Entrepreneurship and Small Business Management der Rijksuniversiteit Groningen
Master Thesis
How do business accelerators influence the effectuation- and causation process of start-ups?
-An empirical analysis-
Supervisor: Olga Belousova
2016
Tim Kalisch Wielandstraße 44
22089 Hamburg Student number: s2984849
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Table directory
Table 1 – Overview: The core principles of causation and effectuation ... 7
Table 2 – Overview: Business incubator services ... 17
Table 3 – Research method overview ... 27
Table 4 – Data analysis ... 28
Table 5 – Overview results training ... 35
Table 6 – Overview results coaching/mentoring ... 39
Table 7 – Overview results external effect ... 40
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Tables of figure
Figure 1 – Literature streams in incubation literature ... 13
Figure 2 – Business incubation evolution ... 14
Figure 3 – Conceptual Model ... 26
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1 Introduction
Already Joseph Schumpeter elaborated on the role of entrepreneurs introducing new ideas and innovations to the market and being a main driver for economic growth in 1942 and as the research field of entrepreneurship advanced over the decades, Baumol (1990) emphasized the importance for societal growth to ensure the entrepreneurs productivity and success (Baumol, 1990). Contemporary, the role of entrepreneurship and new ventures has not lost its significance as it is widely acknowledged to be one of the key economic drivers for economic growth by stimulating innovation and job creation throughout society (Audretsch & Thurik, 2004; Huggins & Piers, 2015; Carree & Thurik, 2005). But how do new ventures emerge? –Two distinct approaches to new venture creation and development have been identified and pose the most influential concepts within the area of cognitional concepts in newer entrepreneurship research, being the concepts of causation and effectuation (Sarasvathy, 2001). The first approach of causation is associated with traditional, predictive, rational decision-making and includes a strictly linear and planned development of new ventures (Chandler et al. 2011). Moreover, it includes analytical aspects like doing market research and competitive analyses, calculate cost/price margins, make financial projections or write business plans, which are considered to be classical concepts usually taught in MBA or entrepreneurship programs and textbooks (Sarasvathy, 2001; Read et al., 2009). The effectuation approach on the other hand, inverts causational reasoning. Here the process of new venture development is considered to be means driven, non-predictive, dependent on stakeholders and strongly related to leveraging contingencies.
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a broad set of services being: i) Infrastructure, which is the provision of cheap office space and equipment ii) Business support services, including training of entrepreneurs through business experts, feedback, coaching and mentoring sessions and iii) Network support services, which offers possibility for participants to get in contact with possible partners or financial investors.
The traditional concept of causation has been seen as an effective way of developing new ventures and to achieve superior business performance and sustainable growth. Yet, the emerging concept of effectuation sheds new light to the topic and received brought attention in current entrepreneurship literature, by questioning these traditional concepts of strictly predictive and planned reasoning. Research of Perry et al. (2011) indicated a gap in the literature concerning the possibility that dimensions of effectuation could be taught to entrepreneurs. Moreover, there is still a vivid ongoing discussion questioning the positive influence of business incubators as researchers receive inconsistent results (Schwartz, 2009; Ratinho & Henriques, 2010). As shown, the scientific field takes an interest in getting a deeper understanding about the impact of the business incubation process that can possibly foster the success of new ventures. Therefore the conducted research investigates the influence of a business incubator and its services on the causational and effectuational development during the entrepreneurial process of new ventures. However, the study conducted takes a more explorative approach, as the data gathered in from business incubator participants do not allow for statistical high valid outcomes.
Consequently, the paper starts with discussing the theoretical background of causation and effectuation in the first Chapter, followed by and in-depth investigation of business incubators, leading to a set of propositions. Subsequently, the propositions will be tested by data of the business incubator and results will be presented and discussed.
2 Theoretical background
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since Sarasvathy introduced the topic in 2001. The following section introduces the concepts of causation and effectuation as a theoretical frame for exploring how entrepreneurs think and act during the entrepreneurial development process in the context of a business incubator.
2.1 Causation and effectuation processes
Causation and effectuation are two fundamentally adverse approaches used by entrepreneurs when starting a new business differing in questions concerning the discovery or creation of opportunities or the possibility to predict the future (Sarasvathy 2001)
The concept of causation can be derived from the rational-decision making perspectives of the well-elaborated neo-classical micro-economics and is consistent with planned strategy approaches, characterized by a predictable distribution of outcomes (Stigler, 1952; Ansoff, 1988; Brews and Hunt, 1999; Mintzberg, 1978; Sarasvathy, 2001). Following the logic of predictable outcomes, entrepreneurial opportunities are expected to already exist in the market and just need to be found or discovered by an entrepreneur (Alvarez & Barney, 2007)
In contrast, Sarasvathy (2001) introduced the effectuation process inverting causational reasoning. The author rooted effectuation theory on the assumption of entrepreneurial decision making under unique and uncertain exogenous conditions, where risk and uncertainty makes predictable outcome distributions an unavoidable part of the future. (Wiltbank et al., 2006; Knight, 1921) Therefore, effectual entrepreneurs focus on controlling the inherent means rather than predicting future outcomes (Sarasvathy, 2001). The effectual entrepreneur thus believes in the co-creation of opportunities by entrepreneurs and committed stakeholders (Read et al., 2009).
