Pre-Entry Knowledge, Learning, and the Survival of New Firms

Abstract

N ew firms are endowed with knowledge and experience at birth through the human capital of their founder(s). Existing empirical research suggests that this pre-entry knowledge and experience will influence the firm's chances of survival; however, the mechanisms underlying this relationship have yet to be investigated. We seek to better understand and unpack this relationship. Specifically, we study the extent to which a founder's pre-entry knowledge of the business activity and pre-entry management experience influence the effectiveness of two subsequent learning activities-namely, early-stage business planning and product-line change. Our findings suggest that pre-entry knowledge and management experience increase firm survival through moderating the effects of these subsequent learning activities. We also find that learning activities are not always beneficial; in our sample, early-stage business planning is associated with decreased firm survival, and product line change is associated with increased firm survival. We examine these patterns using survey data collected from 436 individuals in the Munich region who founded their own firms as an alternative to continued unemployment. Our results have theoretical implications for the entrepreneurship, evolutionary economics, and organizational learning literatures.

Predicting new venture survival and growth: Does the fog lift?

“…This implies it is harder to explain the growth performance of smaller firms, which exhibit greater volatility. This may explain, at least in part, why analyses using relatively large and wellestablished 'new ventures' (Hmieleski and Baron 2009;Dencker et al 2009;Baum and Bird 2010) are able to show higher explanatory power than those included here. Table 4 in 'Appendix' shows this decreasing trend in the explanatory power of our regressions is observed for alternative indicators of goodness of fit-the standard R 2 statistic as well as the Cox-Snell R 2 statistic-for the baseline case.…”

“…The benefits of greater predictability accrue to business owners, to providers of finance and to governments. For business owners, the value is the availability of a route-map to enable them to plan ahead and check progress over time (Dencker et al 2009). For providers of finance, being able to more accurately estimate the optimal date to provide finance is valuable, because too early an investment may be too risky, whereas delay may mean the opportunity is seized by a rival (Cumming et al 2015).…”

“To have and have not”: founders’ human capital and university start-up survival

“…As a result, a number of studies have found that founders' pre-entry knowledge and experience enhance firms' long-run performance and survival (e.g. Gimeno et al 1997;Aspelund et al 2005;Delmar and Shane 2006;Dencker et al 2009;Geroski et al 2010). Second, the founding teams' human capital characteristics, our independent variables, are individual level variables while USU probability of survival, our dependent variable, is a firm-level variable.…”

When Experts Become Liabilities: Domain Experts on Boards and Organizational Failure

“…This paper was made possible through a research grant from IESE Business School. a firm's strategic direction and its responses to the environment (Furr et al, 2012), which other research in turn has shown to be key determinants of organizational survival chances (Dencker, Gruber, & Shah, 2009;Haveman, 1992). This potential link between the presence of domain experts in strategic decision-making groups, such as corporate boards (Forbes & Milliken, 1999), and organizational survival is important to understand not only because ensuring survival is a critical concern for organizations (Hambrick & D'Aveni, 1992;Mellahi & Wilkinson, 2004) but also because the proportion of domain experts is a readily observable dimension of board composition that organizations can directly influence when creating a board or selecting new directors (see Almandoz, 2012;Pfeffer, 1972).…”