a group of businesses. The three main reasons were the firm’s growth policy, entrepreneurial dynamics, and capital accumulation on the part of the entrepreneur or his/her family. (Carter and Ram, 2003, p. 375) concluded that motivations for portfolio entrepreneurship can “range from entrepreneurs who invest in several sectors at once and who are thus able to move their capital between various enterprises as the market conditions require; to small scale traders who diversify their economic activities to cover both productive and distributive functions; to the only survival strategy available to marginal businesses.” Motivations cited by habitual entrepreneurs for owning businesses can also change over time. While independence is a strong reason for starting a first business, a variety of other more materialistic reasons

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Empirical Evidence

may come to the fore when an entrepreneur establishes (or purchases) a subsequent business (Donckels et al., 1987). Other evidence, however, suggests monetary gain may become less important in subsequent ventures (Wright et al., 1997a). This is because owners of second or latter ventures generally desire less risky ventures. Further, Wright et al. (1997a) detected that habitual entrepreneurs continually cited the desire/need to work independently and to build a larger organization. With reference to survey evidence from Great Britain, Westhead and Wright (1998a) found that the reasons leading to start-up varied both between the type of entrepreneur, and the type of locality where the surveyed business was located. No significant differences were reported among novice, serial, and portfolio rural founders with regard to dimensions of autonomy. However, portfolio rural founders were markedly more likely than novice and serial rural founders to have started their businesses for wealth and/or welfare reasons. In addition, a significantly smaller proportion of serial rather than portfolio or novice rural founders reported they had established their businesses to obtain tax benefits. Westhead and Wright (1998c) failed to detect any significant differences between novice, serial, and portfolio urban founders with regard to wealth reasons leading to business start-up. They, however, found that novice and portfolio urban founders were significantly more likely than serial urban founders to emphasize autonomy reasons. Habitual urban entrepreneurs, particularly, serial founders were significantly more likely than novice urban founders to have suggested that they started the business in order to develop an idea for a product. Portfolio and novice urban founders were significantly more likely than serial founders to have reported that they were taking advantage of an opportunity that appeared. A significantly larger proportion of portfolio urban founders rather than novice and serial urban founders reported that they were seeking tax benefits. Novice urban founders were significantly more likely than portfolio urban founders to have emphasized that they started a business to achieve something, and to get recognition for it. Habitual urban entrepreneurs, particularly serial founders, were more likely than novice urban founders to have reported starting a business to continue a family tradition.


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Westhead et al. (2003b) monitored the motivations cited by novice, serial, and portfolio entrepreneurs in Scotland. In line with the wealth creation expectations of policy-makers and practitioners, a larger proportion of portfolio entrepreneurs, rather than novice or serial entrepreneurs, reported generating personal wealth as the main reason leading to business ownership. Portfolio entrepreneurs were also more likely than novice entrepreneurs to suggest that they were motivated by the desire to be challenged by the problems and opportunities presented by business ownership. Conversely, portfolio entrepreneurs were less likely than other entrepreneurs to suggest that they had been unemployed, and they were less likely than novice entrepreneurs to report that they had started a business in order to have greater flexibility in their personal life. Serial entrepreneurs were more likely than novice entrepreneurs to cite that they wanted to control their own time, but they were less likely than novice entrepreneurs to report that they had an equity stake in a business to continue a family tradition. Ucbasaran et al. (2006a) found that serial entrepreneurs in Great Britain reported independence to be a significantly more important motive than portfolio entrepreneurs. This finding supports the view raised in Section 4.1.1.3, which suggested that serial entrepreneurs and portfolio entrepreneurs have different career anchors. 5.1.8

Specific Human Capital: Perceived Skills

Recent work on capabilities of the firm suggests the need to supplement the stock-based view of capital/resources with a more process-oriented view (Teece et al., 1997). At the individual level, it has been suggested that the entrepreneur must demonstrate skills in three functional areas: entrepreneurial, managerial, and technical (Penrose, 1959; Chandler and Jansen, 1992). The self-perceived skills of the entrepreneur can also be an indication of their human capital. Self-perceptions of skills can be gathered from entrepreneurs. Evidence suggests a strong relationship between perceived and actual skills (Gist, 1987). Westhead et al. (2003b) compared the perceived skills cited by serial and portfolio entrepreneurs in Scotland. Portfolio entrepreneurs were

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Empirical Evidence

more likely than novice entrepreneurs to agree that one of their greatest strengths was organizing resources and co-ordinating tasks as well as the ability to supervise, influence, and lead people; to delegate effectively, and to seize high quality business opportunities usually requiring an immersion in a particular market. They were more likely than other entrepreneurs to agree that one of their greatest strengths was achieving results by organizing and motivating people, and that the problem was not identifying the idea but to obtain capital and other resources. Also, portfolio entrepreneurs were more likely than novice entrepreneurs to consider that they had a special alertness to spotting opportunities. Portfolio entrepreneurs were more likely than novice entrepreneurs to report that they enjoy just thinking about and/or looking for new business opportunities, and that new business opportunities arise in connection with a solution to a specific problem. In addition, portfolio entrepreneurs were more likely than other entrepreneurs to describe themselves as opportunistic, and able to spot opportunities better than professional analysts. Serial entrepreneurs were more likely than novice entrepreneurs to agree that one of their greatest strengths was identifying goods and services that people want, and that they accurately perceive unmet customer needs. In addition, serial entrepreneurs were more likely than portfolio entrepreneurs to suggest that their greatest strength was expertise in a technical or functional area. Serial entrepreneurs were more likely than novice entrepreneurs to suggest new business opportunities arise in connection with a solution to a problem. Alsos et al. (2003) found that portfolio farm-based entrepreneurs in Norway reported significantly higher entrepreneurial abilities than farmers with no other business activities. Controlling for other dimensions of human capital, Ucbasaran et al. (2006b) found that habitual entrepreneurs in Great Britain were associated with lower levels of perceived technical skill than novice entrepreneurs. Further, portfolio entrepreneurs were associated with significantly higher levels of managerial skill than serial entrepreneurs. This finding complements the evidence relating to managerial experience presented in Section 5.1.5.


5.1.9

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Specific Human Capital: Cognitive Mindsets

As discussed in Section 4.1.1.3, the “dominant logic” of the entrepreneur is an important component of his/her stock of experience. Reuber and Fischer (1999) describe a dominant logic as being an information funnel through which the entrepreneur’s attention is filtered. This information funnel is akin to the entrepreneur’s cognition (Baron, 1998; Forbes, 1999). The cognitive characteristics of entrepreneurs may shape their attitudes and behavior. Westhead et al. (2005b) identified differences in the attitudes to entrepreneurship cited by novice, serial, and portfolio entrepreneurs in Scotland. Experienced entrepreneurs, particularly portfolio entrepreneurs, reported higher levels of agreement with the statement “I find the process of starting a business very daunting” than novice entrepreneurs. Conversely, novice entrepreneurs reported higher levels of agreement with the statement “I have a short attention span” than serial entrepreneurs. Also, novice entrepreneurs reported higher levels of agreement with the statement “external advice is crucial for the growth of this business” than serial entrepreneurs. Serial and portfolio entrepreneurs reported higher levels of disagreement than novice entrepreneurs with the following statements: “I feel I can predict and adapt to changing environmental circumstances”; “I enjoy the early stages of building a business”; and “I frequently try to establish/develop new contacts.” Further, serial entrepreneurs reported higher levels of disagreement with the statement “I like to be aware of all the decisions made about this business and have the final say” than novice entrepreneurs. In addition, Westhead et al. (2005b) also found that portfolio entrepreneurs were more creative than novice and serial entrepreneurs. Portfolio entrepreneurs were particularly likely to be more creative than novice entrepreneurs. Significantly larger proportions of both serial and portfolio entrepreneurs than novice entrepreneurs reported they had either “used new ways of managing and developing personnel,” and/or “developed new ways of managing quality control and R&D.” Also, significantly larger proportions of portfolio entrepreneurs than novice entrepreneurs had “developed new structures, systems, or

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Empirical Evidence

procedures in your organization”; “found a new market or employed a new marketing strategy in an existing market”; and/or “found new ways of dealing with government and other external agencies.” Significantly smaller proportions of novice and serial entrepreneurs than portfolio entrepreneurs indicated they had “found new ways of managing finance.” A third area of difference demonstrated by Westhead et al. (2005b) was that portfolio entrepreneurs were more innovative than novice entrepreneurs. Larger proportions of portfolio entrepreneurs than novice entrepreneurs, reported they were innovative with regard to the introduction of “a new product or a new quality of an existing product”; “a new method of production or modified an existing method”; and/or “a new culture especially through the induction of innovative people at the lower levels.” A larger proportion of portfolio entrepreneurs than serial entrepreneurs reported differences in innovation only in respect of having “introduced a new culture especially through the induction of innovative people at the lower levels.” As discussed in Sections 4.1.1.2 and 4.1.1.3, business ownership experience can be associated with both assets and liabilities (Starr and Bygrave, 1991). Westhead et al. (2003b) monitored the assets and liabilities of prior business ownership experience cited by serial and portfolio entrepreneurs in Scotland. Both portfolio and serial entrepreneurs reported that building a reputation; developing expertise in running an independent business; being able to exploit opportunities more easily; understanding the bank lending process more easily; and obtaining finance more easily were assets of prior business ownership experience. While serial and portfolio entrepreneurs see obtaining finance more easily as an asset, it may actually be a liability. As the entrepreneur develops a track record, allowing him/her to possibly obtain finance easier, unrealistic risk-return performance expectations regarding the venture may be made, creating the “liability of priciness” (Starr and Bygrave, 1991). The availability of resources or easier access to resources in subsequent ventures may also mean that subsequent ventures built with large amounts of capital may be subject to the “liability of costliness” (Starr and Bygrave, 1991).

5.2 Behavioral Differences

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As discussed earlier, prior business ownership experience may reduce the motivation to work as hard as the previous venture, create a fixation on previous success/failure, and reduce flexibility. Experienced entrepreneurs may be subject to biases and blindspots that influence their decisions and goals in subsequent ventures. Somewhat surprisingly, both portfolio and serial entrepreneurs in Scotland were more likely than novice entrepreneurs to report that they found the process of starting a business very daunting and that they enjoyed the early stage of building a business. Portfolio and serial entrepreneurs were, however, more likely than novice entrepreneurs to disagree with the statement that they could predict and adapt to changing environmental circumstances, suggesting that they did not suffer from an illusion of control. We also noted earlier that entrepreneurs with prior business ownership experience might develop the inertia of conventional wisdom, which unless challenged by others, may result in “the liability of staleness” (Starr and Bygrave, 1991). As evidence of this observation, serial entrepreneurs in Scotland appeared to be less likely than novice entrepreneurs to recognize the importance of external advice for growing their businesses. While experience may aid the development of networks, experienced entrepreneurs who favor familiar circles and customary relationships over the unknown and obscure, may be stuck in routine patterns of interpersonal interactions that hinder their ability to innovate, thereby suffering from the “liability of sameness” (Starr and Bygrave, 1991). Supporting this view, portfolio and serial entrepreneurs in Scotland were more likely than novice entrepreneurs to disagree with the statements that they frequently tried to establish new contacts.

