Entrepreneurial Behavior and Challenges in Start-Ups

This dissertation will set out the answer to my research question, “Entrepreneurial behaviour and how business start-ups fail?” In order to properly answer the question, this dissertation is structured in a particular way. Important research methodologies as well as analytical tools will assist in exploring as well as examining entrepreneurial behaviours as well as the challenges opposing business start-ups. It will discuss the process and limitations entrepreneurs face when starting a new venture. To sufficiently answer this dissertation question, the report has so far been classified in three main parts which are going to demonstrate and examine the entrepreneurial behaviours and business start-up challenges. Brief focus will also be paid to GMMS & Friends, a company I personally started with two colleagues.

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In the first section of this dissertation the reader will be introduced to GMMS & Friends, its operational activities and cause of failure.

A literature review will be the second section of this paper, where entrepreneurial behaviours are critically analysed. It enables the reader to get an insight about what sort of traits are needed in order to successfully start-up a business and the different strategies needed to remain competitive. Furthermore, this section covers the most important points for an entrepreneur to estimate their risks of operating in a new market as well as the essential points which will need to be observed in order to be successful. Aspects that have been discussed in the literature review are general traits of entrepreneurship. The process an entrepreneur goes through when deciding whether to follow through with an idea or abandon the idea has also been discussed. Micro and macro factors have also been addressed which enables the reader to get a clearer insight about the economical fluctuations hindering entrepreneurs to start-up a new business. The third section of this dissertation is “Research Methodology”; an overview is given of the key research methods used to collect data. The collection of the data has been carefully outlined in this section and it also shows how this information is used as well as explained by means of the different models. Additionally, the researcher has made usage of vital interviews to further foster the research but also to support his points with the help of primary information coming from young entrepreneurs, multinational business managers, and other influential individuals with expertise in this sector.

Background Information – GMMS & Friends

GMMS & Friends was a company founded in 2005. It operated under the Young Entrepreneurs Switzerland (YES!) Program in Zurich.

We set out to produce iPod socks, T-Shirts and hats. After carefully analysing the industry we found it was most profitable to have our manufacturer in China. After conducting careful surveys and questionnaires both in schools and the city centre, we ordered our first prototypes. We had organized an investors meeting and finally presented our business plan. Financial projections were lucrative and thus more capital was invested in our idea. After a rough start, GMMS & Friends took of as orders kept coming in. The first signs of possible set-backs occurred when a mass order came in with the wrong designs. This is where problems started with our manufacturer, although this was the only time an order came with the wrong design, there were always delays.

A more in-depth analysis of the company will be made in the Findings section of this dissertation.

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Literature Review

The broad literature on entrepreneurship can be divided into two categories, mainly focusing on individuals and structure (Martinelli 1994, Thornton 1999). The first category sets out to explain the prevalence of entrepreneurs in terms of instinctive psychological traits or how special characteristics are formed in certain social groups. The second category highlights how social and cultural structures motivate entrepreneurs by providing opportunities for entrepreneurship. The goal is not always to explain entrepreneurial action on the micro level, but rather the amount of entrepreneurial activity in a certain place or time (Reynolds 1991).

David McClelland’s ‘The Achieving Society’ (1961), was an early and important contribution to the study of entrepreneurial individuals. McClelland argued that some societies have cultural attitudes which translate into primary socialization practices that encourage entrepreneurial individuals. Kets de Vries (1977) similarly argued that the entrepreneurial personality was the result of a particularly painful childhood. Other researchers have linked the entrepreneurial personality to risk-taking susceptibility, internal “locus” of control, tolerance for uncertainty; over-optimism and need for autonomy (cf. Delmar 2000).

On the other hand, the structural category of literature looks to understand how social, cultural and institutional factors stimulate entrepreneurship. It is argued that cultural and institutional support, including good access to resources, is what encourages entrepreneurship (Martinelli 1994). Researchers often emphasize the special influence of organizations and especially prior employment in established firms (Freeman 1986). Organizations are said to serve three critical functions: they provide opportunities to build confidence especially in the ability to create new organizations; provide general industry knowledge and specific information about entrepreneurial opportunities; and provide social networks and access to critical resources (Audia and Rider 2005).

Entrepreneurial behavior theories argue that there is a specific course of action, namely: Discover a problem, Develop a solution, Accumulate resources, Market the product, Create an organization, Produce, Sell (Block and MacMillan 1985). Moreover, Delmar and Shane (2003) also argue that entrepreneurs prefer a specific sequence of events. In one of their investigational studies, they found that “following the correct sequence of organizing activities is beneficial to firm founders”.

Nonetheless, a number of other investigational comparisons suggested that there is no particular sequence of behaviors associated with entrepreneurial success (Gartner and Carter 2003).

