Start-up Firms Research Articles

Customer development-product development dilemmas in startup firms: a qualitative investigation into founder's involvement

Purpose Entrepreneurship literature recognizes the founder’s involvement as a salient factor in determining the success of startups. Nevertheless, its role in conjunction with the marketing roles of founders has been relatively unexplored. Very little is known about how founder’s involvement in marketing tasks (i.e. developing products, sales and customers) helps attain success in early startups. To fill this knowledge gap, this study aims to qualitatively investigate the founder’s involvement under three vital functional areas (i.e. sales, customer development and product development) and also explain their entwined nature of the relationship as the early-stage startups grow to become a scalable businesses. Design/methodology/approach This study used purposive sampling for conducting in-depth interviews with 11 startup founders in the midwestern city of the USA. A constant comparative method was used to code the interview transcripts, while juxtaposing them with extant literature. Findings Using three levels of axial coding, this study identified 32 descriptive codes, 11 aggregate codes and 2 interpretive codes. Following this, the authors present five propositions that illustrate the relationship between founders’ involvement, customer development, product development and sales. Practical implications This study offers guidelines to founders on how they could generate initial sales, identify early customers and build and sustain mutually beneficial relationships with them. Originality/value This study contributes to the extant literature on entrepreneurship and innovation literature. It presents motivation and potential processes, including systematic activities performed by founders in generating sales in conjunction with customer development and product development, thereby making a novel contribution.

A theory of emergence: Knowledge, rewiring and innovation

Why do social interactions linked to sharing knowledge drive the emergence of a regional technology economy? We proffer a positive theory and explanation-sketch identifying mechanisms and initial conditions in an explanation of emergence of a knowledge economy. We trace the emergence of a knowledge economy, from a small group of founding members to a regional technology economy. With the rapid influx of new people, knowledge spillover motivates technologists and entrepreneurs to reach out beyond existing contacts to explore the expanding knowledge economy and interact with new acquaintances in the search for novelty. In the course of network rewiring in knowledge clusters, individuals share knowledge and cooperate in innovation, and move to more central positions when they interact. Mirroring the trends of increased knowledge exploration and innovative activity at the individual level, new startup firms founded during this time period come to span a greater number of industry groups. Endogenous dynamics of overlapping knowledge networks lie behind the rapid morphogenesis of new regional technology economies in New York City and Los Angeles.

Effect of information and innovator reputation on consumers’ willingness to pay for genome-edited foods

This study used discrete choice experiment data from a national survey of 1,573 United States consumers to examine the effect of information and innovation reputation on consumers' willingness to pay (WTP) for genome-edited soybean oil and apples relative to soybean oil and apples produced using genetically modified technology and conventional breeding. The study used a split design survey with control and information treatments. The information treatments included information on genetically modified, genome-editing, and traditional breeding technologies and technologies' health and environmental benefits. In contrast, the control treatment did not include any information on technology or benefits. The study shows that consumers have higher WTP for genome-edited soybean oil with information on technology and health and environmental benefits. However, the information did not affect consumers’ WTP for genetically modified soybean oil. Unlike soybean oil, the information treatments did not affect WTP for genome-edited apples. Findings from the study show that consumers prefer domestic startup firms and universities to multinational firms as developers of genetically modified and genome-editing technologies, irrespective of food types. Results from the study provide insights for genome-edited technology developers in product and trait selection and marketers in communication and outreach efforts to increase consumer acceptance of it.

Are family and friends the wrong investors? Evidence from U.S. start-ups

This paper investigates the effects of funding from family and friends (i.e., informal funding) on subsequent access to venture capital for start-up firms. We retrieve information on financing activity of young U.S. firms from a novel dataset based on private placements filings (Form Ds). To address potential endogeneity issues, we use an instrument that hinges on the family size of founders as an exogenous constraint on the supply of informal funds. Our results show that informal finance significantly reduces the probability of future financing events. We provide suggestive evidence that this is due to conflicts of interests between informal stakeholders and professional investors.