5.2

Behavioral Differences

5.2.1 5.2.1.1

Acquisition of Resources Finance

An entrepreneur’s previous business ownership experience can have a profound influence on the amounts of initial capital, and types of finance used during the launch period of a subsequent new or acquired

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Empirical Evidence

business. Successful habitual entrepreneurs may be expected to have larger amounts of personal capital, and greater access to external sources of funds than novice entrepreneurs. Serial (and portfolio) entrepreneurs may use funds from private business sales to invest in subsequent ventures. A novice entrepreneur lacking an established track record may have to rely upon internal sources of initial capital, including personal savings and family and friends, to obtain an ownership stake. Habitual entrepreneurs with successful track records are generally more credible than those who have failed first time around, and may leverage their prior business ownership experience to obtain external financial resources from banks and venture capitalists for their subsequent ventures (Wright et al., 1997a,b). Portfolio entrepreneurs who have not exited from a venture(s) they have an ownership stake(s) in may be able to leverage the internal financial resources from their existing business(es) (Alsos and Kolvereid, 1998), and may make use of finance from existing customers and suppliers. In contrast, serial entrepreneurs may have accumulated funds from the sale of a previous business. However, a reluctance to be involved in projects which may undermine their standing amongst the financial and business community, and a desire to invest a smaller proportion of their personal wealth the second time around (Wright et al., 1997a) may mean that some habitual entrepreneurs become risk averse over time. Venture capitalists make their investment decisions with regard to an individual’s previous business ownership experience, as well as their motivation and ability to succeed the next time around (Wright et al., 1997b). Prior founding experience, especially financially successful experience, increases the likelihood of venture capital funding via a direct tie, and the level of venture valuation (Hsu, 2007). Eesley and Robert (2006) detected those entrepreneurs with the highest probability of starting a second venture had a first firm that had been acquired. In addition, they had previously raised initial capital relating to the first firm from business angels, and they generally had greater access to financial resources. Evidence from the United States suggests that “failed” serial entrepreneurs rather than “successful” serial entrepreneurs are more likely to have obtained funding from the venture capital firm


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that funded their first venture (Bengtsson, 2007). In addition, evidence suggests that a repeat venture capital relationship is more likely if an entrepreneur’s start-up is similar to their previous start-up, if the venture capital firm is older, and if the business start-up is located outside California. Westhead et al. (2003a) found that, on average, portfolio entrepreneurs in Scotland invested more total initial capital (and personal capital) to establish or purchase the surveyed businesses than novice entrepreneurs. Portfolio entrepreneurs were able to leverage their prior business experience to acquire more initial capital from external sources (i.e., banks). Similarly, in a study of new business startups in Norway, Alsos et al. (2006) found that portfolio and serial founders invested significantly more money in their businesses than novice founders at start-up. Westhead et al. (2003a) reported that a larger proportion of portfolio entrepreneurs, rather than serial or novice entrepreneurs, had used bank loans as part of their initial capital. However, portfolio entrepreneurs were less likely than novice entrepreneurs to report that access to bank finance (and trade credit) was easy. On average, serial entrepreneurs invested more total initial (and personal) capital to establish or purchase the surveyed businesses than novice entrepreneurs in Scotland. A larger proportion of serial entrepreneurs, rather than novice entrepreneurs, had used personal savings and/or a mortgage on their home as part of their initial capital. In terms of the proportion of initial funds contributed by each source, serial entrepreneurs, rather than other entrepreneurs, reported a higher proportion of initial capital had been obtained from personal savings (i.e., potentially accumulated from the sale of an equity stake in a previous venture). This evidence may be indicative that their first (previous) venture had been a financial success. On the other hand, this finding may be consistent with the views of venture capital firms that one of the main reasons for not funding serial entrepreneurs in a subsequent venture relates to the inability of serial entrepreneurs to identify attractive subsequent ventures (Wright et al., 1997b). Indeed, two-thirds of serial entrepreneurs did not use bank loans as part of their initial capital for the surveyed businesses.

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Empirical Evidence

5.2.1.2

Information and Networks

An important aspect of entrepreneurship is the information search processes exhibited by entrepreneurs leading up to the ownership of (subsequent) businesses. Information represents a potentially valuable resource for entrepreneurs, particularly with regard to opportunity identification and exploitation (Casson, 1982; Alsos and Kolvereid, 1998; Shane, 2000). Two perspectives relating to information search behavior have been identified (Kaish and Gilad, 1991). On the one hand, search by an entrepreneur is a means of optimizing performance. Inexperienced entrepreneurs who are less prepared may be more likely to engage in extensive search (Woo et al., 1992). Conversely, more experienced habitual entrepreneurs may be less likely to engage in proactive search strategies because they can draw upon routines and responses that worked well in the past. Fiet et al. (2000) argue that expert entrepreneurs (defined as those who have demonstrated by their accomplishments that they possess specialized knowledge) will restrict their initial scanning of the environment for opportunities. They will also concentrate on searching within a more specific domain of venture ideas based on routines that worked well in the past. Alternatively, information search can be viewed as part of the process of identifying or “noticing” opportunities (Kirzner, 1973) that are present. Information search behavior of this type may be a function of an individuals bounded rationality, or capacity to handle complex information. Adherents of this perspective suggest that less experienced novice entrepreneurs may conduct search routines that are narrower in terms of the sources and amount of information. Individuals with no prior business ownership experience have fewer benchmarks to assess whether the information they have collected is appropriate to identify and exploit a business opportunity (Cooper et al., 1995). This is because they will be less attuned to the variety and implications of signals in their environment. Entrepreneurs with limited experience may use simplified decision-making methods to guide their search, while the opposite may be the case with experienced entrepreneurs. This perspective suggests that novice entrepreneurs will be relatively less proactive with regard to searching for information and business opportunities.


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Evidence on the information search practices of novice and habitual entrepreneurs is mixed. Cooper et al. (1995) suggested that novice entrepreneurs would search for less information, due to their limited understanding of what is needed. Contrary to expectation, they found that novice entrepreneurs, on average, sought more information than habitual entrepreneurs. In contrast, Westhead et al. (2005a) found that, on average, portfolio entrepreneurs in Scotland had used a wider range of information sources than novice entrepreneurs. A larger proportion of portfolio than novice entrepreneurs indicated that they had used information from personal friends, magazines/newspapers, trade publications, financiers, employees, technical literature, local enterprise and development agencies, consultants and government sources. Westhead et al., detected that, on average, serial entrepreneurs used more sources of information than novice entrepreneurs. A larger proportion of serial than other entrepreneurs had used information from other business owners. Moreover, a larger proportion of serial, rather than novice entrepreneurs, reported that they had used information from customers and clients, personal friends, financiers, employees, and technical literature. Ucbasaran et al.’s (2006a) study of entrepreneurs in Great Britain, which controlled for several dimensions of an entrepreneur’s human capital, did not find a significant association between an entrepreneur’s prior business ownership experience and the number of information sources utilized, or the information search intensity. Entrepreneurs may access valuable information without proactively searching for it. Entrepreneurs’ social networks can provide access to information as well as facilitate the identification of opportunities. Network contacts can help expand the boundaries of the entrepreneur’s thinking by offering access to knowledge and information, and may in this way expose the entrepreneur to new venture ideas and opportunities (Hills et al., 1997; Singh et al., 1999). With each business ownership experience, habitual entrepreneurs may develop contacts that provide them with a flow of information relating to business opportunities (Kaish and Gilad, 1991; Rosa, 1998), implying that they may need to be less proactive in information search relative to novice entrepreneurs. Having earned a reputation as a successful entrepreneur, financiers, advisers, other entrepreneurs, and business contacts may

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Empirical Evidence

present business proposals to some habitual entrepreneurs. Ronstadt (1988) suggested that the best new venture opportunities could be most often revealed only after an individual is already involved in a venture. This is because once the venture has been initiated, greater information becomes available about relevant contacts, viable markets, product availability, and competitive resources. Similarly, McGrath (1999) has argued that habitual entrepreneurs (particularly, portfolio entrepreneurs) may be more likely to pursue ventures as a means of gaining access to a wider range of “shadow options” (i.e., business opportunities that had not been previously recognized) than other entrepreneurs. Alsos et al. (2003) found that farmers in Norway who identified opportunities based on the daily activities of the farm business, were more likely to engage in the start-up of new business activities. Recently, Wiklund and Shepherd (2008) detected that an entrepreneur’s business networks and links with support agencies were a significant predictor of habitual entrepreneurship. Consequently, the nature (i.e., quality) and the amount of information (i.e., quantity) should be considered. Mosey and Wright (2007) develop theory relating to how differences in the human capital derived from the entrepreneurial experience of academic entrepreneurs influence their ability to develop social capital that can address barriers to venture development. They identified three types of academic entrepreneurs with differing levels of entrepreneurship experience (i.e., nascent, novice, and habitual entrepreneurs). Using a longitudinal study of 24 academic entrepreneurs in England, they proposed that habitual entrepreneurs had broader social networks and were more effective in developing network ties to gain equity finance and management knowledge. Conversely, less experienced entrepreneurs were likely to encounter structural holes between their scientific research networks and industry networks, constraining their ability to recognize opportunities and gain credibility for their fledgling ventures. It appears that although evidence is mixed on the relationship between business ownership experience and information search practices, habitual entrepreneurs do appear to have a relative advantage with regard to networks and social capital.


5.2.2

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Opportunity Identification

Information can be seen as a necessary but insufficient condition for the identification of business opportunities. The nature of the information used and the ability to utilize information shape the ability to identify a business opportunity. As intimated above, some types of information are more likely to be used by habitual entrepreneurs. Fiet et al. (2003) have argued that information specific to an opportunity (e.g., knowledge of people, local conditions, and special circumstances) is more valuable. Recently, Ucbasaran et al. (2008b) found that British entrepreneurs who identified a larger number of business opportunities in a give period were significantly associated with the propensity to use personal rather than professional information sources. Habitual entrepreneurs can, therefore, accumulate and leverage personal and specific information sources. The ability to utilize information is important and can be viewed as a key skill for entrepreneurs. An individual with information necessary to identify an opportunity may not do so because of an inability to see new means-ends relationships (Shane and Venkataraman, 2000). Gaglio and Katz (2001) have argued that Kirzner’s alertness theory relates to one extreme of an alertness continuum. The possibility of other points on the alertness continuum needs to be considered. Prior business ownership experience may allow habitual entrepreneurs to be more alert to opportunities than inexperienced novice entrepreneurs. Experiencebased knowledge can direct an individual’s attention, expectations, and interpretations of market stimuli. Habitual entrepreneurs can leverage their experience-based knowledge to generate additional business ideas as well as spot business opportunities that are ignored, or not recognized by novice entrepreneurs (Gaglio, 1997). In line with these views, Westhead et al. (2003b) found that a larger proportion of novice entrepreneurs compared with serial or portfolio entrepreneurs in Scotland had failed to identify (i.e., spot) any opportunities for creating or purchasing a business within the last five years. Moreover, a larger proportion of serial rather than portfolio entrepreneurs had failed to spot any opportunities. As expected, a significantly larger proportion of portfolio entrepreneurs rather than serial or novice

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Empirical Evidence

entrepreneurs had identified two or more opportunities. Among new business founders in Norway, Alsos et al. (2006) also found that portfolio and serial entrepreneurs had identified significantly more opportunities than novice entrepreneurs. Further, portfolio entrepreneurs had identified more opportunities than serial entrepreneurs. Consistent with the above evidence, controlling for various dimensions of human capital, Ucbasaran et al. (2008a,b) found that habitual entrepreneurs in Great Britain identified significantly more opportunities for creating or purchasing a business in a given period than novice entrepreneurs. Ucbasaran et al. (2008a) detected that entrepreneurs citing entrepreneurship-specific human capital, in particular business ownership experience, and perceptions of managerial and entrepreneurial skills were associated with the identification and pursuit of a larger number of opportunities. Entrepreneur demographic characteristics were also significantly associated with opportunity identification and pursuit. Most notably, younger and male entrepreneurs identified more business opportunities. An entrepreneur’s general human capital profile in terms of education was only weakly associated with the identification of more business opportunities. They found that portfolio entrepreneurs identified significantly more opportunities than serial entrepreneurs. Ucbasaran et al. (2008a) also explored the relationship between the number of businesses owned by habitual entrepreneurs and the subsequent number of business opportunities identified. Entrepreneurs with more business ownership experience identified significantly more business opportunities and more innovative opportunities, albeit at a diminishing rate. These findings support the view that experience may be associated with both assets and liabilities. Up to a certain point (i.e., 15 ventures), prior business ownership experience may be a valuable resource for opportunity identification. Beyond this point, experience may lead to biases. Individuals may believe that they already have sufficient knowledge and they do not have to search for additional information (Baron, 1998), and if information is sought there is a reliance on familiar domains (Rabin, 1998). For example, habitual entrepreneurs may rely too much on strong ties in the networks in which they are embedded that encourage them to search for opportunities in familiar domains, whereas the development of weak ties may enable them to


