MED · Micro-foundations of Entrepreneurial Dynamics

Micro-foundations of Entrepreneurial Dynamics

New firm creation is a major factor in improving economic performance as a mechanism for improving sector productivity, introducing innovation, and job creation. It is also a major career opportunity for many, including new immigrants and the upwardly mobile. Understanding business creation has been significantly enhanced by the development of longitudinal studies of the entrepreneurial process. The conceptualization of the process is represented in the figure below. These projects involve identifying representative samples of individuals actively involved in the creation of a new firm on their own as nascent entrepreneurs or on behalf of their employer, as nascent intrapreneurs. The purpose of longitudinal projects is to track their progress as they move through the firm life course. The Panel Study of Entrepreneurial Dynamics [PSED] protocol was developed in the U.S. in the 1990’s and implemented in two national projects (Reynolds and Curtin, 2009). Complementary national projects, based on the first U.S. PSED project, were implemented in Canada, the Netherlands, Norway, and Sweden. Additional projects, based on the second U.S. effort with a 2005 cohort, were implemented in Australia, China, Germany, Latvia, and another Netherlands effort (Reynolds and Curtin, 2010). Since the initial data sets were developed, over 100 peer review journal articles, dozens of book chapters, 18 dissertations and theses, and hundreds of conference presentations have been based on the PSED projects. Over 80% of the analyses in the public domain have utilized the U.S. data sets (the U.S. results are freely available online at ‘www.psed.isr.umich.edu’). The Marie Curie International Incoming Fellow, Professor Paul Reynolds, has focused on the facilitation of comparable panel studies in the U.K. and other European countries. This required addressing complications associated with the development of these longitudinal descriptions; these projects are expensive and require a three to five year commitment from a scholarly team. These challenges reflect the complexity of the phenomena. Because the prevalence of participation in business creation rate is rather low, only about one in twenty adults are involved, creating a representative sample of nascent entrepreneurs actively pursuing new firm creation involves screening a large representative sample of adults. Business creation is a relatively complex, multi-faceted endeavor which leads to a lengthy interview schedule. Adding to the complications it takes a number of years before the final status of many start-up efforts are known. In the US projects, over one in four (25%) were still in the start-up phase six years after initiating the new venture; less than two in five had reached initial profitability. As a result, completing follow-up interviews for 3 to 5 years after the initial contact requires a dedicated research staff with the resources to track and re-contact busy respondents. In the first year, from 1 May 2013 to 30 April 2014, the MC IIF was able to develop a draft of a detailed interview suitable for implementation across the EU, implement a small pilot study based on nascent entrepreneurs identified in the 2012 and 2013 UK Global Entrepreneurship Monitor surveys, and identify a total of five national teams with an interest in implementing harmonized projects in Finland, Latvia, Spain, Switzerland, and the U.K. In the second year, from 1 May 2014 to 30 April 2015, the five national teams contributed to an open discussion of creating a harmonized research design on 18 August 2014, all five national projects initiated screening to identify nascent entrepreneurs and complete the first detailed interviews, and a follow-up interview was designed and implemented with the respondents to the UK 2013 pilot study. The data collection phase of these five nation effort is going well, considering the complications associated with identifying national teams, and the ability of each national team to assemble the resources required to implement each project. Additional projects are in development in Egypt and Norway. While it will be some years before the full longitudinal data sets are available for detailed analysis, some preliminary results from the UK pilot study have immediate policy relevance, including: • The extent of involvement by women (which are one third of the total, a substantial minority) and ethnic minorities, which are less than 5% of the total; over 85% were born in the U.K. • Slightly more than half have university or post-university degrees. For more than half this is their first start-up effort; they have an average of about 25 years of work experience. • Half of those in the start-up process were not aware of any programs to assist start-ups; those that used such programs found them quite helpful and would recommend them to others. • Those that disengage do so for personal reasons, problems in attracting customers, complications in getting the business organized, and, fourth on the list, is the inability to secure financial support. These are similar to the findings from other national longitudinal studies of the business creation process. Once three to four years of data has been collected on the start-up process has been collected, the most important new information that will emerge from this five nation comparison is the proportion of nascent ventures that achieve profitability. In the U.S. this has been about one-third of the nascent ventures after 6 years in start-up process. It may be higher in European countries, reflecting the tendency for European nascent entrepreneurs to be older, perhaps more experienced, and better prepared for the business creation experience. This may reflect greater negative sanctions associated with start-up terminations in Europe, reducing the tendency, compared to their American age-peers, of the young and frivolous to purse this option. Further, it will be possible to determine how differences in types and sequences of the start-up activities implemented in the firm creation process are related to the different outcomes—initial profits, disengagement, or persistent in the start-up mode. These may vary across the different national projects, which represent the major regions of the EU—Scandinavia, Central Europe, Germanic countries, the Mederitteaan border countries, and Anglo countries. This will provide major opportunities for scholars to explore business creation in different contexts. References Reynolds, Paul D. and Richard T. Curtin. 2009. Business Creation in the United States: Entry, Startup Activities, and the launch of New Ventures. Chapter 7 in U.S. Small Business Administration, The Small Business Economy: A Report to the President 2008. Washington, DC: U.S. Government Printing Office, Pg. 165-240. Reynolds, Paul D. and Richard T. Curtin (Eds). 2010. New Firm Creation: An International Overview. New York: Springer. Reynolds, Paul D., Mark Hart, and Thomas Mickiewicz. 2014. The UK Business Creation Process: The 2013 Panel Study of Entrepreneurial Dynamics Pretest. Birmingham, UK: Aston Business School, Enterprise Research Centre.

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