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Business idea sources

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Entrepreneurship and idea sources lecture

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Business idea sources

  1. BUSINESS IDEA SOURCES AND ENTREPRENEURSHIP: AN INSTITUTIONAL VIEW Chuck Eesley (Stanford) Xiao Hu (Tsinghua University) Delin Yang (Tsinghua University)
  2. Motivation • Prior work shows that venture performance is shaped by characteristics of: – The founding team (Beckman, Burton, etc.) – Growth Market (Eisenhardt and Schoonhoven, 1990) – Technology (Shane) – User-driven innovation (von Hippel, Sonali Shah, etc.) • Gap: Prior work has rarely examined whether the source of the startup idea exerts an influence on performance – Entrepreneurial Ideation and Organizational Performance: Imprinting Effects (Eesley, Hsu, and Roberts, WP)
  3. Policy-driven business idea source • Government context from policies - contacting with government (communicating with related government officials) and following the policy change closely. – For example, entrepreneurs might start new ventures based on property policy reform (Walder, 1999)
  4. • Market-driven business idea source indicates that entrepreneurs choose to obtain their business ideas from market opportunities by contacting other market participants (suppliers, customers, competitors). – When an entrepreneur chooses to obtain his business idea from market-driven source, he has many ways to identify better (new) potential markets or better (new) ways to serve target markets (Johne, 1999)
  5. Hypothesis 1. • In the transitional institutional environment with high level of dynamics, entrepreneurs who choose to obtain their business idea from policy-driven source will create better performing firms.
  6. Hypothesis 2. • In the stable institutional environment with low dynamics and uncertainty, entrepreneurs who choose to obtain their business idea from market-driven source will create better performing firms.
  7. Hypothesis 3: • Entrepreneurs who choose to obtain their business idea from both policy-driven and market-driven source will create better performing firms.
  8. Research Context: China • transitional institutional from 1988 to 1999, • stable institutional environment from 2000 to 2002, • transitional institutional environment from 2003 to 2009,
  9. 9 Tsinghua Survey Unique data on firm origins, early composition and multiple stages of performance measures • Alumni: ~26,700 mailed; 3,000 surveys, 11% response rate –General biographic information, education and career histories, family background, attitudes toward entrepreneurship. –718 individuals (24%) indicated founding at least one company • Additional questions for self-identified entrepreneurs: –Company origins, structure, and performance. • Advantages: Defined‘at risk’ set, first abroad, detailed work history and founding data, less biased by govt. concerns Charles Zhang, founder and CEO of Sohu.com
  10. Industries 11 INDUSTRY NUMBER OF FIRMS % AEROSPACE 3 0.90 ARCHITECTURE 13 3.88 BIOTECH AND DRUGS 7 1.09 CHEMICALS 8 2.39 CONSUMER PRODUCTS 17 5.07 ELECTRIC 12 3.58 ELECTRONICS 69 20.60 ENERGY 14 4.18 FINANCE 10 2.99 INTERNET 33 9.85 LAW, ACCOUNTING 22 6.57 MACHINERY 19 5.67 MANAGEMENT 21 6.27 MATERIALS 13 3.88 MED DEVICES 4 1.19 OTHER MFG 16 4.78 PUBLISHING 11 3.28 SOFTWARE 34 10.15 TELECOM 9 2.69 TOTAL 335 100
  11. Sample • Population: – 62.5% in engineering 11.9% in sciences – 12.9% in humanities (architecture, medicine and law comprise the remainder) – 25-30% women19.2% doctorate degrees – 53.4% graduate degrees • Tsinghua survey sample: – 62.2% engineering – 10.6% sciences13.7% humanities – 28% women – 19.3% doctorate degrees – 53.9% graduate degrees