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contingencies by including the possibility of multiple chefs, hosts and dinner guests into the example, who can have a possible influence on the outcomes (Sarasvathy, 2001). Causation and effectuation often occur simultaneously, overlapping and intertwining over different contexts of decisions and actions because of their close affiliation to human reasoning and because of their close connection. Yet, to present the dichotomy of the two processes I will juxtapose them separately before I connect them later in the paper (Sarasvathy, 2001).
Causation
Causation processes take a particular effect as given and focus on selecting between means to create that effect. (Sarasvathy, 2001, p.245)
Much of the earlier entrepreneurship literature is rooted in the theoretical foundations of the causation process, where entrepreneurs are expected to make rational choices between several options and their expected utility, based on all possible information relevant to entrepreneurs decision (Stigler, 1952; Viale, 1992, Chandler et al., 2011). Therefore, causal reasoning is considered as predictive reasoning and is most efficient when goals and sub-goals are pre-existing. Meanwhile, it is assumed that entrepreneurs act in a business environment in which true uncertainty and risk like the one defined by Knight (1921) are omnipresent.
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efficiency gains (Chandler et al.,2011; Allen, 2003; Kuratko & Hodgetts, 2004; Timmons & Spinelli, 1999; Honig & Karlsson, 2004).
Furthermore, the development of a business plan can be considered as a rational activity (Honig & Karlsson, 2004), in which entrepreneurs seek to exploit their pre-existing knowledge and resources in order to envision the future as precise as possible and to assist the entrepreneurs to reach a targeted goal in a high efficient way, resulting in higher profits (Honig and Karlsson, 2004).
Effectuation
In contrast to “conventional” causal logic Sarasvathy (2001) introduced the process of effectuation, inverting the rational choice theory.
Effectuation processes take a set of means as given and focus on selecting between possible effects that can be created with that set of means (Sarasvathy, 2001, p.245)
Sarasvathy (2001) indicated the existence of empirical evidence, which was not in line with the traditional causation paradigm and emphasized the existence of a new inverted process of new venture development. The theoretical foundation of the non-predictive effectuation process includes; Knight’s formulation of uncertainty (Knight, 1921), which means the unpredictability of future events and consequences; March’s technology of foolishness (March, 1982), referring to an entrepreneurs ambiguity about future preferences and consequences caused by cognitive limitations or bounded rationality which affects the processing of information about preferences and consequences and Mintzberg’s (1991, 1994) in depth investigation on the ambiguous role of prediction and planning in decision-making (Sarasvathy, 2001; March & Simon, 1958; Cyert & March, 1963; Chase & Simon, 1973).
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and visions for the new venture, the effectual entrepreneur maintains a higher degree of flexibility. Using effectual logic, entrepreneurs frame the future as result of utilizing experimentation as form of probing into the future, and seeking to exert control over the future by co-creation and allying with alliance partners through pre-commitments of, potential investors, suppliers, competitors, and customers (Dew et al., 2009; Chandler et al., 2011). Thus visions and goals for the new venture emerge by creating and developing diverse courses of action that are based on the available means of who a person is, what they know, and whom they know (Chandler et al., 2011).
2.2 The core principles of causation and effectuation
Sarasvathy (2001) presented the process of effectuation in five core principles or sub-constructs of effectuation. She contrasted the theoretical antecedents and backgrounds in addition to the typical attributes of causal and effectuation principles in order to illustrate the individual characteristics of the processes (Sarasvathy, 2001). Building the foundation for this research, the principles of effectuation theory will be depicted more profound in the following section.
Core Principles Effectuation Causation
Means vs. Ends Entrepreneurs start with their given
means: who I am, what I know, and whom I know. Business
opportunities originate from their means.
Causal reasoning works inversely by determining goals and assembling the expedient means afterwards.
Affordable loss vs. expected return
Entrepreneurs limit downside risk by calculating what they can afford to lose, when committing to a decision.
Causal reasoning pursues
opportunities with maximum return, then works to minimize associated risk.
Strategic alliances vs. competitive analysis
Entrepreneurs build partnerships with self-selecting stakeholders. By obtaining pre-commitments from key-partners, they co-create the new market jointly.
Causal reasoning presumes that competitors are rivals and favors extensive competitive analyses.
Exploitation of contingencies vs. exploitation of preexisting knowledge
Entrepreneurs see contingencies as potential opportunities.
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Controlling an unpredictable future vs. than predicting an uncertain one
Entrepreneurs focus on activities within their control. The future is a contingent on actions by willful agents, largely nonexistent and a residual of actions taken. Prediction is unimportant/impossible.
The causal approach views the future as a continuation of the past that can be acceptably and usefully predicted.
Table 1 – Overview: The core principles of causation and effectuation
Means vs. goals
As already mentioned before, this principle illustrates the importance of the idiosyncratic characteristics of the decision maker or entrepreneur. In case of effectuation, the starting point of the process begins with the set of means available to the entrepreneur, which is segregated into: who I am (the identity of an entrepreneur), what I know (the knowledge base of the entrepreneur) and whom I know (the social network of the entrepreneur). By combining this primary set of means with contingencies, an effect is created that is not preselected but that gets constructed as an integral part of the effectuation process (Sarasvathy, 2001). In the context of effectuation, “who I am” refers to the identity of the entrepreneur. In particular the capital, assets, traits, tastes, and abilities of entrepreneurs themselves, which guide the entrepreneurial preferences for particular processes or decisive actions, rather than particular consequences that the preferred processes lead to (Read et al., 2011; Sarasvathy & Dew 2005). Under the conditions of uncertainty and unpredictable outcomes, having a strong sense of identity can help managing preferences but also asks for flexibility in preference transformation (Sarasvathy, 2008).