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expand their knowledge into new areas (Burt, 1992; Uzzi, 1996; Elfring and Hulsink, 2003; Mosey et al., 2007). Ucbasaran et al. (2008b) explored the relationship between the number of business opportunities in a given period and an entrepreneur’s prior business “failure” experience. Habitual entrepreneurs who cited higher levels of prior business failure experience (i.e., the total number of failed businesses they had owned as a percentage of the total number of businesses they had owned up to the time of the survey) identified significantly more business opportunities. However, habitual entrepreneurs who reported that more than 20% of their businesses had failed identified significantly fewer business opportunities. This evidence supports the view that a certain amount of business failure can encourage entrepreneurs to learn from their mistakes, and to put into practice what they have learned. In addition, it lends support to the view that business failure can be a traumatic event that can hinder learning, as well as reduce an individual’s self-confidence and motivation to re-enter business ownership. While the above evidence suggests that entrepreneurial experience is positively associated with opportunity identification, it provides limited indication of the nature and quality of opportunities identified. Using prototype theory, Baron and Ensley (2006) argue that habitual entrepreneurs will be associated with different “business opportunity prototypes” — their cognitive representation of the essential nature of opportunities. They found that the business opportunity prototypes of experienced entrepreneurs were more clearly defined, included more dimensions, and that these dimensions were closely related to actually starting and running new ventures. Specifically, experienced entrepreneurs focused more on attributes that related to converting identified opportunities into realized financial gains, such as manageable risk, meeting customers’ needs, and the generation of positive cash flow. Experienced entrepreneurs cited awareness of opportunities as well as threats in their evaluation of business opportunities. Conversely, novice entrepreneurs were more focused on newness, novelty and “gutfeelings” associated with opportunities. (Baron and Ensley, 2006, p. 10) suggest that this may lead novice founders to be “cognitively dazzled” by the novelty and perceived potential of their ideas, resulting in them

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Empirical Evidence

failing to appreciate the many financial and business factors that affect the successful exploitation of opportunities. One explanation for this tendency offered by Baron and Ensley is that the business opportunity prototypes of novice entrepreneurs may be shaped by stories in the media, which tend to focus on successful entrepreneurs who have created novel and unique businesses. Ucbasaran et al. (2008b) detected that the latest business opportunities exploited by habitual entrepreneurs tended to be associated with higher levels of innovation. While this finding may appear contradictory to Baron and Ensley (2006) work, it is important to note that the latter study focused on how experienced entrepreneurs perceived and evaluated opportunities. Although experienced entrepreneurs may pay less attention to novelty and uniqueness, this does not necessarily mean that the opportunities they identify and exploit are not novel. As knowledge and experience are the raw materials necessary for creative ideas (Sternberg, 1999), it is quite likely that the opportunities that habitual entrepreneurs identify will be more innovative that those identified by inexperienced entrepreneurs. Clearly, our understanding of the nature of opportunities identified by habitual and novice entrepreneurs can benefit from future research. We return to this issue in Section 7. 5.2.3 5.2.3.1

Opportunity Pursuit and Mode of Opportunity Exploitation Opportunity Pursuit

Not all identified opportunities are exploited (Shane and Venkataraman, 2000). Novice entrepreneurs may have identified and pursued more than one business opportunity, but currently they have exploited only one business opportunity. The opportunity pursuit stage is the stage in between the identification and exploitation stages. During the pursuit stage, the entrepreneur commits time and resources to reduce uncertainty surrounding the identified opportunity. The entrepreneur assesses the expected direct costs, potential opportunity costs, value and returns associated with an identified opportunity. The extent to which an individual invests time and resources into pursuing (i.e., evaluating) an opportunity can be partly shaped by an


81

entrepreneur’s human capital profile. Some entrepreneurs can leverage information, experience, and learning (Carroll and Moskowski, 1987) from prior business ownership experience to evaluate identified business opportunities. Experienced entrepreneurs who can reduce the costs of exploitation might increase the probability of opportunity pursuit (Shane and Venkataraman, 2000). As intimated above, habitual entrepreneurs may identify better “quality” opportunities (Ucbasaran et al., 2008b). It is, therefore, not unreasonable to assume that the latter identified opportunities will be pursued. Some individuals with prior experience may expect to receive higher returns on their subsequent investments. Habitual entrepreneurs with broader knowledge bases and access to pools of resources may be better prepared to exploit an opportunity once the opportunity has passed the pursuit stage. Entrepreneurs in Scotland who had identified an opportunity were asked to report the number of opportunities they had pursued (i.e., committed time and financial resources) within the last five years. In line with expectations, Westhead et al. (2003b) found that a significantly larger proportion of novice entrepreneurs compared with serial or portfolio entrepreneurs had failed to pursue any identified opportunity. It was also detected that a significantly larger proportion of portfolio entrepreneurs, rather than serial or novice entrepreneurs, had pursued two or more opportunities. Similarly, Ucbasaran et al.’s (2006a) British study found that habitual entrepreneurs, particularly portfolio entrepreneurs, pursued a significantly higher proportion of identified opportunities than novice entrepreneurs. Alsos and Kolvereid (1998) investigated the activities conducted by nascent entrepreneurs when trying to pursue an opportunity through the start-up of a new business. They found significant differences between portfolio, serial, and novice entrepreneurs relating to the number and timing of start-up activities as well as the propensity to succeed in establishing a new business. Portfolio entrepreneurs undertook more activities, but waited until the last part of the process before they implemented costly activities. Portfolio entrepreneurs showed a significantly higher propensity to start businesses compared to serial and novice entrepreneurs.

82

Empirical Evidence

5.2.3.2

Mode of Opportunity Exploitation

There is considerable heterogeneity among the exploitation modes selected by entrepreneurs (Venkataraman and MacMillan, 1997; Shane and Venkataraman, 2000; Ucbasaran et al., 2001). Firm creation (or the de-novo firm start-up) is by far the most common mode of business opportunity exploitation. Entrepreneurship can, however, involve the exploitation of opportunities in existing organizations (Casson, 1982; Cooper and Dunkelberg, 1986; Amit et al., 1993; Sharma and Chrisman, 1999; Ucbasaran et al., 2001). The purchase of an existing business and entrepreneurial activity within the confines of an existing business (i.e., corporate entrepreneurship) represent two common forms of opportunity exploitation involving existing businesses. Compared with the establishment of a new firm, the purchase of an existing business could be viewed as being less entrepreneurial and risky (Cooper and Dunkelberg, 1986; Shook et al., 2003). This view is simplistic and potentially misleading for several reasons. First, Cooper and Dunkelberg (1986) focused on basic measures of motivations and attitudes to determine the extent to which an entrepreneur was “entrepreneurial.” The behavior and outcomes associated with the purchased businesses have attracted limited attention. Second, transforming an existing business to exploit a new opportunity may involve significant risks if the business brings along with it characteristics that are difficult to change/adapt. For example, reputation and relationships with various stakeholders (such as customers and employees) may be difficult to change. The evidence base relating to management buyouts (MBOs) (which involve the purchase of an established business) shows that purchased firms can exhibit highly entrepreneurial behavior and outcomes (with regard to new product introductions, R&D expenditure, goals, and strategies) under new owners (Wright et al., 1992, 1995; Zahra, 1993). Robbie and Wright (1996) have asserted that management buy-ins (MBIs) (i.e., where an outside management team purchases an existing business) tend to be very risky, often requiring considerable entrepreneurial initiative by the new owners. Doubt must, therefore, be cast on the dated view that the exploitation of an opportunity through the purchase mode is less risky or entrepreneurial.


83

Chandler and Hanks (1994) suggested that businesses should select strategies to generate rents based upon their resources. Similarly, entrepreneurs should select a mode of exploitation that best suits their human capital profile (Harvey and Evans, 1995). Habitual entrepreneurs with experience and access to a broader range of resources may have greater flexibility in deciding how to exploit an identified opportunity. Some habitual entrepreneurs can leverage their reputation and track record to raise external finance, and/or they can invest personal finds accumulated through the sale of a previously owned firm. Entrepreneurs with prior experience of owning and managing a business may be in a better position to implement change in a purchased business compared with novice entrepreneurs. A portfolio entrepreneur may purchase an additional business to enhance the performance of other currently owned ventures (Rosa, 1998). However, some portfolio entrepreneurs who are concerned about the co-ordination of firms they own, may be able to ensure a better fit between these firms by starting up a business, and moulding it to ensure that synergies across the various firms owned can be reaped. Ucbasaran et al. (2006a) monitored the new firm creation and purchase modes of opportunity exploitation reported by entrepreneurs in Great Britain. No significant differences were detected between novice and habitual entrepreneurs, or between novice, serial, and portfolio entrepreneurs with regard to the propensity to purchase an existing firm. An entrepreneur’s prior business ownership experience was not significantly associated with the selected mode of opportunity exploitation. Other dimensions of an entrepreneur’s human capital (e.g., technical and managerial skills), however, were associated with the selected mode. Corporate entrepreneurship involves the creation of new combinations of resources in existing firms (Sharma and Chrisman, 1999). Wiklund and Shepherd (2008) build on this notion and argue that habitual entrepreneurship can occur within the confines of an existing business. They conceptually and empirically separate the act of entrepreneurship from the organization. The act of entrepreneurship is viewed as new entry, which involves entering new or established markets with new or existing goods or services (Lumpkin and Dess, 1996, p. 136). This can

84

Empirical Evidence

involve the creation of new business activities through the identification and exploitation of opportunities (Davidsson, 2003; Alsos, 2007). The creation of a new organization used for new entry represents the external mode of organizing, whereas the offer by an existing organization of a new product/service, a new product/value relation, or geographic market expansion represent the internal mode of organizing (Lumpkin and Dess, 1996; Davidsson, 2004). Wiklund and Shepherd (2008) found that while 40% of entrepreneurs in their Swedish sample were habitual entrepreneurs, 59% of these habitual entrepreneurs were involved in entrepreneurship by adopting the internal mode of organizing. The choice of the internal versus external mode of organizing was found to be associated with an entrepreneur’s prior experience. Entrepreneurs with prior start-up experience were more likely to opt for the external mode of organizing than novice entrepreneurs. In line with Ucbasaran et al. (2006a), this evidence suggests that an entrepreneur’s human capital profile can shape the selected opportunity exploitation mode. The notion of habitual corporate entrepreneurship raises important issues regarding its operationalization, and this issue is discussed below. 5.2.4

Organizational Strategies

The organizational practices reported by novice, serial, and portfolio entrepreneurs offer insights into how they exploit opportunities. Westhead et al. (2003b) monitored the organizational strategies adopted by firms owned by entrepreneurs in Scotland. Habitual entrepreneurs (particularly, portfolio entrepreneurs) were significantly more likely to emphasize innovation and growth. Portfolio and serial entrepreneurs were both significantly more likely than novice entrepreneurs to indicate “we emphasize the need to grow the business by using profits generated by the business”; “we stress new products/services developments”; “we strive to be the first to have products available”; and “we have developed lower production costs via process innovation.” Further, habitual entrepreneurs, particularly portfolio entrepreneurs, were more likely to report that “we emphasize the need to grow the business.” Westhead et al. (2003b) detected that serial entrepreneurs were significantly more likely than novice and portfolio entrepreneurs to