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High levels of entrepreneurial activity among emerging entrepreneurs were positively related to success (Carter et al. 1996) as some of the investigations show. The investigations continue by stating that those who started a firm and those who failed had parallel activity patterns. Both groups spent a lot of energy and effort by undertaking many activities early on in the start-up process. What we learn from these investigations is that entrepreneurs should generally speed up the venture process so that the value of an identified opportunity may be evaluated as soon as possible (Carter et al. 1996).

Furthermore, Gatewood et al. (1995) categorized start-up behaviors into five categories: gathering market information, estimating potential profits, finishing the groundwork for the business, developing the company structure, and setting up operations. The experiment found that setting up operations was the only category of behaviors that correlated with venture creation. Carter et al. (1996) similarly found that tangible activities which made the venture appear ‘real’ to others were common among successful entrepreneurs. These findings support the idea that entrepreneurs who undertake tangible and highly visible activities, and ‘act as if’ they are in business, will increase their chances of survival by signaling legitimacy and credibility to customers, investors, potential employees and other stakeholders (Gartner et al. 1992, Carter and Gartner 2003).

There is one main concept which is contested within entrepreneurship, and this concept is “planning”. It is argued that business planning has been ignored in the literature. Activities such as gathering and analyzing information, identifying risks and establishing a business strategy are highly valuable especially under conditions of high uncertainty (Delmar and Shane, 2003).

Most of the entrepreneurship literature, which often promotes fast action and opportunistic adaptation rather than careful planning as ways to reduce risk and increase development speed (Bhidé 2000), is herewith contradicted. Honig et al. (2005) use data similar to that of Delmar and Shane (2003) but reach an almost opposite conclusion. They found that incremental and adaptive learning strategies were beneficial in developing new ventures whereas systematic and more formal planning activities were found not to impact venture progress at all.

Although entrepreneurship is often associated with profit, it is not always true to say so. For instance the focus on entrepreneurship in combination with the uncertainty of the future, suggests that the actions that turn out to be profitable are not always economically motivated. Since all forms of socially embedded action may potentially lead to profitable opportunities, all actions should be considered as potentially ‘entrepreneurial’ actions. The results of networking and building up social capital may identify potential risks and disclose new opportunities. However, this is typically not why such activities are undertaken. Social networks are often built up for reasons other than their potential economic value (Arrow 2000).

Research Methodology

This research methodology will provide an introduction to the area, the style and the approach applied by relating primary and secondary research. In order to acquire relevant data the time frame has to be examined in detail. The Examination of important factors and the improvement of the level of observation throughout the process will most likely lead to an informative outcome of this case study.

A high level of discipline will be required throughout the progress of this report in order to conclude adequate recommendations from the outcome of the discussion.

Theoretical research program

Program areas

The research program consists of two areas, which are the actual techniques and the general style. The applied techniques supply the adequate information with a key role. The style refers to the collection of useful information and how this has been done in order to respond to the initial question of the case study (Swetnam, 2009).

Research style

Objective and subjective research styles are regarded to be the most common ones. They are indicators for the capability of applying appropriate research techniques. The objective research style refers to physical characteristics, laws, rules, surveys and experiments. It is mainly used in the sector of physical art. (Swetnam, 2009). Throughout the case study objective and subjective research styles will be applied.

Research approach

In order to provide an adequate outcome of the discussion the research approach must suit the structure of the case study. The process of collecting relevant sources throughout the progress of time will enable the reader to develop a constantly increasing understanding of the content, which will result in applicable recommendations. (Swetnam, 2009)

The application of the research program

Subjective Research Style

Throughout the examination of primary research principals it has turned out that subjective research style is the most effective way in order to gain relevant information on areas such as entrepreneurship, the development of small enterprises and the resulting challenges for entrepreneurs.

The combination of these three topics implies a flexible program and a high degree of evaluation to distinguish suitable information from the main stream. Consequently, an appropriate evaluation of the topic required objectivity.

The literature review has resulted in several questions:

  • What kind of person makes a successful entrepreneur?
  • How does one determine whether he or she is capable of starting a business?
  • Why is location the most important aspect of a new business?
  • What are the resulting challenges for managers?
  • Why is competition important?

These questions are mainly objective as it is crucial to apply measurable data in order to respond to them adequately.

Co-relational research has been identified to be the best way to come to a final outcome. The style includes the identification and analysis on various research areas and relates them to each other. These research areas include an overview of entrepreneurship, start-up failures, and key characteristics of entrepreneurs, the resulting challenges for managers and other important factors of influence.

Time frame strategy

Setting a specific time frame is necessary for this case study. The time frame concerning the analysis of the research is not so wide as the case study refers mainly to the last three decades. This has been identified as essential to illustrate the development of entrepreneurship and the progress it brought upon the world economy.