The knowledge base of the entrepreneur or “What I know” refers to educational knowledge, acquired knowledge while interacting with other business partners or entrepreneurs and special knowledge of certain markets or industries learned through work (Read et al., 2009). The knowledge base of entrepreneurs is created through idiosyncratic life experiences, which makes the stock of prior knowledge held by individuals unique (Read et al., 2010).
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2009; Read et al., 2010).
Following effectual logic, expert entrepreneurs are believed to create new ventures by building a network with committed stakeholders, starting with people they know and subsequently adding people that they are connected to through others or they know throughout contingent interactions (Read et al., 2009; Zhang, 2010; Read et al., 2011). From a causational perspective, the desired outcome or imagined endpoint poses the starting point of the causation process (Sarasvathy, 2001). Thus, a future goal or outcome is selected first, while the means or actions to achieve the desired outcome in an efficient and effective way are selected accordingly (Dew et al., 2009). Consequently, under predictable circumstances, where the environment allows an entrepreneur to predict a certain outcome, a causational process allows us to choose the most economical effect (Sarasvathy, 2001).
Yet, after illustrating the underlying theoretical mechanisms of the principles one can assume that the entrepreneurial process of new venture creation usually consists of fractions of both, means orientation (effectuation) and some level of goals formulation (causation). On the one hand side, effectuation logic poses a very auspicious way to solve problems and create new ventures, by allowing the entrepreneurs to be very flexible and non-teleological in their actions. On the other hand, it would be bigoted to neglect a certain level of goal formulation, as it is needed in order to administer certain guidance throughout the entrepreneurial process as well as providing a mechanism to monitor the progress of a new venture.
Affordable loss rather than expected return
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(Sarasvathy, 2001). Consequently, entrepreneurs are not obliged to predict uncertain future outcomes using an effectual approach. Entrepreneurs can leverage their constraint resources and commit to a diverse set of different strategies, without the need of gathering and processing of too much information in order to make precise predictions, as the process itself is the focus, and not the expected returns (Sarasvathy, 2008).
Strategic alliances rather than competitive analysis
In the causal process, extensive competitive analyses play a key role in order to predict future outcomes and assess the business environment (Dew et al., 2009; Read & Sarasvathy, 2005). Competitive analysis emphasizes the need of entrepreneurs to understand exogenous, environmental effects influencing the business as well as possible competitors in order to perceive and predict market size and dynamics, when creating a new venture. Confined by these market predictions an entrepreneur can acquire suitable stakeholders, who support the new ventures vision, which is affected by the competitive analysis (Sarasvathy, 2008). On one hand this is a good example to show the complexity of cognitive abilities an entrepreneur has to have in order to discover a potential market and develop suitable plans in order to maximize returns. On the other hand, the possibility for an entrepreneur having to share critical information with potential targeted stakeholders is high while hoping that some of them will support those business plans (Sarasvathy, 2008).
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it more affordable (Sarasvathy, 2001; Read et al., 2009). On the one hand side, by developing these alliances and getting pre-commitments of stakeholders, entrepreneurs are able to exert control over the future to a certain extent – e.g. pre-commitments erect entry barriers to the market , thus they do not need to predict it (Sarasvathy, 2001). On the other hand, affects the pre-commitment of stakeholders the new venture through their actions and interaction and thus have the possibility to actively shape the new venture according to their own objectives and aspirations (Sarasvathy, 2001). An example illustrating the principle and contrasting the two processes is called the “the crazy quilt principle”. Following effectual logic involves the interaction with several committed stakeholders. In this example, the quilter has a basket full of random patches, and he or she can juxtapose them in her own idiosyncratic way, which gives him or her a wide latitude putting together the pattern. The jigsaw puzzle on the other hand is already predetermined by the pieces that need to be assembled and has only one single solution. Additionally are large quilting projects usually communal, adding dynamics to the process and expects the quilter to manage and coordinate the personal tastes of other quilters and deal with unexpected contingencies (Sarasvathy, 2008; Read et al., 2010).
Exploitation of contingencies rather than exploitation of preexisting knowledge
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outcome and process significantly (Sarasvathy, 2001).
Whereas leveraging contingencies is preferable in environments of unpredictability and uncertainty, the causational models contrasts effectuation by emphasizing that causation is preferable, when preexisting knowledge, such as expertise in a particular new technology or special market knowledge forms the source of competitive advantage (Sarasvathy, 2001). Whereas effectual processes welcome and embrace unforeseen contingencies, causal calculation and prediction emphasizes to avoid such unpleasant contingencies (Dew et al., 2009).
Controlling an unpredictable future rather than predicting an uncertain one
The last principle of effectuation refers to the controllability of an unpredictable future and probably poses the most explicit distinctions between the causal and effectual processes. Furthermore, it can be seen as one of the most important principles as all the other principles reflect the underling logic of controlling an uncertain future in an effectual process (Sarasvathy, 2001; Sarasvathy, 2008).