85

report “we strive to form alliances with other businesses.” Portfolio entrepreneurs were more likely than novice entrepreneurs to indicate “we emphasize strict quality control”; “we strive to turn around poor performance and develop a stronger business”; “we strongly emphasize improvement in employee productivity and operations efficiency”; and “we invest heavily in Research and Development (R&D).” In addition, portfolio entrepreneurs were more likely than novice or serial entrepreneurs to report “we actively recruit the most talented people”; “we invest heavily in providing formal job related training for our employees”; “we engage in novel and innovative marketing techniques”; and “we emphasize the need to grow the business by acquiring new businesses.” Despite a number of similarities between serial and portfolio entrepreneurs, this evidence suggests that portfolio entrepreneurs were more likely to exhibit several skills that provide greater understanding surrounding “why” and “how” they own several businesses at the same time. The fact that portfolio entrepreneurs own more than one business may explain their greater focus on managerial competence and human capital resources, than serial or novice entrepreneurs. In line with case study evidence (Rosa, 1998), this evidence supports the view that portfolio entrepreneurs may develop synergistic relationships between the ventures they own to gain competitive advantages for individual ventures. Some portfolio entrepreneurs can utilize this distinct advantage to ensure the survival and development of ventures they own. Alsos and Carter (2006) found that serial and portfolio founders in Norway acquired more resources than novice founders during the startup phase with regard to financial and human resources (i.e., start-up team). These favorable resource situations were associated with larger early business. Alsos and Carter’s (2006) study of farm-based portfolio entrepreneurs in Norway identified an extensive transfer of various types of resources from the existing farm business to the new venture. Both assets and liabilities were associated with this transfer. The transfer of some types of resources was associated with improved profitability, whilst other types of resources were associated with inferior profitability. New firm competitive advantages were generally associated with the transfer of “general resources” (i.e., premises). However,

86

Empirical Evidence

new firm performance was more mixed with the transfer of “context specific resources” (i.e., production equipment, specific knowledge, and networks). New firms associated with the latter resource transfers may be associated with the “liability of staleness.” This liability can be reduced by the acquisition of new and more suitable resources.

5.3

Performance

The view that firms owned by habitual entrepreneurs might report superior levels of performance than novice entrepreneurs has encouraged research interest into habitual entrepreneurship. Recent studies have specifically explored firm performance differences between novice and habitual entrepreneurs as well as between novice, serial and portfolio entrepreneurs, but there remain relatively few studies. A summary of published articles relating to the links between habitual entrepreneurship (as well as multiple business ownership and entrepreneurial experience) and firm and entrepreneur performance are presented in Table 5.2.

5.3.1

Firm Performance

No consistent association has been identified between an entrepreneur’s prior business ownership experience and superior firm performance. Cross-sectional studies have generally compared the performance of the surveyed firm currently owned by novice, serial, and portfolio entrepreneurs. Most studies have failed to gather information relating to the array of businesses owned by portfolio entrepreneurs. Consequently, the full economic contribution made by portfolio entrepreneurs relative to other types of entrepreneurs has not been adequately assessed. Studies conducted by Carter (1999) and Rønning and Kolvereid (2006) have, however, compared performance information from all the firms currently owned by portfolio entrepreneurs engaged in farming activities in the county of Cambridgeshire in England and in Norway, respectively with a sample of novice entrepreneurs, that is farmers with no other businesses. On the downside, the contributions made by serial entrepreneurs were not assessed in these studies.

5.3 Performance

87

Several studies have failed to detect any significant link between prior business ownership experience and superior firm performance (Birley and Westhead, 1993; Kolvereid and Bullv˚ ag, 1993; Westhead and Wright, 1998a,c). There is, however, some support for the view that the performance of the newest businesses owned by habitual entrepreneurs, particularly those owned by portfolio entrepreneurs, are associated with superior levels of performance compared to new firms owned by novice entrepreneurs (Westhead et al., 2003a,b, 2005b,c; Alsos and Carter, 2006). Stuart and Abetti (1990) explored the relationship between an entrepreneur’s entrepreneurial experience (i.e., number of previous ventures and the role played in them) and business profitability and growth. They found that superior firm performance was significantly associated with respondents who cited high levels of experience with reference to the selected composite performance measure. Reuber and Fischer (1994) detected positive associations between start-up experience and superior firm performance in terms of financial results and employment growth. Further, Haynes (2003) found a positive relationship between entrepreneurial experience and higher annual sales. Dyke et al. (1992) conducted separate analyses for five industry sectors and they noted positive relationships between entrepreneurial experience and superior firm performance with regard to four out of five sectors. Delmar and Shane (2004) detected that new ventures pursued by more experienced firm founders had a lower hazard of disbanding than new ventures pursued by less experienced founders. In particular, prior start-up experience was found to reduce the hazard of completing product development, of initiating marketing and promotion, and the obtaining inputs. In 1994, Dahlqvist et al. (2000) collected data from 7,256 new enterprises in Sweden. Firm survival and performance was subsequently ascertained in 1997. A distinction was made between failure, marginal survival, and high performance. The respondents citing prior start-up experience were significantly less likely to cite marginal survival. Moreover, prior start-up experience was positively but not significantly associated with high performance. Dahlqvist and Davidsson (2000) explored links between entrepreneur profile characteristics reported in 1994 and the employment and sales size and perceived performance of surviving

88

Empirical Evidence

firms in 1997. Firms owned by entrepreneurs with prior start-up experience and those owned by portfolio entrepreneurs (termed parallel entrepreneurs) reported significantly larger employment and sales sizes. However, superior profit performance was not significantly associated with entrepreneurs with start-up experience, or portfolio entrepreneurs. A study of a representative sample of entrepreneurs in Scotland conducted by Westhead et al. (2003a, 2005a) detected several size and performance differences between novice, serial, and portfolio entrepreneurs. Reflecting a common weakness of studies focusing upon portfolio entrepreneurs, the survey instrument utilized failed to gather information on the characteristics and the performance of the other business(es) in which portfolio entrepreneurs have ownership stake(s) in. As a result, the full economic contribution of portfolio entrepreneurs in Scotland was not assessed. The univariate analysis conducted by Westhead et al. (2003a, 2005a) revealed that the average sales revenues of businesses in 1999 owned by portfolio entrepreneurs were larger than those owned by novice and serial entrepreneurs. On average, businesses owned by portfolio entrepreneurs reported larger absolute sales growth over the 1996 to 1999 period than those owned by novice entrepreneurs. A larger proportion of portfolio rather than novice entrepreneurs, reported that their current operating profit performance was above average relative to competitors. Further, a larger proportion of serial rather than novice entrepreneurs, reported that their current profit performance was above average relative to competitors. Supporting the finding relating to sales, portfolio entrepreneur firms were larger than those owned by other entrepreneurs in terms of total employment size in 2001. Moreover, portfolio entrepreneur firms, on average, reported higher absolute and percentage total employment growth over the 1996 to 2001 period, than firms owned by novice and serial entrepreneurs. Additional analysis revealed that the top 4% of fastest growing businesses owned by portfolio entrepreneurs in Scotland generated 55% of gross new jobs created, while the comparable subsample of firms owned by novice and serial entrepreneurs generated 44% and 38% of gross new jobs, respectively. Evidence suggests with reference to the surveyed firms alone that portfolio entrepreneurs accounted for more absolute employment growth than other entrepreneurs.

5.3 Performance

89

Ucbasaran et al. (2006a) monitored the performance of a large and representative sample of private firms in Great Britain. The multivariate regression analysis failed to detect any significant firm performance differences between surveyed firms owned by novice, serial, and portfolio entrepreneurs when other aspects of entrepreneurs’ human capital, the environment and organizational characteristics were considered. Alsos et al. (2006) gathered survey information from a representative sample of business start-ups in Norway. New firms owned by novice founders reported significantly lower early new business employment growth than those owned by serial and portfolio entrepreneurs. However, the latter difference was not detected when resource access was considered within a multivariate regression framework. Conversely, a recent study of MIT alumni found that entrepreneurial experience increased likelihood of firm success with regard to reported sales revenues (Eesley and Robert, 2006). The performance of novice and serial entrepreneurs in England was explored by Flores-Romero (2006). His analysis focused on selfemployed novice and serial entrepreneurs who at the time of the first survey did not have any employees. Serial entrepreneurs were significantly more likely than novice entrepreneurs to have subsequently employed people in their businesses. A notable contribution of this study was the monitoring of the employment sizes of all businesses previously and currently owned by serial entrepreneurs. On the downside, this study did not compare the performance of firms owned by portfolio entrepreneurs against those owned by novice and serial entrepreneurs. An important issue for venture capitalists is whether serial entrepreneurs perform better than other types of entrepreneurs (Wright et al., 1997a,b; Westhead and Wright, 1998a; Westhead et al., 2003a). There is tentative evidence to suggest that serial entrepreneurs are more likely to succeed in their next ventures than first-time entrepreneurs (Gompers et al., 2007). Further, entrepreneurs that have previously owned firms that have “failed” are subsequently more likely to own superior performing firms. This evidence suggests that firm performance is not solely shaped by luck alone. Serial entrepreneurs that leverage accumulated skills can improve the performance of the firms they subsequently own. Successful serial entrepreneurs do not achieve

90

Empirical Evidence

higher valuations than other entrepreneurs but venture capital funds investing in successful serial entrepreneurs are associated with higher returns. A firm started by a serial entrepreneur with successful track record is generally more likely to succeed if funded by a top-tier venture capitalist or one in the lower tier. This evidence suggests that previously successful entrepreneurs derive no benefits from value added services provided by more experienced venture capitalists (Gompers et al., 2007). 5.3.2

Entrepreneur Performance

Due to the focus on “winning businesses” rather than “winning entrepreneurs,” relatively few studies have monitored the performance of habitual entrepreneurs with regard to entrepreneur performance indicators. Entrepreneur performance can be assessed with regard to array of indicators. Westhead and Wright (1998c) noted that over 89% of novice, portfolio, and serial founders with businesses located in either urban or rural areas in Great Britain indicated they desired to grow their businesses. They detected that portfolio rural founders were somewhat more likely than other founders, especially novice rural founders, to have reported that they wanted their businesses to grow in the future. Also, they were more likely to have stated that they intended to increase the total employment size of the surveyed businesses. These differences were, however, not statistically significant. Westhead et al. (2005a) monitored the performance of entrepreneurs in Scotland. They found that a larger proportion of portfolio, rather than novice entrepreneurs in Scotland, had drawn out more than £75,000 during the previous 12 months. Similarly, Rønning and Kolvereid’s (2006) study of farm owners in Norway found that portfolio farmers with non-farm related enterprises and farmers with external employment reported higher household income than other farmers. Westhead et al. (2003b) asked habitual entrepreneurs whether they were satisfied with the surveyed business in relation to their first business. Over three-quarters of serial and portfolio entrepreneurs reported that they were satisfied with the surveyed business. Similarly, no

5.3 Performance

91

significant differences were detected between entrepreneurs with regard to their standard of living today compared to when they first established/owned the surveyed business. Irrespective of entrepreneur type, over 49% of entrepreneurs stated it was good and above average (50%, 53%, and 66% of novice, serial and portfolio entrepreneurs, respectively). An additional aspect of satisfaction relates to the willingness to start or purchase a business again in the future. They detected that a larger proportion of portfolio rather than novice and serial entrepreneurs indicated that they intended to establish or purchase an additional business. Other studies have found a positive association between prior entrepreneurial experience and the intention to start a business again (Kolvereid and Isaksen, 2006; Stam et al., 2006). Flores-Romero and Blackburn (2006), for example, noted that serial entrepreneurs following the closure of a business were markedly more likely to start another business than novice entrepreneurs. Wright et al. (1997b) have highlighted that the motivations for entrepreneurial activity may vary between the first and subsequent ventures, partly depending on whether the first venture had been successful in generating a significant capital gain. The willingness to establish an additional venture may be shaped by the reasons cited for the closure of the previous venture. An entrepreneur who closed a business because a better opportunity presented itself might be more willing to start another business than an entrepreneur who previously owned a business that closed due to business “failure.” Some entrepreneurs can learn from a business “failure” experience (McGrath, 1999). Conversely, the emotional effects associated with prior business “failure” may retard an individual’s subsequent ability to establish a further venture (Shepherd, 2003). Failure at a specific task can reduce an individual’s belief in their ability to successfully undertake that task in the future (Bandura, 1997). Recently, Ucbasaran et al. (2006b) detected that habitual entrepreneurs who had experienced “business failure” (i.e., closed a business due to bankruptcy/liquidation/receivership or because the performance did not meet expectations) did not report lower levels of confidence, nor did they pursue fewer opportunities than those who had not experienced

