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16 Sep 2014

Research: How can the start-up process be accelerated?

Success or failure of new businesses is what most studies related to the start-up process focus on. However, in today's dynamic market, time is a highly critical issue for nascent entrepreneurs. Moreover, the entrepreneurs' individual actions and behavior are not the only key factors to successful and timely creation: the type of opportunity that they choose to pursue is also crucial. What precisely enables some entrepreneurs to move forward more quickly than others in the creation process?

This article by Erno Tornikoski is the subject of the 8th GEM LAB Executive Summaries.

Using a large dataset of individuals building their own start-up in the US, and who have been followed on an annual basis, the study shows empirical evidence that the initial decisions made by nascent entrepreneurs regarding a business opportunity not only have long-term impact on the organization but also strongly affect the time needed to create a new organization.

The most significant factor is the entrepreneur's skills and previous experiences regarding the opportunity domain. The more familiar the individual is with the business opportunity and its environment, the faster the start-up will be up and running. This is easy to explain as industry networks, resources and up-to-date knowledge significantly facilitate opportunity recognition, and the involvement of external stakeholders such as investors or talented employees.

The second insight brought by this study is rather counter-intuitive. It reveals that the technological novelty of a service or a product not only reduces the time until first hiring, but also tends to accelerate the whole process of creation. This surprising result can be linked to the necessity of quickly moving forward in a field where the window of opportunity is constantly shrinking.

Both the entrepreneur's knowledge base regarding the opportunity and its technological novelty accelerate the process of business creation.

In a more detailed analysis, the researchers highlight the fact that access to outside funding is made easier by both the familiarity of the entrepreneur with the targeted market and the previous existence of similar products on the market. Investors are more reluctant to get involved in a business if they consider that the market is not ready for it.

If the priority is to attract talents rapidly, then the three factors observed in this study have to be taken into account. A skilled and experienced business leader developing a product or service familiar to the market and which uses new technologies is the most likely to hire quickly and efficiently.

Key points

  • The entrepreneur's profile matching the pursued business opportunity is essential to the start-up's success and the time taken to achieve it. Previous experience and cutting- edge knowledge of the opportunity domain do accelerate the creation process.
  • The entrepreneur's familiarity with the opportunity he or she decides to pursue has a real influence on the attitudes of external stakeholders, making both hiring and external funding easier.
  • To optimize the chance of finding outside funding or attracting talent, it is better to promote a service or product that is not entirely new to the market.

From the article

Timely creation of new organizations: The imprinting effects of entrepreneurs' initial founding decisions
Erno T. Tornikoski & Maija Renko
M@n@gement

Contacts
Mara Saviotti