Entrepreneurs developing a new venture try to control the future to a certain level, nevertheless they are following a causational or effectual process (Sarasvathy, 2008). However, the two approaches differ in the way, how they achieve this control. In the causational process, the focus lies on the predictable aspects of an uncertain future where the underlying logic poses that “To the extent we can predict the future, we can control it” (Sarasvathy, 2001, p.252). As a consequence of this logic, markets already exist independently of the venture creation process and just need to be addressed and exploited as much as possible by the entrepreneur.
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predict it” (Sarasvathy, 2001, p.251).
Following the in-depth introduction of effectual principles, the consequent section elaborates on the link between effectuation heuristics and performance.
Here it is important to note that the ineffective measurement of effectuation and causation has led to difficulties biases in the past (Chandler et al., 2011). Scholars like Chandler et al. (2011) state that effectuation research has not yet developed reliable measures that can accurately and directly predict (performance) outcomes. Yet, others emphasize a positive relationship between effectual behavior and performance (Read et al., 2009; Wiltbank et al., 2009). Read et al. (2009) conducted a meta-analysis of articles published in the Journal of Business Venturing, where they have summarized data on 9897 new ventures. As a result, their research indicates a positive correlation of three presented effectuation principles with new venture performance.
Although the positive influence of effectuational behavior on performance is not ultimately manifested and scholars vividly discuss the topic, this research follows the thought that the positive effect of effectuation on performance indicated by Read et al. (2009) allows for the logical assumption, that teaching effectual behavior can lead to superior performance and therefore should be explored in an business incubation context.
2.3 Business incubators
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Parallel to the extension and alteration of business incubator research, business incubators were observed to evolve into different shapes over the time concerning their value proposition. Whereas first generation incubators primarily offered infrastructural services concentrating young companies under one roof and therefore providing cheap office space, second generation business incubators expanded their value proposition by adding business support services like in-house business support, accelerating new firms learning process (Bruneel et al., 2012; Lalkaka & Bishop, 1996). Recently third generation business incubators developed into adding access to their unique business networks to their value proposition making the added value of business incubators much more comprehensive (Bruneel et al., 2012).
Incubator development studies (1984-1987) Incubator configuration studies (1987-1990) Incubator development studies (1987-1988) Incubator development studies (1990-1999) Theorizing about incubator-incubation (1996-2000) New forms of business incubation (2000-present) • Definitions • Taxonomies • Policy prescriptions • What is an incubator? • How do we develop an incubator? • What life cycle model
can be extracted from analysis of business incubators? • Formal analysis of business incubators • Conceptual frameworks • Incubatee selection
• What are the critical success factors for incubators-incubation? • How does the
incubators-incubation concept work in practice? • How do incubators select incubatees • New venture development • Impact of planning on development
• Levels and units of analysis
• Outcomes and measures of success
• Explicit and implicit use of formal theories (transaction cost economics, network theory, entrepreneurship, economic development through entrepreneurship • Understand distinctive characteristics and profiles geared towards reinforcing business start-ups. • How do new generation
incubation models operate • How do these models
differ from existing incubation mechanisms?
• What is the process of new venture development in an incubator context? • What is the role of planning and the business incubator manager?
• Do incubators achieve what their stakeholders assert they do? • How can business
incubation program outcomes be evaluated? • Have business
incubators impacted new venture survival rates, job creation rates, industrial innovation rates?
• What are the economic and fiscal impacts of an incubator?
• What is the significance of relationships and how do they influence entrepreneurship? • What are the critical
connection factors to success, e.g., settings, networks, founder characteristics, group membership, co-production value, and creation process?’’ • What constitutes a
model for a virtual incubator? • Is the network the
location of the incubation process?
• What is the impact of business incubators or accelerators? • How do we develop effective incubation/acceleration programs? Mai n t opic s of th e p rim ary res ear ch or ien tat ion s Main res earch qu esti ons of th e p rim ary res ear ch or ien tat ion s
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In general, the business incubators underlying value proposition is assumed to be that incubators enhance a start-ups chance of survival resulting in fewer business failures compared to start-ups that are not incubated, enhancing the creation of jobs and fostering a countries economic growth (Autio & Klofsten, 1998; Aernoudt, 2004; Hackett & Dilts, 2004a). However, the positive influence of business incubator is seen critical in research, as only few studies support the value adding aspects of business incubators and some actually obtained contradictory results (Schwartz, 2009; Ratinho & Henriques, 2010)
Many scholars have classified the different typologies of incubators in their research and although the general baseline – the fostering of entrepreneurship – is commonly shared, the terms business incubator, business accelerator, science park are often used interchangeably, which leads to confusing and divergent definitions in business incubation literature (Hackett & Dilts, 2004b). One major aspect differentiating the set of definitions given in literature is the scope.
Based on a broad list of different definitions from different researchers, Hackett & Dilts (2004b) define a business incubator as:
A shared office space facility that seeks to provide its incubatees (i.e. ‘‘portfolio-’’ or ‘‘client-’’ or ‘‘tenant-companies’’) with a strategic, value-adding intervention system (i.e. business incubation) of monitoring and business assistance. This system controls and links resources with the objective of facilitating the successful new venture development of the incubatees while simultaneously containing the cost of their potential failure (Hackett and Dilts, 2004b, p. 57).
First Generation Infrastructure Second Generation Infrastructure Business Support Third Generation Infrastructure Business Support Network Support Incubator Evolution
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In other words, the incubator as presented in Hackett & Dilts (2004) is conceived as a company, which provides resources at various developmental stage-gates while containing the cost of their potential failure as they provide help at managing and monitoring the business development process as well as the resource commitment within companies that lack in resources but who are promising in the sense that they have built a compelling business case (Hackett & Dilts, 2004).