Determinants of Financing Decisions of Start Up Firms in India

Having an optimum capital structure is crucial as it leads the company to its better operating performance. This paper examines the key determinants affecting the financing decision of start-up firms with reference to the Delhi NCR region in India by using panel data regression models. The hypotheses are formed based on theories of capital structure and existing literature. The financial information data of a final sample of 29 manufacturing start-up firms are taken into consideration for empirical analysis. The results of this research revealed that firm size, growth opportunities, profitability and liquidity are key factors significantly affecting the capital structure decision of start-up firms in India. The relationship found for firm size, profitability and liquidity supported the hypothesis of pecking order theory while growth variable results supported the hypothesis of trade-off theory. Therefore, the pecking order theory is found to be more applicable here in startup firms in India.

Optimal product release time for a new high-tech startup firm under technical uncertainty

<p style='text-indent:20px;'>Decision makers of new high-tech startup firms always want to choose an optimal time to launch their products which are under research and development (R&D) to obtain the maximum net income of these firms. However, existing models fail to consider the optimal release time of products for these new high-tech startup firms. In this paper, the optimal time to launch the product of the R&D project is assumed to be the first time when the product of the R&D project is released to the market. Based on this assumption, we develop a continuous-time model to find the optimal time at which the startup firm launches its product of the R&D project by considering the price of the similar product. Employing the methods of dynamic programming and variational inequalities, we also provide a closed form solution to our model. We also find that these high-tech startup firms prefer to delay their product release time when the price of the similar product is at a phase of rapid growth or the price has considerable uncertainty. Moreover, some numerical examples are provided to investigate the properties of our model.</p>

Innovation, Business Strategies and Stock Returns in Biotechnology Industry

The paper analyzes the impact of small biotechnology firms' innovation and business strategies on their stock returns utilizing event study methodology. These are some of the conclusions supported by the empirical results: (i) firms should focus on regulatory approval of their products; (ii) it is important to recruit individuals and consulting firms with valuable specialized expertise in field; (iii) firms should pursue licensing and manufacturing deals aggressively; and (iv) firms should be highly selective and careful with deals they make for R&D collaboration with scientific community. The implications could be valuable to managers of startup firms in this particular industry and possibly in others, as well as for understanding how financial markets react to innovation announcements.

Entrepreneurial networks, geographical proximity, and their relationship to firm growth: a study of 241 small high-tech firms

Start-up firms in high-tech sectors normally engage in networking to overcome their lack of resources, knowledge, and competence constraints. A newly established firm’s network can provide a source of social capital, which may enhance its growth prospects. In this study, 241 new technology-based firms (NTBFs) in Sweden are studied during their early formative years to investigate how entrepreneurial networks and the geographical proximity to actors in these networks affect the early performance of these firms in terms of growth. Three underlying factors are identified in the analysis: geographical proximity and professional and consultative networks. This study finds that professional networks have a positive and significant effect on NTBFs’ growth, which indicate that utilizing these networks benefit the growth of both young and growing firms. NTBFs in initial stages can acquire business opportunities by constructing professional networks. In addition, several formal links positively affect growth, such as regional business partners, incubator networks, and links to universities.

Assessing the Italian Innovative Start-Ups Performance with a Composite Index

This paper aims to assess the profitability and employees’ productivity of Italian innovative start-ups with a new composite index: the Start-ups Performance score (SP-score). In recent years, the Italian government has made several efforts to foster the economy, establishment, and growth of start-ups. Specifically, the issuing of the Italian Start-up Act in 2012 offers a unique opportunity to examine the Italian setting, given the special conditions that the government granted to the start-ups. The latter obtain generic benefits, tax reductions and hiring facilitations if they meet specific criteria granting the status (label) of “innovative” by law. Based on a sample of Italian start-ups firms (ISPs) and financial statement data for the period 2016–2020, we test whether the performance of the Italian start-ups which are granted the status of “innovative” is higher compared to start-ups without the mentioned status (NISPs). We measure the firm’s performance by building a composite index which synthesizes both profitability and employees’ productivity (controlling for the firms’ size), and find that the ISPs report higher SP-score compared to the NISPs. In addition, we examine whether the SP-score is higher (or lower) among Innovative start-ups located in different regional areas. The derivation of the composite indicator (SP-score) allows a clear and effective evaluation of several characteristics, permitting a more comprehensive understanding of the data that support the strategic choices of management and localization entrepreneurship policies. In addition, our study highlights a certain homogeneity of innovative start-ups’ performance among the Italian territories, which overcomes the classic dualistic division between Northern and Southern regions.

