Volume 19, Number 2 Article by Pradeep Banerjee June, 2007
Handbook of Entrepreneurial Dynamics – The Process of Business Creation : Edited by W B Gartner, K G Shaver, N M Carter and P :
The entrepreneur has a long history, as has scholarly interest in him. Richard Cantillon, writing his text entitled Essay on the Nature of Commerce in General in 1730, used the French term entreprendre probably for the first time in context; it means ‘to undertake’. It was John Stuart Mill who introduced the entrepreneur to English readers in his 1848 text Principles of Political Economy with Some of their Applications to Social Philosophy, at a time when the social scenario was bustling with industrial and commercial activity and men were seized with a passion for new types of economic activity. It was easy to recognise the entrepreneur in this milieu. Academicians, however, were not so sure about the role of the entrepreneur, and preferred to focus on the static equilibrium nature of the economy. It was left to Joseph Schumpeter to bring the entrepreneur to centre stage, describing him as the most colourful figure in the capitalist process. Since then, a lot of research has focused on understanding entrepreneurial activities. As the authors point out, we can see the results of entrepreneurial activity in the form of new businesses and innovations, but we have limited information on how these new businesses actually came into existence and what the factors determining the success or failure of these ventures are. The absence of meaningful research into the subject is a shortcoming that this compilation is intended to address. Following a study published in the 90s on nascent entrepreneurs in Wisconsin, USA, steps were initiated to start a research programme involving more than a hundred researchers from ten countries, all working under the aegis of the Entrepreneurship Research Consortium (ERC). The ERC, funded by universities and other research foundation bodies, functioned as the organising group for what has come to be known as the Panel Study of Entrepreneurial Dynamics (PSED). The PSED research efforts were focused on new business formation, using theory to develop questions that would depict the phenomenon of business creation in a comprehensive and generalisable manner. The main objective of the PSED research programme was to answer the question – Where do new firms come from?The entrepreneur has a long history, as has scholarly interest in him. Richard Cantillon, writing his text entitled Essay on the Nature of Commerce in General in 1730, used the French term entreprendre probably for the first time in context; it means ‘to undertake’. It was John Stuart Mill who introduced the entrepreneur to English readers in his 1848 text Principles of Political Economy with Some of their Applications to Social Philosophy, at a time when the social scenario was bustling with industrial and commercial activity and men were seized with a passion for new types of economic activity. It was easy to recognise the entrepreneur in this milieu. Academicians, however, were not so sure about the role of the entrepreneur, and preferred to focus on the static equilibrium nature of the economy. It was left to Joseph Schumpeter to bring the entrepreneur to centre stage, describing him as the most colourful figure in the capitalist process. Since then, a lot of research has focused on understanding entrepreneurial activities. As the authors point out, we can see the results of entrepreneurial activity in the form of new businesses and innovations, but we have limited information on how these new businesses actually came into existence and what the factors determining the success or failure of these ventures are. The absence of meaningful research into the subject is a shortcoming that this compilation is intended to address. Following a study published in the 90s on nascent entrepreneurs in Wisconsin, USA, steps were initiated to start a research programme involving more than a hundred researchers from ten countries, all working under the aegis of the Entrepreneurship Research Consortium (ERC). The ERC, funded by universities and other research foundation bodies, functioned as the organising group for what has come to be known as the Panel Study of Entrepreneurial Dynamics (PSED). The PSED research efforts were focused on new business formation, using theory to develop questions that would depict the phenomenon of business creation in a comprehensive and generalisable manner. The main objective of the PSED research programme was to answer the question – Where do new firms come from?
The chapters that make up this handbook, written by PSED participants, accordingly represent the primary theoretical viewpoints upon which the process of business creation was explored as well as the methodology used – such as interviews and questionnaires – to build on these theories. The research programme has been structured around a conceptual model arrived at as representative of the entrepreneurial process. The model recognises the entrepreneurial process as a three-stage process with three points of transition, operating in an environment consisting of political, social, and economic factors that continuously impact the process. The first stage in the start-up process is constituted by all the individuals in a labour force, among whom a certain number might make up their mind to establish a business. Nascent entrepreneurs are identified as those who set up a new venture, while nascent intrapreneurs are identified as those who are sponsored by existing business units to set up their start-ups. The first point of transition, termed as ‘conception’, occurs when individuals elect to pursue a new business start-up. This transition is influenced by a number of factors, which are grouped under demographic or life context factors and cognitive factors. The theories built up to account for these factors address two primary research questions: what is the tendency of individuals to begin the business start-up process?; and what are the features of these individuals or their situation that lead some to enter this transition? The next stage in the business formation process is the start-up process per se. The primary question that is sought to be addressed here is, how do nascent entrepreneurs go about the process of starting firms? While supportive demographic and cognitive factors like age, income and skills could enhance the chances that a successful business venture may be created, entrepreneurs, as Gartner and Carter explain in an overview of the start-up process, cannot think a business into existence. ‘Entrepreneurs must do something, and their actions must involve creating a specific kind of business that fits with the specific social, economic, and environmental context.’