As many others, the definition of Hackett & Dilts (2004) emphasizes the survival of the incubated company, as well as focusing on incubators providing physical space for their clients and providing the service of business assistance and intervention. Taken together, this can be considered as a narrower definition of the term “business incubator” opposed to the one presented in the following section (Hackett & Dilts, 2004).
Contrasting the narrow definition of business incubators, the International Business Innovation Association (INBIA) as world’s leading organization in advancing business incubation and entrepreneurship provides a much broader definition of the term by stating that:
Business incubators nurture the development of entrepreneurial companies, helping them survive and grow during the start-up period, when they are most vulnerable. These programs provide their client companies with business support services and resources tailored to young firms. The most common goals of incubation programs are creating jobs in a community, enhancing a community’s entrepreneurial climate, retaining businesses in a community, building or accelerating growth in a local industry, and diversifying local economies (INBIA, 2016).
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conducted research, as the provision of infrastructural services is included for the sake of theoretical completeness of this explorative study when developing the propositions, although the research environment (VentureLab) does not provide an infrastructure for its participants and thus does not allow for an evaluation of this service in practice. Accordingly, the broader and thus more flexible definition of the INBIA applies better to the research conducted.
2.4 The difference of business incubators and accelerators
For the sake of the following study, it is important to outline the concept of business incubators as the context of research. However, although the concept of business incubation builds the theoretical outline of the conducted research, it is important to make the distinction between business incubators and accelerators, because the research data was accumulated in a business accelerator.
Incubation models have evolved over decades and continue to evolve into a new divergent business incubation generations (Bruneel et al., 2012; Pauwels et al., 2016). One of the newer generation business incubation model introduced over the years is that of business accelerators. Whereas business incubators usually provide their client companies with a comprehensive set of programs, services and resources for a varying period of time based on the clients needs, business accelerators aim to accelerate successful venture creation by providing specific incubation services, which more specifically set their focus on business support services like education, mentoring and networking, during an intensive program of limited duration (Cohen & Hochberg, 2014; Miller & Bound, 2011; Pauwels et al., 2016). Although broad research on business incubation and its diverse set of different incubation models has provided scholars with in-depth insights into their differences in the organization, activities, services and objectives of incubator types (Hackett & Dilts, 2004; Aernoudt, 2004), we have to assume that existing theories and approaches might not hold in the distinctive business accelerator environment (Pauwels et al., 2016)
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2.5 Shared incubator services
Many business incubation scholars have established a variety of services which business incubators should offer their clients as seen in table 2.
Authors Incubator Services
Peters et al. (2004)
Rental spaces, equipment, administrative facilities like fax, phone, internet lines, in certain cases labs, conference facilities, training, educational workshops, seminars, access to managers, administrative, management, financial, legal, insurance consultants, scientists, academicians, prospective customers
Hackett & Dilts (2004)
Secretarial support, administrative support, facilities support, and business assistance, shared office- space, access to an entrepreneurial network, business education
Grimaldi & Grandi (2005)
Assistance in developing business and marketing plans, building management teams, obtaining capital, and access to a range of other more specialized professional services. In addition, incubators provide flexible space, shared equipment, and administrative services.
Bøllingtoft & Ulhøi (2005)
Tangible resources like physical environment, office and communication services, business services, facilities and equipment, and financing. Intangible opportunities or resources include being placed in an environment of peers, the possibility to obtain legitimacy, social inputs, and psychological support.
Bergek & Norrmann (2008)
A shared office space, which is rented under more or less favorable conditions to incubatees, a pool of shared support services to reduce overhead costs, professional business support or advice (‘‘coaching’’) and network provision, internal and/or external.
Bruneel et al. (2012) A mix of services encompassing infrastructure, business support services and networking
Table 2 – Overview: Business incubator services
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Infrastructure ii) Business support and iii) Network support which will be explained in depth in the upcoming section.
Infrastructure
To begin with, a broad range of researchers emphasizes the provision of infrastructural services by business incubators (Bøllingtoft & Ulhøi 2005; Bergek & Norrmann, 2008; Grimaldi & Grandi, 2005). Besides cheap office space, most incubators seem to supply more or less the same set of physical resources and general administrative services, including fax, phone, internet lines, office equipment, rental spaces as well as facilities-related services and office services such as reception and clerical services (Peters et al., 2004; Bøllingtoft & Ulhøi, 2005). In special cases, the incubator also facilitates access to conference facilities or even university research laboratories (Peters et al., 2004). These infrastructural services are usually equally available for all incubatees against small compensatory measures, since they belong to a pool of shared support services and resources, which reduces overheads of the participating entrepreneurs. Although some definitions in business incubation literature do not necessarily stress the provision of a shared office space, the availability of shared localities offer an opportunity for entrepreneurs by allowing an active knowledge transfer and experience sharing between the incubatees, which can be a competitive advantage (Bergek & Norrmann, 2008; Lewis, 2001).