92

Empirical Evidence

“business failure.” Consistent with prospect theory, (Kahneman and Tversky, 1979), habitual entrepreneurs who had experienced a “business failure” pursued more opportunities than those who with no “business failure” experience. Entrepreneurs with prior “business failure” experience may perceive that they are in a loss situation. Prospect theory suggests that when confronted with a loss situation, individuals exhibit risk-seeking behavior. The latter individuals may pursue more opportunities to “catch up.” Alternatively, if entrepreneurs view the outcome of a venture as one of many (in the past, present or future), they may adopt an options perspective (McGrath, 1999) whereby they have “small bets” on more opportunities, and they accept that some opportunities will fail. Ucbasaran et al. (2006b) found that the relationship between having experienced a “business failure” and overconfidence was moderated by the number of successfully exploited opportunities. With reference to entrepreneurs that reported prior “business failure,” the level of overconfidence was higher for those who reported a high number of exploited opportunities perceived to be “successes” than those who reported few opportunities perceived to be “successes.” Entrepreneurs with prior “business failure” experience who perceive their subsequent firms to be successes can, therefore, accumulate the overconfidence liability.

6 Policy and Practitioner Implications

A movement from a small firm’s policy agenda (DTI, 2004) toward a more inclusive entrepreneurship policy agenda that places more emphasis on the entrepreneur and the entrepreneurial team is apparent (OECD, 1998; Westhead et al., 2003a, 2004, 2005c; Lundström and Stevenson, 2004). Yet, despite the habitual entrepreneur phenomenon being widespread, policy-makers and practitioners have been reluctant to introduce initiatives that address barriers to enterprise and firm development faced by experienced entrepreneurs. In order to maximize returns on their investments at national and/or local levels, policymakers and practitioners may seek to encourage the development of existing entrepreneurs firms (and firms), rather than solely to provide additional support to increase the supply of nascent entrepreneurs, novice entrepreneurs and new firms (Global Entrepreneurship Monitor (GEM), 2004; Westhead et al., 2004, 2005c). The review of evidence presented here suggests that policy-makers and practitioners need to appreciate more fully the needs, resources, behavior, and contributions of various types of entrepreneur when they are formulating policies (Westhead and Wright, 1998b, 1999). Rather than provide “blanket support” to all entrepreneurs, irrespective of 93

94

Policy and Practitioner Implications

their need or ability, there is a case to tailor support to each type of entrepreneur (Westhead et al., 2004). This strategy may be useful also for policy-makers concerned with rising business closure rates (Stokes and Blackburn, 2001). There is an emerging view that the retention of habitual entrepreneurs represents an important enterprise sustainability issue (Westhead et al., 2004, 2005c). If the objective of policymakers is to maximize the returns from their investment (Bridge et al., 2003), they may benefit from targeting their financial resources on encouraging potential “winning businesses” (Storey, 1994), or “winning entrepreneurs.” Based on survey evidence from Scotland, Westhead et al. (2003a,b, 2004, 2005c) suggest that to maximize returns from investments, policymakers and practitioners should consider allocating resources to portfolio entrepreneurs who are actively seeking to maximize wealth creation, as well as job generation. An important issue here is that from a policy perspective there may be a need to reconcile the private (i.e., the financial gains at the personal level for entrepreneurs and investors) and social returns (i.e., the employment as well as the wealth and taxation revenues generated) from habitual entrepreneurship. Westhead et al. (2004) suggest that schemes should be introduced to encourage the wider take-up and utilization of methods of best business practice exhibited by portfolio entrepreneurs, most notably with respect to facilitating access to business information. The benefits derived from a previous business ownership experience were found to be less clear for serial entrepreneurs. Initiatives, therefore, should be designed to provide customized assistance to serial entrepreneurs. Serial entrepreneurs who have owned a previously unsuccessful venture may require special external support to ensure that they can learn from their prior business ownership “failure.” There may also be a case to provide both serial and portfolio entrepreneurs with “hard” financial incentives through changes in the tax regime to encourage the investment of profits, or funds realized from the sale of a business, into subsequent ventures with growth potential. In addition, there may be scope to develop schemes that encourage novice entrepreneurs to take-up and exhibit the methods of best business practice displayed by successful portfolio entrepreneurs. Schemes

6.1 Opportunity Identification

95

could be introduced to establish mechanisms that encourage networking and information exchange between novice entrepreneurs and successful portfolio entrepreneurs. Below, we focus on three areas where policymakers may tailor their support toward novice, serial, and portfolio entrepreneurs.

6.1

Opportunity Identification

Habitual entrepreneurs may be particularly important to policy-makers interested in promoting an “enterprise culture” (Della-Giusta and King, 2006). Solely monitoring the number of new business startups and the stock of businesses, however, may not adequately assess the scale of an enterprise culture. Broader surrogate indicators of entrepreneurial intensity need to be monitored. Studies, for example, could monitor the opportunity identification behavior reported by “types” of entrepreneurs. Currently, there is scant empirical relating to whether some entrepreneurs identify more and/or better opportunities. Nevertheless, the current evidence base (Section 5.2.2) suggests that habitual entrepreneurs (particularly, portfolio entrepreneurs) identify more opportunities in a given period than novice entrepreneurs. Most notably, Ucbasaran et al. (2008a,b) detected that entrepreneurs with more business ownership experience identified significantly more business opportunities and more innovative opportunities, albeit at a diminishing rate. The latter more innovative opportunities may be associated with significant long-term wealth creation potential, and have an important role to play in meeting this objective of innovation policy. Ucbasaran et al. (2008a) detected that an entrepreneur’s human capital profile was significantly associated with the identification of business opportunities. Higher levels of education, managerial skill, entrepreneurial skill, and information search intensity were, for example, associated with the identification of more business opportunities. If one of the difficulties faced by serial entrepreneurs is in terms of identifying (innovative and profitable) business opportunities, policy initiatives to improve various aspects of their human capital could be introduced. Further, serial entrepreneurs may identify more (innovative and profitable) business opportunities if they have better access to information and broader networks.

96

6.2

Policy and Practitioner Implications

Information and Networks

Alongside the quantity of information, the nature of the information acquired may be important. Additional research is warranted to explore whether individual external agencies can provide the appropriate information (i.e., depth and quality) required by entrepreneurs seeking to identify and exploit business opportunities. Given the importance of personal information sources, entrepreneurs may benefit from additional network initiatives. Habitual entrepreneurs (especially portfolio entrepreneurs) may be able to work in collaboration with novice entrepreneurs to facilitate business opportunity identification and exploitation. Portfolio entrepreneurs generally identify more business opportunities but they may have less spare time to pursue them. Collaborative efforts, therefore, could be useful to ensure the pursuit and exploitation of a larger number of business opportunities. Recently, Mosey and Wright (2007) conducted in-depth interviews with both academic entrepreneurs and business development officers in England. They concluded that support initiatives, such as technology transfer offices and proof of concept funds, all helped attract industry partners to novice entrepreneurs. Most notably, they asserted that there was no obvious substitute for business ownership experience to address barriers to business formation and development. They recommended that initiatives should be put in place, which encourage inexperienced entrepreneurs to learn how to build relationships with experienced managers and potential equity investors (Mosey et al., 2007).

6.3

Business “Failure” Experience

There is a continuing debate surrounding the issue of “failure” amongst entrepreneurs. Ricketts (2006) noted that “failure” might reduce the entrepreneur’s human capital, which can restrict an entrepreneur’s ability to raise funds for future projects. However, this may be an unduly negative view of “failure” (McGrath, 1999). Some commentators have argued that as an alternative to many European models, there is a need to consider the United States model where government intervention is minimal and business “failure” (or “productive churn”

6.3 Business “Failure” Experience

97

(DTI, 2004)) is an acceptable part of life (Storey, 2004). Indeed, Sitkin (1992) has argued that in an effort to understand its causes, “failure” forces individuals to identify aspects of their thinking and behavior that need to be modified. To promote the benefits of “productive churn” the British government introduced the Enterprise Act (2002). More lenient bankruptcy laws make it easier for entrepreneurs who have “failed” to subsequently start and/or purchase businesses. With respect to the United States, Gropp et al. (1997) found that in states where bankruptcy laws were more generous, entrepreneurs faced greater difficulties in raising funds. “Hard” financial incentives through changes in tax regimes and bankruptcy laws may not promote the most efficient use of public resources. Policy-makers should carefully consider the wider implications of policy initiatives, such as relaxing bankruptcy laws. Policy-makers require further information to establish if “business failure” experience is as valuable as some people believe. Experience (positive or negative) may not be the best teacher. Indeed, the basic premise of attribution theory (Zuckerman, 1979) is that individuals have a tendency to attribute successes to themselves and failures to external effects, inhibiting unbiased learning. Further, Shepherd (2003) has asserted that the loss of a business through “failure” can cause the feeling of grief. This can lead to a negative emotional response interfering with the ability to learn from the events surrounding that loss. To overcome biases associated with learning from experience (especially “failure”), entrepreneurs may require guidance. Sitkin (1992), for example, distinguished between “failure” and “intelligent failure.” Shepherd (2004) has offered a number of suggestions and methods for helping “students” effectively manage their response to “failure.” Various bodies focusing on the training and skill development of entrepreneurs may deploy these methods.

7 Future Research

The purpose of this review was to highlight the human capital, behavior, and contribution differences reported by habitual entrepreneurs relative to novice entrepreneurs. An objective of this review is to encourage additional studies to provide fresh insights into the habitual entrepreneur phenomenon. A more substantial evidence base could be utilized by academics and practitioners who are seeking to understand the aspirations and needs of the entrepreneur (rather than solely the firm) throughout all stages of the entrepreneurial process, and not just the creation of a new venture. To enable policy-makers and practitioners to develop more appropriate policies toward different “types” of entrepreneur, additional in-depth and careful multidisciplinary research needs to be conducted (Westhead and Wright, 1998a,b,c; Carter and Ram, 2003; Westhead et al., 2004, 2005c). The scale and nature of novice, serial, and portfolio entrepreneurs needs to be assessed with reference to representative and large sample empirical studies conducted in a variety of industrial, locational, and cultural settings. Further, there is scope for both quantitative and qualitative studies to refine and validate the themes explored in this review. A number of important gaps in the knowledge base need to be addressed. 99

100

Future Research

In this section, an agenda for further research is presented with regard to the following broad themes: the nature of opportunities; information search; leveraging human capital; entrepreneurial teams; measures of habitual entrepreneurship; the role of the external environment; contexts for habitual entrepreneurship; and data and method issues.