Challenges for Financing Startups in China: A Quantitative Investigation of Small and Medium Ventures

This research aims to determine the financial obstacles startups face in China. This study will analyze the many different kinds of obstacles that young businesses in China face, and it will also talk about the financial resources that are accessible to young businesses in China. Both topics will be covered in this study. The literature reviewed for this research examines the various difficulties faced by startup businesses from three different vantage points. These are the ailment of venture capital (VC), the difficulties associated with finance for small and medium-sized businesses (SMEs), and the financial issues faced by startup businesses in China. The rapid expansion of new businesses in China has the potential to significantly impact the country's ambitions to become a world leader in scientific discovery and technological innovation. This research also attempts to discover some answers for the new businesses just starting up in China to inspire more young people to get into business for themselves. This article discusses startup firms' financial challenges and the primary financial resources available to them. In order to learn about the elements that affect the difficulties associated with startup funding in China, a survey was conducted with a sample size of 218 participants. According to the research findings, the elements that assist in determining the difficulties associated with funding new businesses in China include the availability of financial resources, support systems and workforces, knowledge, and experience.

Exploring the Knowledge Gaps of Crowdfunding Firms: A Survey of Crowdfunding Firms and Auditors

Prior research shows that the accounting and financial reporting quality of startups and early-stage firms is lower than that of public firms and firms later in their life-cycle. A growing source of financing for these startup and early-stage firms is equity crowdfunding. This paper provides evidence, through survey responses and semi-structured interviews with a subset of respondents, about “knowledge gaps” and accounting “weak spots” that exist for firms raising capital through Regulation Crowdfunding. “Knowledge gaps” are accounting areas where startup companies think they understand the proper accounting for these items, while auditors say these firms struggle with these concepts. Accounting “weak spots” are accounting areas where startup firms and auditors agree there is difficulty in accounting for certain items, and where more guidance or clearer standards may be beneficial. Better understanding specific accounting “knowledge gaps” and “weak spots” can help inform these startup firms, their auditors, their investors, and their regulators when evaluating and considering the reported financial condition of these companies.

Five dimensions of business model innovation: A multi-case exploration of industrial incumbent firm’s business model transformations

Studies focus on the process of business model innovation as performed by start-up firms, while incumbent industrial firms’ attempts to innovate their business models often fail, being hindered by path-dependency. There is a lack of understanding of what in a business model of such firms is modified to produce an innovation that gives rise to value creation. Based on explorations of twenty-two incumbent industrial firms, five dimensions of a business model are identified that, when modified, may result in business model innovation by incumbents. These dimensions are exchangeable, activity, actor, transaction mechanism, and governance setup. The results show how business model innovation can be systemically characterized in terms of several dimensions that must be modified in concert to produce an innovative business model. The results also show that such business model innovations require novel uses of digital technologies that enable new activities to be incorporated into existing business models.

Significant Features and Applications of Drones for Healthcare: An Overview

The revolutionary digital technology of drones, also known as unmanned aerial vehicles (UAVs), has altered healthcare. This technology proved highly effective for healthcare, research, start-ups, and large corporations. Various drones are used across the industries such as infrastructure, transportation, insurance, telecommunications, agriculture, media and entertainment, security, and mining. Drones have been utilized to help the medical industry for several years, with numerous start-up firms with considerable investment-testing innovative methods. This new drone delivery network will give healthcare practitioners and the communities they serve better access to critically needed therapeutic goods. Compared to traditional approaches, drones to map disaster zones give better cost savings and faster reaction times. Drones can immediately deploy, provide high-resolution and three-dimensional (3D) mapping, identify hotspot locations with the most damage, and upload data in real-time to coordinate rescue operations. This study is mainly about drones and their primary functions. Devoted features and various aspects associated with drone technology for healthcare are briefly discussed and, finally, significant applications of drones for healthcare are identified and discussed. The COVID-19 pandemic has brought to light several long-hidden health disparities worldwide. Drones have resulted in innovation, such as the unprecedented success of developing new vaccinations at record speed. Drones can distribute vaccinations in low-income countries, lowering transportation costs and increasing immunization rates. People are now receiving good care, and the medical infrastructure is also improving, which is made possible by drone technology.