The logic behind the provision of infrastructural services to their participants in connection with effectuation and causation research is quite coherent. By providing infrastructural resources, the often inherited resource constraints are reduced. Consequently, the remaining resources provide the new ventures with a bigger room for manoeuvre and entrepreneurial scope, letting bigger room for experimentation and probing into the future with the given means. On the other hand, by having less commitments – e.g. paying high rents in areas with low office capacity – the downside risk is lowered, which leads to the proposition that:
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Business Support
The second dimension of services offered by business incubators is often provided by incubator managers or expert coaches directly to the incubated firms and concerns all the business development related activities of the incubatees. It is often regarded as the essential aspect of the business incubation program, as it includes comprehensive business guidance, fostering the long-term sustainability of the start-up (Bergek & Norrman, 2008; Ratinho et al., 2013). The business support services include access to expert knowledge in form of coaching- and training sessions (Hansen et al., 2000), access to capital and financial consultancy, legal advice on intellectual property protection, and guidance in terms of business and product development (Peters et al., 2004; Bøllingtoft & Ulhøi 2005; Lalkalka 2003). Although the dimension of business support is considered to have a big impact on incubatees, research on this topic seems to be underrepresented within the business incubation field and needs further exploration (Ratinho et al., 2013). In their study, they investigate to what extent business incubators help their tenants overcome their developmental problems within 354 incubated companies across 12 business incubators located in Northwestern Europe. The results indicate, that incubatees do not necessarily desire business support if they experience problems and that business support is not preferentially sought within the incubator environment. Consequently, when incubatees search for assistance of external networks, the business support provided by the BI is ineffective and does not contribute to problem solving, indicating a gap between incubator services and incubatee demands, which needs further research (Ratinho, et al., 2013).
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Training effect
Hannon (2003) argues that in order to be most effective, the business incubator has to create an environment, in which the incubatees are encouraged to learn and acquire new knowledge. By constructing such an atmosphere, the incubator provides the opportunity for their clients to exploit their full potential and develop their business.
In order to leverage possible training effects, most business accelerator programs provide iterate training-sessions for their incubatees. Therefore, expert coaches implement a predetermined curriculum or training program, which is covering a broad range of business topics and is supposed to extend the incubatees knowledgebase concerning finance, marketing and management (Pauwels et al., 2016). As presented by Pauwels et al. (2016) the ProSiebenSat.1 accelerator includes a variety of courses in finance, user design, PR, marketing and legal aspects. Furthermore, they organize program of ad hoc events, such as, expert workshops and inspiring lectures from external speakers.
Inferentially, it can be argued that the educational courses provided by business incubators/accelerators and practical training tools that the incubatees can apply in their daily routines are fostering the knowledge, enhances the entrepreneurs set of inherent means, which overall results in the elevation of the entrepreneurs business expertise. When determining the acquiring of knowledge as a possibility to enhance an entrepreneur’s expertise, one can link the incubation research and training effects with effectuational research, where Sarasvathy (2001) was the first author to study entrepreneurship as a form of expertise when she introduced the concept of effectuation in her doctoral dissertation. Later Read & Sarasvathy (2005) argued that, whereas novice entrepreneurs tend to use more causal modes of reasoning, expert entrepreneurs are considered to be highly effectual. This argumentation was validated by results of Read et al. (2009), who conducted a protocol analysis studying 27 expert entrepreneurs and 37 managers with little entrepreneurial expertise, where results indicate that expert entrepreneurs rely on effectual and non-predictive approaches, contrary to managers with little entrepreneurial expertise using a predictive and causal approach.
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form of entrepreneurial expertise, leads to the proposition that:
Proposition 2: The training provided in a business accelerator context facilitates effectuation during the entrepreneurial process.
Coaching/Mentoring effect
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activity (Deans et al., 2006). Despite the ambiguity of the terms, a vast majority of scholars agree upon the global aspect of both concepts, being the aspect of developmental interaction between two or more partners (D’Abate et al., 2003; Koopman, 2013). As already mentioned, other authors take a different perspective by not explicitly distinguishing between coaching and mentoring, while using the terms interchangeably (Bergek & Norrman, 2008). This accentuates the strong interrelation and complementation of both concepts and highlights the difficulty to propose a clear and comprehensive definition of the two support concepts (D’Abate et al., 2003).
In essence, the business support service of mentoring and coaching new ventures during their intake in the business accelerator, can be associated with expert individuals from the business accelerator management team guiding the individual new ventures in terms of precisely defining their business model as well as creating a business plan and elaborating on future marketing plans (Pauwels et al., 2016; Carayannis & von Zedtwitz, 2005). In order to benchmark and monitor the progress taken by the individual new ventures during their intake, mentors or coaches have to set clear goals & deliverables for the incubatees (D’Abate et al., 2003), these elements of coaching and mentoring can certainly be linked to the planned, causational behavior associated with entrepreneurs. Consequently, the proposition concerning possible coaching or mentoring effects is:
Proposition 3: The coaching or mentoring business support service provided in a business accelerator context facilitates causation during the entrepreneurial process.
External effect
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(Wiltbank & Boecker, 2007), which makes them a possible target for business incubation participants in order to secure an investment for their new venture. Business angels often have formal screening mechanisms and investment criteria, which qualifies a new venture to be a candidate to get financing (DeGennaro, 2012; Ibrahim, 2008; Kerr et al., 2014; Wiltbank and Boeker, 2007).