Variables

The involvement of human beings in analysis or related research processes often produces an invalidity of the information due to the fact that human behaviour is measurable. To produce an in-depth analysis, it is crucial to apply primary research and get access to valid case studies. The case study includes dependent and independent variables.

Techniques

Primary research

Primary research methods, especially the interviews, are regarded to be very important to enforce the argumentation. Furthermore, it is important to link the outcome of the primary research methods with the findings through secondary research. This will finally support the adequacy of recommendations provided from an objective point of view.

The following interviews have thus far been arranged:

  • Adel Al Saleeh, Group President Europe IMS
  • Marc Princen, Group President Eastern Europe, Middle East and Africa MSD
  • Miguel Burger, CEO GMMS & Friends

Secondary research

Applicable information has been mainly extracted from topic related books, magazines, and reports. The selection of sources is important for the final outcome. The Internet has turned out to be a useful channel to get access to updated information and data.

Newspapers

It became obvious that sources from newspapers did not provide in-depth information but encouraged the overall view around the topic by illustrating how entrepreneurship affects the world economy on a day to day basis.

Literature

Books and other literature provided theoretical approaches to the topic. Furthermore, it enhanced the overall understanding of the topic. Books turned out to be very reliable sources for the evaluation and understanding of the topic.

Limitations

Throughout the research process the most significant limitation has been the access to relevant sources. Although the question itself covers a relatively broad overview on entrepreneurship, it turned out that many potential sources have been irrelevant or not up to date. Nevertheless, the wide range of collected sources as well as the interviews will allow for an in-depth analysis of the entrepreneurial world, its development and the resulting challenges for self-made managers.

Forecast

The projection of the findings lead to the assumption that the outcome might be rather evaluative and flexible as the topic can be regarded from different points of view. The findings will be interesting to critically analyse and observe how the various areas considered will finally give a different aspect to the way an entrepreneur can approach a new business idea. This will allow providing the reader with suitable recommendations, which could be the base for further discussions.

References

Arrow, K. (2000). Observations on social capital. In Dasgupta, P. and Serageldin. I. (eds.), Social Capital: A Multifaceted Perspective. Washington: The World Bank, pp. 3-5.

Audia, R. and Rider, C. (2005). Entrepreneurs as organizational products: Revisited. In Baum, J., Frese, M. and Baron, R. (eds.), The Psychology of Entrepreneurship. Hillsdale, NJ: Lawrence Erlbaum Associates, (forthcoming).

Bhidé, A. (2000). The Origin and Evolution of New Businesses. Oxford: University Press.

Block, Z. and MacMillan, I. (1985). Milestones for successful venture planning. Harvard Business Review. 85(5): 184-188.

Carter, N., Gartner, W. and Reynolds, P. (1996). Exploring start-up event sequences. Journal of Business Venturing. 11(3): 151–166.

Delmar, F. and Shane, S. (2003). Does business planning facilitate the development of new ventures? Strategic Management Journal. 24(12): 1165-1185.

Delmar, F. (2000). The psychology of the entrepreneur. In Carter, S. and Jones Evans, D. (eds.), Enterprise and Small Business: Principles, Practice and Policy. Harlow IK: Pearson Education Ltd, pp. 132-154.

Freeman, J. (1986). Entrepreneurs as organizational products: Semiconductor firms and venture capital firms. In Libecap, G. (ed.), Advances in the Study of Entrepreneurship, Innovation, and Economic Growth, Vol.1, Greenwich, JAI Press Inc., pp. 33-52.

Gartner, W. and Carter, N. (2003). Entrepreneurship behavior: Firm organizing processes. In Acs, Z. and Audretsch, D. (eds.), Handbook of Entrepreneurship Research. Dordrecht: Kluwer Academic Publisher, pp. 195-222.

Gatewood, E., Shaver, K. and Gartner, W. (1995). A longitudinal study of cognitive factors influencing start-up behaviors and success at venture creation. Journal of Business Venturing. 10(5): 371–391.

Honig, B., Davidsson, P. and Karlsson, T. (2005). Learning strategies of nascent entrepreneurs. In Sanchez, R. and Heene, A. (eds.), Research in Competence-based Management, vol.2, Greenwich CT: JAI Press.

Martinelli, A. (1994). Entrepreneurship and management. In Smelser, N. and Swedberg, R. (eds.), Handbook of Economic Sociology. Princeton: Princeton University Press, pp. 476-503.

Reynolds, P. (1991). Sociology and entrepreneurship: Concepts and contributions. Entrepreneurship: Theory & Practice. 16(2): 47-70. Thornton, P. (1999

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