The activities that an entrepreneur engages in the start-up process could result in one of four outcomes – the creation of a firm, or ‘firm birth’; the nascent entrepreneur ‘still trying’ to start the business; the entrepreneur putting the start-up process ‘on hold’ with a determination to work on the process at a later date; and the nascent entrepreneur ‘giving up’ on the process and discarding the start-up plan altogether. The second transition point in the model is considered to happen on occurrence of the event of ‘firm birth’. The research question addressed at this point is why some business start-up efforts are successful in creating new firms. The third stage of the model looks at what happens after an infant firm has been set-up. Here the possible outcomes are the growth of the firm, persistence of the firm, or the firm quitting operations. The research question applicable to this stage is, why are some firms more likely to grow, persist, or die?
This model forms the core of the PSED research programme and the theories that have been put into use and the research design that has been adopted work around this core. The book has, accordingly, been structured with the model and its elements being described at the first instance, the theories about each of the stages being provided next, and write-ups on research design, data collection and data analysis forming the final part. Starting with a foreword that focuses on the ‘conceptual model’ of the entrepreneurial process as the starting point of the text, the editors have organised the theories connected with the entrepreneurial process into four domain areas. Each is thoughtfully introduced with an overview of the domain theme followed by essays related to the theme under discussion.
Part one of the text, titled ‘Demographic Characteristics of the Entrepreneur’, has dedicated chapters on gender, race and ethnicity, household structure, household income and net worth, labour force participation and residential tenure, personal background, time use, work and participation history. This is a wide coverage of factors that can be expected to play an important role in the early history of an entrepreneur. It is research into these areas that is expected to enable identification of ‘the major processes that lead to the emergence of new firms’, as envisaged in the model. The other three domains include ‘Cognitive Characteristics of the Entrepreneur’ (focusing on such factors as motivations, cognitive processes, and personal skills of the entrepreneur), ‘The Start-up Process’ and ‘The Entrepreneurial Environment’.
While the social and the personal factors work as push factors that account for the decision to become an entrepreneur, it is the process thereafter which accounts for the nuts and bolts of entrepreneurial action. The business formation process is an important ingredient of the PSED model and the chapters constituting the domain ‘The Start-up Process’ attempt to provide the reader with theory and ideas about the factors that influence the process of business formation and characterise it, including recognition of and response to opportunities, start-up activities, start-up problems, the case for social network in the context of entrepreneurial opportunities, the extent of utilisation of institutional set-ups catering to assisting new business creation, and the role of funding specifically during the early period of creation of new ventures. The last group of papers is about the entrepreneurial environment in which the ‘firm birthing process’ takes place. The chapters cover topics related to the perception of individuals about the prevalent entrepreneurial climate and perceptions about environmental uncertainty, among others.
The conclusion of the book brings in an interesting aspect of the PSED research programme, in that it invites readers to participate in the programme. It offers interested researchers use of the database that has been gathered over the years, the theoretical inputs that have been made available, and the research design provided in the programme, to add to the existing understanding of entrepreneurial dynamics and business creation. In a sense, the PSED research effort is being offered as a continuing one in which many could share benefits from accessibility to current and future research.
The Handbook is a good introduction to the efforts undertaken to understand entrepreneurial dynamics in the process of business creation, and would be of use to those working in the area of entrepreneurial research. The availability of the methodology along with temporal data is a plus point. A major gain to a researcher in this area of research is the entrepreneurship model per se and the theoretical inputs that have been aggregated around the model. It can offer starting points for additional research, including country specific research. That the Global Entrepreneurship Monitor project and other country specific studies have taken note of the PSED methodology is an indicator of acceptance of the framework and a probable incentive for individual researchers to seriously consider the invitation to join the programme.
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