7.1

The Nature of Opportunities

In the previous section, it was highlighted that habitual entrepreneurs identify a greater number of business opportunities in a given period than novice entrepreneurs. This evidence relates largely to the “quantity” rather than the “quality” (i.e., nature and value) of the identified opportunities. Additional research is warranted to explore the “quality” of opportunities identified by each “type” of entrepreneur. Debate surrounds how the value of an opportunity should be assessed. In part, this debate relates to the contrasting views surrounding what constitutes an entrepreneurial opportunity. Shane and Venkataraman (2000, p. 220) utilized Casson’s (1982) following definition of entrepreneurial opportunities: “those situations in which new goods, services, raw materials, and organizing methods can be introduced and sold at greater than their cost of production.” Conversely, Singh (2001) has asserted that the latter definition represents a post-hoc view, based on criteria stipulating profitability as a requirement for entrepreneurial opportunities. Post-hoc approaches do not control for confounding factors (e.g., external environment, mode of exploitation, an entrepreneur’s human capital profile, etc.), which can influence the performance of the identified and exploited business opportunity venture (i.e., the new firm start-up or the purchased independent firm). Alternative ways of exante assessing business opportunities need to be considered. Fiet and Migliore (2001) and Fiet et al. (2003) gathered responses from a panel of experts (i.e., entrepreneurs, financiers, and academics) who were asked to rank business ideas. Each business concept was assessed with regard to whether it could create and sustain a competitive advantage. The latter desirable approach is costly, extremely time-consuming, and relies on the subjective opinions of panel members. In contrast, Chandler and Hanks (1994) have designed a six-item scale to measure the

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quality of a business opportunity. This scale gathers the respondents (i.e., entrepreneurs) view on the competitive environment and the venture’s ability to sustain a competitive advantage. However, this scale does not assess whether the business opportunity from the outset had the capacity to create a competitive advantage. An alternative way of assessing the value of a business opportunity relates to the amount of initial finance used to establish/purchase a venture (Cooper et al., 1995). Cooper et al. (1994) have asserted that ventures with higher levels/proportions of external financing can represent propositions that are more promising because they have already passed the screening of lenders and investors. The number of partners who establish/purchase the business, in part, exhibits the more widely perceived viability of the business. Finally, the innovativeness of an opportunity is being increasingly used to gauge the wealth creating potential of business opportunities (Fiet, 2002; Shepherd and DeTienne, 2005; Ucbasaran et al., 2008b). Several measures should, therefore, be used to assess the “quality” of business opportunities. Future studies could also explore whether the motivations of entrepreneurs change and how this impacts the nature of subsequently identified, pursued, and exploited opportunities. Attitudes to risk exposure reported by habitual entrepreneurs who have accumulated significant wealth (Wright et al., 1997a) could be assessed in relation to the value of the opportunities they subsequently identify. Future studies might usefully undertake direct comparisons of initial and subsequent opportunity identification, pursuit and exploitation behavior reported by each “type” of entrepreneur.

7.2

Information Search

Kirzner (1973) asserted that systematic search for information would not lead to identification of an opportunity. Additional studies could explore the links between an entrepreneur’s information search behavior and their subsequent alertness to business opportunities. A distinction can be made between systematic search for information compared with behavior relating to scanning the informational environment with no particular opportunity in mind (i.e., disparate information is joined

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together to generate a business idea). Future studies should monitor habitual and novice entrepreneur behavior with regard to several opportunity identification stages (i.e., scanning the informational environment stage, the actual idea stage, and the systematic search stage to refine the idea). Differences in the human and social capital profiles of novice and habitual entrepreneurs may be associated with particular approaches to information search (Davidsson and Honig, 2003). The role of social capital may be especially important but the emerging theme (Alder and Kwon, 2002) has been generally neglected by habitual entrepreneur studies. On a positive note, entrepreneurs with prior business ownership experience may develop social capital that facilitates reduced costs of information search for subsequent ventures. As intimated above, successful habitual entrepreneurs with diverse social capital can attract, screen and support business ideas by other individuals who do not have the necessary human and financial capital resources to pursue and exploit an opportunity. On the downside, by becoming embedded in networks with familiar contacts (i.e., “strong ties”) (Uzzi, 1996; Elfring and Hulsink, 2003), some habitual entrepreneurs may face a restricted opportunity set. Utilizing network bridges (Mosey et al., 2007) to facilitate “weak ties” with new partners (or strangers) (i.e., individuals who can supply appropriate resources and legitimacy) can be used to address resource, operational and strategic barriers to the identification and pursuit of more innovative and profitable business opportunities. Additional research is, therefore, warranted that engages in a more fine-grained exploration of the social capital of habitual entrepreneurs and how social capital accumulation and leverage changes (or why it does not change) from one venture to the next.

7.3

Leveraging Human Capital

Business ownership experience can be viewed as one aspect of an entrepreneur’s human capital specific to entrepreneurship (Ucbasaran et al., 2006a, 2008a). As noted earlier, there is some overlap between human capital and cognitive approaches. Traditionally, human capital theory has assumed instrumental rationality and rational choices, whilst cognitive theories relates to embodied and/or

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situated rationality. Assumptions of bounded rationality may allow for better interaction between human capital theory and cognitive theories. Insights from both perspectives could provide a more informed understanding of the habitual entrepreneur phenomenon, for example, with regard to the following questions. To what extent do habitual entrepreneurs differ from novice entrepreneurs in terms of how they access and utilize information (rational or otherwise)? To what extent do habitual entrepreneurs adapt the nature of their rational or other behavior as they become more experienced? There are further opportunities for exploring the general versus specific human capital distinction in the context of habitual entrepreneurs. As discussed in Section 4.1.1.2, specific human capital may lose its value outside the specific context in which it is acquired and applied. Yet, a number of aspects of entrepreneurship or venture-specific human capital may retain their value in other domains, such as in managerial positions in established organizations. Business ownership experience may amplify the effects of general aspects of human capital, such as education and managerial human capital. There is a dearth of evidence relating to whether business ownership experience is a substitute, or a complement, to other dimensions of general human capital. Possible substitutes for business ownership experience need to be identified and considered. Chandler and Hanks’ (1998) study that explored the substitutability of human capital and financial capital provides insights to guide future studies. Additional studies could explore the interaction effects between business ownership experience and other general and specific human capital variables. The moderating (or mediating) role of prior business ownership experience needs to be considered in multivariate studies (Cohen et al., 2003). Studies have explored the link between human and social capital (Davidsson and Honig, 2003). Additional research is warranted to explore this issue with specific reference to habitual and novice entrepreneurs. In many cases, experienced entrepreneurs may have been able to accumulate financial resources, or due to their track record are in a better position to acquire funds (Wright et al., 1997a; Shane and Khurana, 2003). Cressy (1996) has argued that human capital variables

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are associated with both superior start-up performance (measured in terms of survival) and financial assets. It could be inappropriately concluded that a firm’s initial finance is a determinant of subsequent firm performance, and that all start-ups are finance-constrained. Cressy (1996) detected that an entrepreneur’s human capital profile was the “true” determinant of firm survival. He argued that the association between financial capital and firm survival was spurious. Further research exploring the relative importance of human capital and financial capital in relation to alternative firm and entrepreneur performance measures is warranted. The reluctance by some venture capitalists to provide funds to those entrepreneurs they have funded before (Wright et al., 1997b) is an area worthy of additional analysis. Gaps in the knowledge base relate to the extent to which venture capitalists change their contractual and monitoring arrangements for habitual entrepreneurs, and the implications for opportunity identification and pursuit as well as subsequent firm performance. Future studies, for example, could explore the following questions. Does the nature of venture capitalist monitoring become more lax if they appreciate the entrepreneur’s (or entrepreneurial team’s) assets of prior business ownership experience? Does the nature of venture capitalist monitoring become more sophisticated in relation to more risky business opportunities pursued by habitual entrepreneurs? Finally, entrepreneur and firm performance warrants additional research attention. Future studies need to monitor performance with regard to an array of performance indicators. The “productivity” of novice, serial, and portfolio entrepreneurs has been neglected. Future productivity studies need to consider the “inputs” and “outputs” associated with each “type” of entrepreneur.

7.4

Entrepreneurial Teams

The evidence base reviewed generally relates to surveys of firms. Single respondents from surveyed firms (i.e., key informants) provided information on their human capital profiles, behavior, (i.e., information search and opportunity identification behavior), and contributions.

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To address barriers to business formation (or purchase) and subsequent firm development, some key entrepreneurs attract other individuals to join the entrepreneurial team as equity stakeholders, either at startup (or purchase) and/or later on. Equity partners can provide both complementary human capital as well as access to greater internal financial resources (Ucbasaran et al., 2003a; Hayton and Zahra, 2005). In Section 5.1.6, the prevalence of entrepreneurial team experience by “type” of entrepreneur was highlighted. There is, however, a dearth of in-depth information relating to the composition of entrepreneurial ownership teams involving novice and habitual entrepreneurs. Studies exploring “how” and “why” entrepreneurial team members join and leave firms owned by novice, serial and portfolio entrepreneurs are warranted (Ucbasaran et al., 2003a; Vohora et al., 2004; Vanaelst et al., 2006). These processes will be difficult to discern from cross-sectional studies. Comparative static quantitative studies and in-depth qualitative longitudinal studies are required to provide fresh insights surrounding entrepreneurial team member stocks, flows, composition, power dynamics, and processes. Habitual entrepreneurs may be more adept at constructing teams with complementary skills. Future studies are required to explore whether habitual entrepreneurs, in fact, establish complementary teams. Studies could explore the following questions. Is opportunity identification and evaluation carried out by one individual? Are team members involved in all stages of opportunity identification, evaluation, and exploitation? Are habitual entrepreneurs more likely than novice entrepreneurs to recruit additional entrepreneurial team members to address barriers to creativity and information search? Do entrepreneurial teams associated with habitual entrepreneurs perform better than those associated with novice entrepreneurs? What are the learning differences reported by entrepreneurial teams associated with novice and habitual entrepreneurs? What is the nature of interaction between teams that include both habitual and novice entrepreneurs? In particular, do habitual entrepreneurs assume a dominant role and how does this affect the efficacy of the team? A further issue concerns the extent to which habitual entrepreneurs maintain the same team of partners in successive ventures. The following questions warrant attention. To what extent do habitual

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entrepreneurs change their partners? Why do these changes occur? Do they occur because of conflicts in the team or because individuals’ objectives begin to diverge? Are teams built to suit the opportunity/venture in question with respect to the human and financial capital needed, thus resulting in different teams each time an opportunity is exploited? A related issue concerns the implications of team member entry and exit as ventures owned by habitual entrepreneurs develop.

7.5

Measures of Habitual Entrepreneurship

Additional measures of habitual entrepreneurship should be considered in future studies. Cognitive dimensions of human capital (Busenitz and Barney, 1997; Ucbasaran et al., 2003d) cited by habitual entrepreneurs are worthy of more refined investigation. Variations in mindset (Sections 4.1.1 and 5.1.9) could be explored among sub-types of novice and habitual entrepreneurs. Ucbasaran (2004) has made a conceptual distinction between “experienced” and “expert” habitual entrepreneurs as well as between “pure” and “transient” novice entrepreneurs. “Pure” novice entrepreneurs are a sub-type of novice entrepreneurs that will remain one-time entrepreneurs because they have no intention of becoming habitual entrepreneurs. Ucbasaran et al. (2006a) noted that only 22% of novice entrepreneurs in their sample indicated an intention to establish or purchase a business in the future. Conversely, “transient” novice entrepreneurs represent a sub-type of novice entrepreneurs who intend to become habitual entrepreneurs. Habitual entrepreneurs can be split into “experienced” and “expert” entrepreneur sub-types. “Experienced” habitual entrepreneurs associated with several liabilities of prior business ownership experience may be unable to learn from their prior business ownership experience. Most notably, they may be associated with several cognitive biases (Section 5.1.10) that impair their subsequent decision-making and behavior. Conversely, habitual entrepreneurs who have accumulated assets from prior business ownership exposures and have learnt from their mistakes (i.e., “intelligent failure”) will become “expert” habitual entrepreneurs. Additional research is warranted to probe the reasons for cognitive differences between the