  12. DV: ln(Revenue). We measured entrepreneurial performance as the natural logarithm of revenue in the most recent fiscal year for the entrepreneur’s firm. IVs: • Policy-driven Source measures, on a scale of 1 to 8, the degree to which entrepreneurs believed that the government’s policy was an important idea source for their ventures. • Market-driven Source, as the measure of the extent that an entrepreneur’s idea source depended on new market opportunities at that time. • Market-driven Source measures, on a scale of 1 to 8, the degree to which entrepreneurs believed that market opportunities were an important idea source for their ventures.13 Context - interviews
  13. How are Tsinghua’s Entrepreneurs Born? The entrepreneurs surveyed reported that their initial business ideas came from: Class at Tsinghua Research at Tsinghua (internal funding) Research at Tsinghua (outside funding) Thesis at Tsinghua Discussion with Tsinghua classmates or teachers A visiting lecturer at Tsinghua 14.6% 4.1% 4.8% 9.9% 27.4% 12.1% An internship while at Tsinghua Reading professional literature at Tsinghua Industry experience Army or government experience An academic conference Discussion with fellow professionals 12.1% 11.1% 61.8% 7.3% 11.1% 43.9% 14
  14. Where did the primary idea for the start-up come from? Idea sources MIT Data Tsinghua data percentage percentage In school-doing outside-funded research 2.40 1.66 In school- graduate thesis 4.64 3.96 In school- in class 1.98 5.88 In school-informal discussion w/ students 3.41 11.00 In school-other research 2.28 1.92 In school-professional literature 1.73 4.48 In school- visiting scientists, engineers 1.77 4.86 In school-working w/ outside company 3.20 4.86 Other sources-discussions in social/professional conferences 21.54 17.65 Other sources-research conference 2.66 4.48 Other sources-working in the industry 41.44 24.81 Other sources- working in the military (government experience) 4.01 2.94 Doing outside-funded research 2.07 0.77 Total 100 100 Number of observations 1284 110
  15. Variable ln(Revenue) (1-4) 88-99 (2-3) 00-02 (3-4) 03-07 Policy-driven Source 0.752** 0.118 0.374*** (3.91) (0.90) (3.79) Market-driven Source 0.0233 0.379** 0.0261 (0.14) (2.98) (0.29) Interaction between Sources -0.00328 -0.0432 -0.0341 (-0.05) (-0.69) (-0.87) Controls Age 0.00179 -0.0252 0.00183 (0.02) (-0.37) (0.05) Gender -0.372 0 -0.737 (-0.28) (.) (-0.75) Overseas 1.087 0.799 -0.0856 (0.90) (1.35) (-0.19) Length of Work -0.0198 0.0329 0.0146 (-0.28) (0.55) (0.37) Position Diversity 0.600 -0.115 -0.149 (1.42) (-0.59) (-1.01) Market Experience 0.698 -0.340 0.402* (1.84) (-1.59) (2.26) Entrepreneur Ties -0.570* 0.109 0.0473 (-2.41) (0.70) (0.37) Communist Party -0.928 -0.0672 0.153 (-1.02) (-0.14) (0.38) Parent Official 0.378 -0.223 0.0163 (0.93) (-1.02) (0.08) Work for Government -0.0460 -0.552** -0.362* (-0.07) (-2.99) (-2.06) Government Tie 0.361 0.483* 0.0227
  16. Variable In(Revenue) In(Revenue) (4-3) (4-4) Policy-driven Source 0.365*** 0.367*** (5.06) (5.11) Market-driven Source 0.0814 0.0864 (1.22) (1.30) Interaction between Sources -0.0390 (-1.43) Control Age -0.00680 -0.00450 (-0.23) (-0.15) Gender -0.821 -0.883 (-1.12) (-1.20) Overseas 0.509 0.536 (1.55) (1.63) Length of Work -0.00251 -0.00466 (-0.09) (-0.16) Position Diversity -0.0558 -0.0422 (-0.51) (-0.39) Market Experience 0.232 0.221 (1.84) (1.75) Entrepreneur Ties -0.0936 -0.100 (-1.04) (-1.11) Communist Party -0.0788 -0.0815 (-0.27) (-0.28) Parent Official 0.148 0.132 (1.08) (0.97) Work for Government -0.439*** -0.438*** (-3.51) (-3.50) Government Ties 0.128 0.120 (1.19) (1.13)
  17. Contributions • Ideas for customers/users may not always be the best • Source of the idea appears to play an important role in venture quality – deserving of greater attention in future research • Varies with the institutional environment

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