04 november 2003
People who are setting up a business and perceive the risks of the market to be low have a higher chance of getting their business started than people perceiving their market riskier. Why does one person actually succeed in starting a business, while another person gives up? To investigate this issue, a sample of 517 nascent entrepreneurs (people in the process of setting up a business) was followed over a three year period. After this period, it was established that 195 efforts were successful and that 115 startup efforts were abandoned.
Our finding that risk perception predicts pre-startup succes is to some
extent circular, as people who perceive less risks will start earlier, whether
their risk perception is accurate or not. The same reasoning applies to starting
full-time, which is found to render more succes than starting part-time: The
decision to switch from part-time to full-time may be grounded on clear
indications that the entrepreneur can indeed start the business.
Nascent entrepreneurs who intend to use more start-up capital have lower probabilities to get their business running. Change in required start-up capital (along the process) also has a significant effect. In other words, those who lowered their capital requirements increased their chances of getting started. Nascent entrepreneurs wishing to start out in manufacturing have a higher probability of success in comparison with nascent entrepreneurs in other sectors.
Our research contributes to the existing literature in this field by estimating the relative importance of a variety of approaches and variables in explaining pre-startup success. These influences are organised in terms of Gartner's (1985) framework of new venture creation. This framework suggests that start-up efforts differ in terms of the characteristics of the individual(s) who start the venture, the organisation which they create, the environment surrounding the new venture, and the process by which the new venture is started. Logistic regression analyses are run for the sample as a whole as well as for subgroups within the sample, namely for those with high ambition vs. low ambition and for those with substantial vs. limited experience.
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07 november 2003
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