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four types of entrepreneurs. More importantly, research is required to explore the implications of these contrasting cognitive profiles on behavior (e.g., relating to identification and exploitation of innovative and profitable opportunities). Effective learning from experience may be shaped by “mindfulness” (Rerup, 2005), which is the quality of collective attention that enables entrepreneurs to minimize errors, remain vigilant, and respond effectively to unexpected events (Langer, 1989; Weick et al., 1999). Mindfulness may enable habitual entrepreneurs to better anticipate and respond to unexpected events and opportunities. However, mindfulness can require costly investments in time and effort. In certain circumstances, such as less complex situations, the benefits of mindfulness may be less apparent (Rerup, 2005). On the downside, too much mindfulness may lead to “paralysis by analysis.” Entrepreneurs may need to exhibit metacognition. As discussed above (Section 4.1.1), an individual’s cognitive processing needs to include awareness of thinking resources and skills. Awareness of one’s cognitive processes may allow individuals to detect when it is necessary to “switch cognitive gears” (Louis and Sutton, 1991) from mindfulness to mindlessness, or vice versa. Preliminary evidence from Gustafsson (2006) points to expert entrepreneurs’ ability to switch between different modes of cognitive processing. Further research is required to explore these issues with regard to each “type” of entrepreneur. Studies that explore links between an entrepreneur’s cognitive profile and superior firm (and entrepreneur) performance are warranted. However, a methodological challenge relates to identifying expert and experienced habitual entrepreneurs. Guided by expert information processing studies in other domains, Gustafsson (2006) defined an expert as a habitual entrepreneur who had no less than seven to ten years of experience since the first business start up. The wider applicability of the operationalized definition warrants additional research attention. Findings are needed with reference to narrow and broad expert entrepreneur definitions. In addition, alternative definitions of “expertise” need to be considered. Future studies could explore the cognitive and behavioral profiles of entrepreneurs who have owned businesses for the same number of years but have owned contrasting numbers of businesses. Further, a distinction could

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be made between the following three broad categories of business ownership experience: “success” (i.e., all prior businesses were “successes”), “failure” (i.e., all prior businesses were “failures”), and “mixed” (i.e., a mixture of prior business “successes” and “failures”). The following questions could be examined. Do the habitual entrepreneurs who have owned more businesses exhibit different amounts and types of learning? Do habitual entrepreneurs in the prior business ownership “success” category report different amounts and types of learning compared with entrepreneurs in the “failure” and “mixed” categories? Do habitual entrepreneurs in the prior business ownership “success” category subsequently own businesses that report superior levels of entrepreneur and firm performance (and productivity) than those owned by “failure” and “mixed” category entrepreneurs? Studies relating to expert habitual entrepreneurs may focus upon individuals who have owned three or more successful businesses.1 One of the potential problems with defining a habitual entrepreneur in terms of two business ownership experiences is that it does not control for luck and external factors. Numerous factors have been found to be associated with superior business performance (Storey, 1994), and the element of luck cannot be discounted. For example, an entrepreneur may have been successful due to factors outside his/her control in the first business. An entrepreneur may use the wealth generated by the first business to exploit a second business opportunity. This second business may then be “protected” by a buffer of financial resources accumulated with the luck associated with the first business owned. The success of three businesses may, therefore, be more likely to be attributable to the entrepreneur’s talent and expertise. The wider relevance of the latter definition is, however, debatable. The “rule of three” may be deemed somewhat arbitrary. Debate, in addition, may surround the term “success” and dimensions of its measurement relating to firm and/or entrepreneur performance indicators (see Section 5.3). Additional research is warranted to explore the transformation of novice entrepreneurs into “transient” novice entrepreneurs (i.e., individuals considering serial or portfolio entrepreneurship for the first 1 Based

on personal communication with James O. Fiet, professor of management and director of the Institute for Entrepreneurial Research at the University of Louisville.

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time), the transformation of “transient” novice entrepreneurs into serial or portfolio entrepreneurs, and the movement of serial and portfolio entrepreneurs across the two experienced entrepreneur sub-categories. Longitudinal studies monitoring the “stock” of human capital skills and experience of each “type” of entrepreneur, and the “flows” across the entrepreneur categories would provide rich process and contextual evidence (Westhead et al., 2005b).

7.6

The Role of the External Environment

Studies have explored the behavior of novice, serial, and portfolio in rural (Carter, 1998; Alsos, 2007) and urban (Westhead and Wright, 1998c, 1999) environments. The profiles, behavior, and contributions of habitual entrepreneurs (particularly, portfolio entrepreneurs) should be considered within several institutional and regulatory contexts (Saxenian, 1994; Rosa, 1998; Westhead and Wright, 1998b; Carter and Ram, 2003). Studies need to consider whether the creation and ownership of multiple businesses is shaped by the human capital profiles of entrepreneurs alone. In some national and regional contexts, the taxation regime and incentives, such as social security, may encourage some individuals to pursue careers in entrepreneurship, and to own more than one business at the same time. Additional research is warranted on whether the taxation regime can retard (or encourage) the prevalence of habitual entrepreneurship. Studies could also explore whether the taxation regime influences the choice of serial rather than portfolio entrepreneurship. Further, some entrepreneurs in transition economies decide not to grow their ventures rapidly or decide to own a number of smaller scale ventures to hide their personal wealth from the authorities or criminals. Additional research is warranted to explore the dimensions of habitual entrepreneurship in transition and developing economies. Evidence suggests that entrepreneurship is more widespread in certain industries than others (Shane, 2003; Eesley and Robert, 2006; Gompers et al., 2007). In highly dynamic and uncertain industries, entrepreneurs may be faced with a higher risk of failure, or shorter life-cycles for businesses. Individuals seeking to reduce their personal

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risk exposure may choose to establish/purchase several smaller sized firms, which are easier to resource and manage (i.e., select that portfolio entrepreneurship route). While some sector specific studies relating to portfolio entrepreneurs have been conducted (Carter, 1998; Alsos, 2007), a fruitful line of further enquiry would be to explore how the extent and nature of habitual entrepreneurship might differ across industries. For example, Eesley and Robert (2006) detected that serial entrepreneurs among MIT alumni were more likely in R&D intensive sectors. A further dimension of the external environment concerns the relative buoyancy of the macro-economic context. In the previous section, we commented on the role of luck with regard to multiple business ownership. In economic recessions, “luck” is likely to be a less frequent determinant of a habitual entrepreneur’s performance. A strong recession selection environment could lead to the quick closure (or filtering out) of inefficient new and established firms. Habitual entrepreneurs with broader human and financial capital resources may own firms that are better able to ride recessionary waves compared with novice entrepreneurs with narrower skills and knowledge to leverage. Further research is needed to analyze this issue.

7.7

Contexts for Habitual Entrepreneurship

In Section 2, business ownership was selected to justify the categorization of “types” of entrepreneurs highlighted in Table 2.1. A distinction was made between single business ownership (i.e., novice entrepreneurs) and habitual multiple business ownership sequentially (i.e., serial entrepreneurs) or simultaneously (i.e., portfolio entrepreneurs). Habitual entrepreneurship can, however, occur in several contexts beyond the establishment and ownership of a venture. An extended categorization of the nature of entrepreneurship is summarized in Table 7.1. In Section 2, we highlighted that business ownership can relate to the creation of a new business (i.e., de novo business) as well as the acquisition of an existing business. A distinction can, therefore, be made between entrepreneurship involving new business(es) as

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Table 7.1 An extended categorization of novice and habitual entrepreneurship by type of entrepreneur. Multiple activity Single activity

Nature of entrepreneurship Involving no Self-employment new legal entity

Habitual entrepreneurs

Novice entrepreneurs Novice self-employed

Sequential serial entrepreneurs Serial selfemployed

Simultaneous portfolio entrepreneurs Portfolio selfemployed

Serial founders

Portfolio founders

Involving New

De novo business

Novice founders

business(es)

Spinout (including corporate & university spinouts)

Novice spinout Serial spinout entrepreneurs entrepreneurs

Portfolio spinout entrepreneurs

Involving existing business(es)

Purchase (including buy-outs/ buy-ins)

Novice acquirers

Portfolio acquirers (e.g., leveraged build-ups)

Corporate entrepreneurship

Novice Serial corporate corporate entrepreneurs entrepreneurs

Serial acquirers (e.g., secondary MBOs/MBIs)

Portfolio corporate entrepreneurs

opposed to involving existing business(es). With reference to case study evidence, Ucbasaran et al. (2003b) found notable differences between “habitual acquirer” and “habitual starter” entrepreneurs with regard to their motivations and strategies toward opportunity identification and exploitation. Additional studies are required to explore the profiles, behavior, and contributions of “habitual acquirer” and “habitual starter” entrepreneurs. Existing organizations can generate new firms. The corporate entrepreneurship phenomenon is attracting increasing research attention (Sharma and Chrisman, 1999). Several recent studies have drawn attention to the formation of new spinout firms from universities based on academic inventions (Shane, 2003; Vohora et al., 2004). A distinction can, therefore, be made between entrepreneurship involving new business(es) which are de novo businesses as opposed to spinout firms (including corporate and university spinouts). In particular, an area

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of research and policy concern has been the extent to which spinout ventures are able to generate wealth, and how this can be achieved (Lambert, 2003; Lockett and Wright, 2005; Wright et al., 2007). A key distinguishing aspect relates to the notion that academics starting businesses may have fewer skills and social capital to support firm growth than those entrepreneurs emerging from a commercial environment. A further aspect concerns the quality of the support provided to these entrepreneurs, and the potential need to bring in surrogate entrepreneurs from outside the university in order to access the missing human capital required for commercial success (Franklin et al., 2001; Mosey and Wright, 2007; Mosey et al., 2007). Limited work has been conducted surrounding the opportunity identification behavior reported by academic entrepreneurs (Vohora et al., 2004). Future studies need to explore whether academic entrepreneurs who create more than one spinout experience beneficial learning effects. As the phenomenon of academic entrepreneurship develops, there is a need for further research that examines these issues. For example, do habitual academic entrepreneurs drawn from a non-commercial environment learn differently from habitual entrepreneurs drawn from a commercial environment after controlling for other factors? Mustar et al. (2006), Wright et al. (2007), and Rasmussen et al. (2006) have highlighted that university institutional environments are diverse with respect to their support for academic entrepreneurship. Recently, Mosey and Wright (2007) examined the human and social capital of nascent, novice, and habitual academic entrepreneurs. They suggest that in this environment structural holes between academics and financiers and professional managers appear to constrain novice entrepreneurs’ ability to gain entrepreneurial commitment, venture credibility and venture reorientation. In contrast, habitual entrepreneurs have been able to gain this knowledge though building network ties with equity financiers, professional managers, industry partners, and potential customers. Research colleagues have also been found to play an important role: less experienced entrepreneurs value their research colleagues as potential role models and more experienced entrepreneurs value their colleagues as potential sources of technological opportunities. Further research might usefully be undertaken that provides direct


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comparisons between the social capital of habitual entrepreneurs in university and non-university contexts. Additional research might analyze the extent to which there are complementarity and substitution aspects of the role of research colleagues, technology transfer offices, and surrogate (i.e., external) entrepreneurs (Mosey et al., 2007). Habitual entrepreneurship can involve existing business(es) relating to corporate entrepreneurship as well as the purchase of established organization through a management buy-out (MBO) or management buy-in (MBI). A further context where examination of the role of human capital in the opportunity identification and pursuit process is warranted concerns the case of secondary MBOs and MBIs. Secondary MBO/Is involve the refinancing and repurchase of an initial MBO or MBI. In a secondary MBO, typically, some or all of the management team remain, increasing their equity stake significantly as the original financiers are replaced by a new set (Wright et al., 2000). In a secondary MBI, a new external team may be involved in the purchase of an initial MBO or MBI. These transactions have become an increasingly important part of the private equity and buy-out market internationally (Centre for Management Buyout Research (CMBOR), 2005), and they are associated with several important policy and practitioner implications. A central question concerns the identification of the opportunity for creating further returns in the second deal, especially where the management and the initial set of financiers have taken actions to generate gains in the first MBO or MBI. For example, in the case of Maccess, the first MBO enabled management to establish the business as an independent entity after it had previously been part of a larger group but the venture capital financiers imposed tight restrictions on their ability to take entrepreneurial decisions. The second MBO of Maccess enabled the same management team to obtain a larger equity stake and more discretion to pursue growth opportunities through acquisition (Robbie and Wright, 1990). However, these actions created trading problems for the firm, which had to be rescued and restructured with the senior management being replaced. The latter types of habitual entrepreneurs need to be considered carefully. For example, are the opportunities in the second deal related mainly to

