Towards a Dynamic Model of Founding: Unlocking the Origins of Organizational Variation - Executive Summary

Abstract

How do entrepreneurs make strategic decisions during new venture formation? This is an important question because the strategies that entrepreneurs select have critical short- and long-term implications (Eisenhardt and Schoonhoven, 1990). In the short-term, an entrepreneur's strategy choices will affect the new venture's likelihood of survival. In the long-term, the entrepreneur's strategy choices will affect the direction of the new venture's growth as well as its level of competitive advantage within the industry. This phenomenon, whereby initial choices are consequential for a new venture's short- and long-term existence, is termed an effect (Stinchcombe, 1965). The occurrence of imprinting effects has been demonstrated by an abundance of empirical research across a variety of industry settings (e.g., Romanelli, 1989). In some cases, research has even shown that imprinting effects exhibit positive feedback, such that initial choices become more influential over time (Eisenhardt and Schoonhoven, 1990). While a great deal of research has shown the importance of imprinting effects for a new venture's development, there has been relatively little research that explores how entrepreneurs come to the initial decisions that underlie these effects. Although little is known regarding the factors that affect an entrepreneur's strategic decision-making during new venture formation, past evidence points to several factors that may be influential. In particular, past research highlights both factors in the environment (e.g., public policy, competitive pressure, and product technology) as well as factors internal to the new venture (e.g., personality and knowledge of the founder and founding team) (e.g., Shane and Khurana, 2003). In this dissertation I focus on knowledge rather than the environment or personality characteristics for two primary reasons. First, while the nature of the environment can explain general trends within an industry (e.g., overall entrepreneurial activity), it cannot explain why specific individuals respond differently to the same industry environment. Second, the research on personality characteristics has generally yielded mixed results suggesting, at best, a weak relationship between personality traits and decision-making outcomes (Aldrich, 1999). In this dissertation, I examine how an entrepreneur's prior knowledge relates to the strategy choices he/she makes during new venture formation. I also examine how the founding team members affect the entrepreneur's decision-making. I first develop a set of predictions and then test these predictions using data from 120 new ventures in the United States air transportation industry from 1995-2005. In the following pages I present an executive summary that reviews the key predictions and findings from my research. I conclude the executive summary by discussing the implications of my research for practicing entrepreneurs, investors, and public policy.