Accelerator programs usually comprise structured events including a demo day closing an incubation/acceleration cycle. On the one hand side, these days are designed for business angels and venture capitalists to check and analyze the development and progress the new ventures haven taken during the program (Miller & Bound, 2011). On the other hand, these events provide a platform where new ventures have a chance to launch their product or service to the outside world and especially to acquire potential investors. The incubatees well know the significance such events can have on their future development as the participating teams have access to a large and high quality group of investors, which they most likely would not have had without the accelerator program (Miller & Bound, 2011).
As financial capital is usually limited amongst the angel and venture capital investors, the dynamics of such a demo day are very competitive, meaning that the incubatees compete against each other in order to receive a financial partner. In order to outshine competitors, new ventures are looking to pique the interest of the investors attendance and therefore address their formal screening mechanisms and investment criteria (Smith & Hannigan, 2015; Miller & Bound, 2011; Tech Cocktail, 2012). The competitive atmosphere present during the presentations at demo day, the formal criteria set by the external evaluation of investors and the frenetic preparation of the incubatees to satisfy these formal criteria, give them a sense of predetermined direction, which leads to the proposition that:
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Network Support
The last dimension of incubation support services is the access to networks. Here, the incubator works as intermediary connecting their tenants to internal and external networks (Bergek & Norrmann, 2008), which facilitates the entrepreneurial firm’s acquisition of knowledge and other critical resources like technology, financial capital, market related resources and human capital (Bøllingtoft & Ulhøi, 2005; Hindle & Yencken, 2004; Mian, 1996a; Rice, 2002; Rickne, 2000; Rice, 1992; Studdard, 2006). Utilizing internal networks allows for networking among the incubated companies and is claimed to be crucial (Aernoudt, 2004; Grimaldi & Grandi, 2005). This is particularly useful in order to build social capital and enables the incubatees to share a variety of sources and enhances the formation of collaborations between different incubated companies (Lyons, 2000; Grimaldi & Grandi, 2005). On the other hand, the incubator connects their tenants with their external networks like managers, administrative, management, financial, legal, insurance consultants as well as to scientists, academicians and prospective customers (Peters et al., 2004). The utilization of the external network allows the incubatees to proactively interact with their business environment and fosters the leveraging of entrepreneurial talent and/or resources (Bøllingtoft & Ulhøi, 2005; Grimaldi & Grandi, 2005; Merrifield, 1987; Hackett & Dilts, 2004b). In summary, the network support service can be seen as a vital part during the incubation process, as the acquired information, knowledge and expertise are essential for reducing uncertainty and benefit the long-term survival of new ventures (Collinson & Gregson, 2003).
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Proposition 5a: The network support service provided in a business accelerator context facilitates effectuation during the entrepreneurial process.
On the other hand, the business incubation environment allows for a lively exchange of ideas and experiences, specially feedback. In this case, the group and feedback discussions can be compared to the effects of monitoring and coaching through a mentor, which was elaborated already.
In the group feedback discussions, strengths and weaknesses of the individual new venture business models and perhaps personal traits will be discussed and elaborated in order to foster the new venture development. Next to the personal traits of entrepreneurs, discussions often involve important aspects of classical management theory. Here, aspects of competitive analysis like the analyses of possible competitors in the market, market potential, market size and a potential target group of customers are likely to come up. These elements of competitive analysis correspond to the predictable aspects of the future and certain decision making in order to achieve future goals – being for example the elimination of weaknesses concerning the business model– and ensure a long-term sustainability of the new venture. Following this argumentation, the corresponding proposition states that:
Proposition 5b: The network support provided in a business accelerator context facilitates causation during the entrepreneurial process.
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2.6 Conceptual model
Figure 2 – Conceptual model
3 Methodology
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the interpretation of the gathered data.
Step Activity to obtain deliverables
1. Develop Propositions Development of Propositions based on
theoretical background with regards to the effect of business incubation services on the causational or effectuational development process of new ventures within the business incubator.
2. Analyze Survey Data Analyze the intake survey including:
Control-prediction scale (Wiltbank et al. 2009); goal orientation scale (Button et al., 1996); causation/ effectuation scale (VentureLab)
3. Analyze Interviews Analyze the interviews conducted with
participants after the conclusion of the program.
4. Analyze Diary Data Analyze the weekly diary entries of the
entrepreneurs
Table 3 – Research method overview
Sample and Data Collection
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The sample of this study was drawn from the entrepreneurs participating at the VentureLab International from April 2015 to July 2016. The set of participating companies was heterogeneous concerning size, operating industry, previous working experience of members and stage of development as shown in table 4.
Variable Characteristic
Size Min: 1 employee
Max: 7 employees Average: 1,22
Industry social entrepreneurship, IT & Internet, Travel
& Tourism, Education, Food & Environment, Feminine Hygiene Industry, Life Science & Health Care, Diagnostics, Sustainable Energy & Clean Tech, Smart Devices & Materials, Building material, Housing, retail logistic, Aviation , others
Working experience Min: 0 years
Max: 40 years Average: 9,7 years
Stage of development Varying from the Discovery stage (Ideation,
research) over Product-market fit stage (validation, market traction, revenue) up to later stages concerning Scale (scaling your business model, growth, optimization)
Table 4 – Data analysis
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weekly diary entries entered by the participating entrepreneurs. In order to complement the qualitative data, the evaluation of intake surveys filled in by the participants enlarged the database by providing quantitative data.