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the use of debt to fund the transaction, so that when this is reimbursed through cash flows, the new owners can achieve significant gains? Alternatively, are the opportunities related to the identification of new areas for organic growth that could not have been realized previously? A related type of MBO or MBI concerns the leveraged build-up (LBU). In these cases, entrepreneurs create a group of companies through a series of acquisitions based on an initial MBO or MBI, with the private equity financiers typically providing additional finance to enable these purchases. This kind of portfolio entrepreneurship activity raises interesting questions concerning the human capital and opportunity identification behavior of the entrepreneurs concerned. To what extent do these portfolios represent financial transactions where the opportunity involves consolidating fragmented sectors to create a larger group that can be subsequently sold? To what extent do the entrepreneurs involved possess expertise in identifying, acquiring, and integrating acquisitions versus expertise in growing businesses organically? To what extent are the gains obtained due to creating economies of scale and scope, or to arbitraging the difference between the typically lower purchase price earnings multiple paid for a smaller firm, and the larger exit price earnings multiple that can be obtained from selling a larger group? A final dimension that requires additional attention relates to the issue of ownership. Some entrepreneurs select the self-employment option. This form of entrepreneurship involves no legal entity. Evidence suggests that some individuals have multiple periods of self-employment activity (Flores-Romero, 2006; Flores-Romero and Blackburn, 2006). There is some concern surrounding whether the self-employment option actually captures entrepreneurial opportunity identification and exploitation. There is a long-standing and widely respected view that business ownership and entrepreneurial activity are complementary (Hawley, 1907; Fama and Jensen, 1983). Recent studies in the finance literature have generally regarded the start of a new business as an indicator of habitual entrepreneurship (Gompers et al., 2007). However, some corporate entrepreneurship scholars argue that entrepreneurship does not solely relate to business ownership (Guth


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and Ginsberg, 1990; Stevenson and Jarillo, 1990). Indeed, Wright et al. (1997a) have identified habitual corporate entrepreneurship in existing firms. Wiklund and Shepherd (2008) have warned that a considerable proportion of habitual entrepreneurship may be hidden if definitions of habitual entrepreneurship include ownership as a requirement. While more inclusive definitions of habitual entrepreneurship need to be considered that incorporate corporate entrepreneurship, there is a parallel problem that the extent of habitual entrepreneurship may be overstated if the notion of corporate entrepreneurship is too broad. This issue is linked with the wider unresolved debate concerning the nature of entrepreneurship. The conceptual and empirical boundaries of corporate entrepreneurship remain unclear. Moreover, the introduction of the emerging strategic entrepreneurship construct could add an extra layer of complexity (and uncertainty) which could rather than provide fresh and appropriate insights into the habitual entrepreneur phenomenon. Debate will inevitably surround the operationalization of habitual corporate entrepreneurship measures. For example, if geographic market expansion is considered as corporate entrepreneurship, experienced marketing managers may fall within the scope of habitual entrepreneurship. On the other hand, setting up new branches may require entrepreneurial initiative (Birkinshaw, 2003). Further definitional clarity is needed as well as consideration of the implications of using different definitions of corporate entrepreneurship. There is a need for further understanding of the factors influencing the choice between habitual entrepreneurship activities within an existing enterprise, and the decision to undertake such activities through the creation of a new venture. These factors may include the nature of the institutional and legal environment that may provide greater incentives to create a new legal entity, and issues relating to the remuneration of individuals engaged in such activities. A second aspect relating to ownership concerns the focus of attention hitherto on privately owned firms. Additional studies are warranted to explore the following questions. To what extent are habitual entrepreneurs present in initial public offerings (IPOs)? Are habitual entrepreneurs more likely to create firms that float on a stock market?

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7.8

Methods and Data Issues

There are no comprehensive lists of novice, serial, and portfolio entrepreneurs who have ownership stakes in independent private businesses or in other contexts. Information relating to independent firms is more widely available. Studies discussed in this review generally relate to information obtained from key informants (i.e., a decision-maker who is generally a founder and/or the principal owner) in randomly selected private firms. Efforts have been made to gather large and representative samples of firms. After pilot studies (i.e., content and face validity issues are considered), structured questionnaire survey instruments have been administered to key informants in firms. These instruments have allowed the subsequent identification of novice, serial, and portfolio entrepreneurs. The inclusion of corporate entrepreneurs in the definition of habitual entrepreneurship will, however, create even more challenges to the identification of relevant populations and samples. In many instances, questionnaire survey instruments were used to gather information relating to entrepreneur and firm profiles as well as surveyed venture performance. The information gathered from each informant is, however, not compared with the responses made by other equity holders in the surveyed firms (or entrepreneurial ownership teams). Some doubts may, therefore, be cast surrounding the subjective statements reported by these key informants. The issue of common method error bias in this area is now being appreciated (Ucbasaran et al., 2008a,b). Future studies need to gather information from more than one respondent in each surveyed firm (or entrepreneurial ownership team). If possible, secondary data relating to firm performance should be collected and compared with the “subjective” information gathered by the questionnaire survey. The former “objective” information is generally available for larger and more established limited liability companies. Unfortunately, this evidence is not collected and published relating to sole proprietorship and partnership legal forms that are frequently selected by habitual entrepreneurs. The operationalization of entrepreneur and firm behavior and performance measures warrants further attention. Measures of entrepreneurship in terms of firm start-up may be relatively clear.

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However, measuring entrepreneurship in existing corporations or in acquired businesses may be more problematical. This suggests a need for more conceptually grounded behavioral measures of corporate entrepreneurship, and an avoidance of convenience measures of strategy that can be taken as proxies of entrepreneurship. Studies that explore a single-item subjective scale relating to firm profitability, for example, may provide biased results (Table 5.2). Gimeno et al. (1997) demonstrated that entrepreneurs report different thresholds of performance. Entrepreneurs with superior levels of human capital and higher expectations for their ventures were more likely to exit from a business at a given level of performance. There is, therefore, a need for valid and reliable multi-item scales to be operationalized in quantitative studies focusing upon the performance of novice and habitual entrepreneurs. A further dimension of performance concerns the processes adopted by novice and habitual entrepreneurs in realizing the gains from their investments. First, there is a need for comparative examination of the gains achieved when businesses owned by novice and habitual entrepreneurs are sold, or floated on a stock market. Is there any evidence to suggest that habitual entrepreneurs create businesses with greater capital gains than those owned by novice entrepreneurs? To what extent are habitual entrepreneurs able to generate greater gains in their subsequent ventures? What influences these differences — is it the nature of the opportunity, an entrepreneur’s general and specific human capital profile, the motivations and skills of the entrepreneur, access to resources, etc.? Second, there is a need to examine the processes adopted by novice and habitual entrepreneurs in identifying and pursuing particular realization routes. Third, there is a need to consider what happens to novice and habitual entrepreneurs once the business has been sold, or floated. Do entrepreneurs remain with the business or leave, and over what time period? Wright et al. (1997a) provide some initial qualitative evidence that some entrepreneurs remain with the business when it is sold. Some of the latter entrepreneurs become disenchanted and leave to find another venture, or buy back the business they have sold. Fourth, there is a need to investigate the linkages between the previous and new ventures owned by portfolio and serial entrepreneurs, including learning aspects, resource transfer, and synergies.

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This review has generally discussed evidence from cross-sectional studies. Relatively few studies summarized in Table 5.1 were longitudinal. Surveys provide information relating to the scale and nature of key themes. On the downside, they have limited ability to capture details relating to the “why” and “how” aspects surrounding a phenomenon. Researchers concerned with exploring important process issues should consider using a variety of qualitative methods of data collection and analysis (Rosa, 1998; Ucbasaran et al., 2003b). Relatively few studies summarized in Table 5.1 explored qualitative data. Case studies can be used to examine each business owned by an entrepreneur and identify the motivations, opportunity identification process, and the performance of business owned. Qualitative studies may provide insights into the extent to which learning takes place between ventures owned by habitual entrepreneurs. Notably, longitudinal case studies may help to overcome problems of causality associated with cross-sectional studies. Longitudinal studies offer the advantage of being able to establish causal relationships between an entrepreneur’s human capital profile, entrepreneurial behavior and firm (and entrepreneur) performance. Specifically, longitudinal studies monitoring the “stock” of skills and experience of each type of entrepreneur, and the “flows” across the entrepreneur categories (Table 7.1) would provide rich process and contextual evidence. For example, they could explore the characteristics and skills associated with novice entrepreneurs who are able to transform into serial or portfolio entrepreneurs. Studies, in addition, might focus on the initiation processes leading to the ownership of subsequent ventures by experienced entrepreneurs, and “why” they accept or reject particular types of deals. Similarly, there is a need to understand “how” serial and portfolio entrepreneurs learn from their previous business ownership experiences. For the purposes of understanding wealth creation, there is a need to analyze the “quality,” rather than just the “quantity” of prior business ownership experience. There is also a need for research that analyses the total economic contribution of portfolio, serial, and novice entrepreneurs to local and national economies.

8 Conclusions

This review has examined the emerging literature relating to habitual entrepreneurs. Research in the area is moving beyond initial attempts to describe the phenomenon. We are starting to see scholars offering theoretical frameworks (e.g., human capital based frameworks) for the study of habitual entrepreneurship. These theoretical approaches have been used to explore human capital, cognitive, behavioral, and performance differences between novice and habitual (i.e., serial and portfolio) entrepreneurs. The elaboration of areas for further research suggests that studies are required to provide more informed understanding of habitual entrepreneurship, and the outcomes associated with the phenomenon. Table 7.1 has highlighted that there is considerable heterogeneity in the nature of habitual entrepreneurship beyond the ownership and creation of multiple new businesses. In particular, the nature of habitual entrepreneurship among acquirers, corporate entrepreneurs, multiple forms of self-employment, and comparisons between these different modes of opportunity exploitation remain to be examined and understood. Analysis of these areas would contribute substantially to the distinctive notion of entrepreneurship as centring on opportunity identification, pursuit, and exploitation. 119

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Research is beginning to provide insights into how opportunity identification and pursuit improves with prior business ownership experience. Nevertheless, important gaps in the knowledge base remain with respect to the “quality” (e.g., innovativeness and profitability) of exploited opportunities, their market penetration and financial performance, and the capital gains that are achieved. Extensive evidence suggests that the prevalence of entrepreneurship (i.e., new firm creation) varies considerably throughout the world (Minniti et al., 2006). Table 2.2 illustrated that a number of habitual entrepreneur and portfolio entrepreneur studies have generally been conducted in several developed countries. Surprisingly, the links between institutional context and extent and nature of habitual entrepreneurship are still relatively neglected. Most notably, there is a need for additional studies to focus on the habitual entrepreneur phenomenon in transitional and developing economies. Finally, this review has indicated a number of areas where policy may be able to refine its support for entrepreneurship. This would involve a general shift of policy and practitioner emphasis toward the entrepreneur and not just the firm, and to broaden the focus to encompass the development of firms (and entrepreneurs) and not just their creation. We also need to know more about the nature and effects of business ownership experience. Additional research attention is warranted surrounding the following questions. In particular, how and to what extent do entrepreneurs learn from their experiences? What are the effects of previous business “failure” and “success” experiences on the subsequent behavior of entrepreneurs and their firms? What are the implications for the development of future policy support?

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