A study of Silicon Valley firms' accounting losses

PurposeSmall firms, which represent much of the Silicon Valley region, tend to experience losses due to their small scale, small customer base and lack of diversification. The authors study the impact of accounting conservatism and losses on firm value and as such this study is an appropriate addition to this growing field of financial management.Design/methodology/approachThe authors use methodology developed in prior literature to examine Silicon Valley and non-Silicon Valley firms' and their behavior when facing losses and the factors, which might play a role in their valuation. The authors focus particularly on earnings and accounting conservatism. Accounting conservatism captures how fast firms record losses relative to gains. The faster losses are recognized than gains the more accounting conservatism is exhibited. The authors examine the seemingly unrelated estimation of differences in means for our independent variables of interest across the two samples of Silicon Valley and non-Silicon Valley firms, both earnings and accounting conservatism. The authors use matched sample analysis of these firms based on four digit SIC code, size and date. In robustness, the authors run a more in-depth propensity score matched sample analysis.FindingsThe authors document that market values of Silicon Valley firms with accounting losses are affected less by negative earnings than other firms with accounting losses in the United States outside of the Silicon Valley region, noting the “lose big, win bigger” sentiment of Silicon Valley. Additionally, the authors document that accounting conservatism does play a role in influencing valuations of companies with accounting losses both in Silicon Valley and the rest of the United States, marginally more for Silicon Valley firms.Originality/valueThis study would be of interest to fund managers who need to consider smaller firms for inclusion in their portfolios. A lot of small firms have experienced losses ever since going public, especially Silicon Valley start-up firms.

Modelling and Diagnostics of Spatially Autocorrelated Counts

This paper proposes a new spatial lag regression model which addresses global spatial autocorrelation arising from cross-sectional dependence between counts. Our approach offers an intuitive interpretation of the spatial correlation parameter as a measurement of the impact of neighbouring observations on the conditional expectation of the counts. It allows for flexible likelihood-based inference based on different distributional assumptions using standard numerical procedures. In addition, we advocate the use of data-coherent diagnostic tools in spatial count regression models. The application revisits a data set on the location choice of single unit start-up firms in the manufacturing industry in the US.

Do maritime innovation centers produce results?

Over the last decade, numerous innovation centers, accelerators, and incubators have been developed globally to facilitate startup firms within the global maritime sector or as it is a part of what is called the “Blue Economy.” Several of these industry-focused centers have a venture funding connection as part of their offerings. The intent is to spur development of new technologies to be incorporated within the maritime logistics industry or totally reinvent processes that have been in place for decades. Ideation competitions have been developed in some instances and entrepreneurs are urged to participate in programs that will provide networking opportunities and access to funding. Despite this development, the number of maritime startups that reach minimum viable product for introduction and investment remains small in comparison to other industries. This study will examine the current state of maritime innovation centers around the world and consider the value of these programs in the evolution of the industry toward digitization.

The Evolution of the Spatial Patterns of Startup Firms in the Tibet Autonomous Region, China in the 21st Century

It is increasingly recognized by policymakers and the academic community that startup firms play an important role in enhancing national and regional economic competitiveness. Existing studies have focused mainly on developed countries and highly marketed city-regions in developing countries, lacking sufficient attention to underdeveloped regions. The Tibet Autonomous Region (TAR) is the poorest province in post 1949 ‘New China’. In recent years, the TAR’s government has released a series of policies to encourage the establishment and development of startup firms, but understanding how to promote social development and economic growth through the creation and development of startup firms is still a significant issue for the TAR’s government. Therefore, taking Tibet as a case area, this article discusses the evolution of the spatial patterns of startup firms in underdeveloped regions in China. The findings include: ① The past two decades have witnessed tremendous growth in the number of startup firms; however, the number and rate of growth are not geographically even. ② In terms of geographical distribution, startup firms in the TAR have concentrated on or around key nodes along major transport corridors (place dependence); however, with the development of transportation infrastructure and development zones, they have also been established in new localities (place creation). ③ Although all subregions of the TAR have spatial agglomerations of startup firms, they are different in agglomeration characteristics. Finally, after acknowledging shortcomings in its research, this article calls for multi-sited research to investigate the diversity of the spatial patterns and dynamics of new firm formation in the underdeveloped regions of China.

The undigital behavior of innovative startups: empirical evidence and taxonomy of digital innovation strategies

PurposeThis paper aims to conceptualize the digital behavior of startups and investigate the emerging behaviors about digital strategies of the Italian startup firms enrolled in the Startup Act policy initiative. Digital technologies were divided into intra- and inter-organizational digital infrastructures, and this categorization offers startups the opportunity to identify a set of enabling technologies that could be used to improve their digital strategies.Design/methodology/approachAn empirical analysis has been conducted to investigate the degree of adoption of digital intra- and inter-organizational digital infrastructures in the entire population of 6,178 Italian firms listed in the Register of Innovative Startups.FindingsThe paper proposes a taxonomy bringing together four startup behaviors for adopting digital technologies: digital follower, technical influencer, social influencer and digital leader. From the perspective of policy makers, considering the financial efforts that public authorities are supporting in the last decade, implications are mainly concerned with policy measures aimed both to reinforce the overall adoption of digital technologies and to develop a balanced adoption of intra- and inter-organizational digital infrastructures.Originality/valueMeasures addressed to support female and foreign entrepreneurship could be useful to support a more dynamic and well-balanced cultural and racial contamination, thus improving the adoption of digital tools.

Stakeholder Heterogeneity and Corporate Purpose

The goal of this symposium is to draw attention to the critical importance of stakeholder heterogeneity for corporate purpose research. The proposed papers explore the influence of the different motives and interests of individual stakeholder groups on these stakeholders’ perception of corporate purpose and sustainability efforts and how these effects result in varying levels of resource provision for the company by these stakeholders. The symposium therefore highlights how examining stakeholder-level heterogeneity can enrich our understanding of how the management of corporate purpose contributes to the achievement of individual and organizational goals. Purpose-Driven Companies and Sustainability Presenter: Claudine Madras Gartenberg; The Wharton School, U. of Pennsylvania When One Isn't Enough: Organization-level and Product-level Sustainability in New Ventures Presenter: Vanessa Burbano; Columbia Business School Presenter: Natalie Carlson; The Wharton School, U. of Pennsylvania Presenter: James Ostler; The Wharton School, U. of Pennsylvania Can “Radical Transparency” Improve the Credibility of Corporate Sustainability Efforts? Presenter: Anna Szerb; INSEAD Presenter: Matthew Lee; Harvard Kennedy School Employee Misconduct at Startup Firms: Evidence from a Field Experiment and Archival Data Presenter: Aleksandra Joanna Kacperczyk; London Business School Presenter: Santiago Campero Molina; U. of Toronto Presenter: Keun Woo Jeong; London Business School

Optimal initial coin offering under speculative token trading

Initial Coin Offering (ICO) is a new form of financing instrument for start-up firms. The firm issues tokens (or coins) in the ICO phase to raise capital to build capacity for its project. If the project is successful, the firm will provide product in subsequent periods and this product can only be accessed via tokens which can be traded over an exchange market. In this paper, we propose a model to study the firm’s optimal ICO strategy and the equilibrium token price dynamics when there is a multi-period trading market for tokens. We find that the ICO will be successful if and only if the capacity-cost-to-customer-valuation ratio is low. There may also exist multiple equivalent ICO decisions that yield the same revenue for the firm. We also compared the ICO mechanism with the traditional bank-financing mechanism. We find that when the capacity cost is low, the ICO mechanism is better than the bank-financing mechanism. We also explore the impact of the speculator’s risk attitude on the firm’s profitability. In general, the firm will be better-off when the speculator (those who participates in the ICO and trades tokens) is more risk-seeking.