At first, the intake surveys taken by the participants were evaluated in order to receive a benchmark of causational and effectuational behavior of the entrepreneurs before entering the business incubation program. Here the usage of the control-prediction scale (Wiltbank et al., 2009), the goal orientation scale (Button et al., 1996) and a causation/ effectuation scale developed by the VentureLab international were used to provide some quantitative data.
However, the conducted research relies to great extent on qualitative research methods, which is considered to be particularly suitable to get a more in-depth understanding and knowledge about complex underlying issues and processes. First of all, the interviews allowed for a very comprehensive perspective and elicited great detail on how the business incubator services influenced the development process of the incubated new ventures. In retrospective, the participants were able to describe their process over time, highlighting the individual business support services offered by the business incubator and its impact in the development of the new venture. Whereas the interview data gave a very comprehensive perspective on the development process over the total incubation period, the weekly diary entries from den individual entrepreneurs complemented the dataset on more detailed and broken down level. The diary entries allowed to get a more detailed overview of the process over the time spent at the incubation program including the opportunity to observe the week-to-week progress made by the new ventures. More specific, the diary entries allowed observing the actions taken by the entrepreneurs in direct relation to the service they received during the training or coaching sessions, as well as networking events or the panel presentation.
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In general, this thesis aims to provide detailed and comprehensive understanding of the business incubation context and the impact of business incubator services on the development process of new ventures, where qualitative data provide more in-depth information and data.
4 Results
To provide the basis for the discussion and analysis of the data, the following chapter presents an overview of the results on the influence of the business incubation services on the individual new venture development process during the entrepreneurs intake at the business incubator. Here, the business incubatees describe what seemed to have the biggest influence on their development and how it influenced the causational and effectuational development of the new venture. In the subsequent discussion sector, the findings will be compared with current literature and theories.
The intake surveys taken by the Venture Lab participants and more precisely the containing goal orientation scale, effectuation and causation scale as well as the control-/prediction scale set the benchmark for the observation of the development process of the new ventures.
Starting at the evaluation of the goal orientation scale, where the first eight questions measured the performance goal orientation of the participants on the one hand and the last eight questions measure the learning goal orientation on the other hand. As the two dimensions of the scale are independent, results allow for a concurrent characteristic of high or low on both dimensions, in which entrepreneurs are either likely to exhibit a concern for high performance and a desire to improve their competence as they develop over time or display a general apathy or may be particularly affected to situational demands (Button et al., 1996).
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The learning goal orientation measures the entrepreneurs affinity towards seeking challenging tasks and maintaining effective actions under such demanding circumstances. When these individuals are faced with failure, they assess the situation as they have received useful feedback. Put differently, these individuals tend to learn from their mistakes, grow and increase their level of competence in any given activity over time (Button et al., 1996).
The results on the 5-point Likert scale indicate that on average, the participating entrepreneurs hold a stronger learning goal orientation (4,2) than performance goal orientation (3,4). This reflects a certain affinity of entrepreneurs to engage in more challenging activities, which stimulates the tendency to evaluate past performances as well as the ambition to enhance oneself’s development due the interpretation of failure as receiving useful feedback for future activities. The leaning towards dealing with contingencies and unforeseen future events indicates a tendency towards effectuational behavior of entrepreneurs. Yet, with an average of 3,4 on the performance orientation 5-point Likert scale a coextensive affinity for non-challenging tasks in order to avoid contingencies and mistakes, while evaluating performance by normative standards cannot be rejected. In summary, the results indicate a slight tendency of entrepreneurs to receive favorable judgments or avoid certain competences so that negative judgments do not occur, which can be related to rather causational reasoning. However, the results indicate a higher tendency of entrepreneurs to conquer challenging tasks, to understand something new and to increase their level of competence in a given activity, which is relatable to rather effectuational processes. Noticeable, entrepreneurs seem to adopt causational behavior as well as effectuational behavior coextensively.
The evaluation continues with the analysis of the self-developed effectuation-/causation scale, developed by the VentureLab, where the entrepreneurs are confronted with a set of eight pairs of questions, in which the individual business(-units) strategic decision making approach concerning causation and effectuation is measured. The results present very homogeneous answers among the observed entrepreneurs indicating a behavior which is characterized almost equally strong by causational and effectuational behavior, averaging a 3,1 for effectuational- and a 3,09 for causational behavior on a 5-point Likert scale.
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and situation in which the entrepreneur would characterize what he would do next to develop that opportunity or situation. Per question, the entrepreneurs faced two response items, where they rated their agreement or disagreement on a 5-point Likert scale measuring the dimensions of predictive and non-predictive control, which allows for a separate measurement of the entrepreneurs use of prediction and control in the entrepreneurs strategic approach (Wiltbank et al., 2006; Dew et al., 2015).
The results indicating that the entrepreneurs on average neither exclusively rely on predicting future events and forecasting future business environments, nor do they emphasize exclusively non-predictive control. Once again, the scores in the dataset are very homogeneous with an average of 3,5 on the control scale and a 3,6 on the prediction scale.
In summary, the results of the intake survey show very homogeneous scores concerning their current entrepreneurial behavior in terms of effectuation and causation. Furthermore, the scores illustrate that the tendency towards a neutral score on the causation/-effectuation scale is the highest, whereas the average scores on the goal orientation scale and control-/prediction scale are leaning towards agreeing to the respective items.
Training effect
The information taught during the training-sessions was mainly considered to enhance the broader business knowledge of the participants and was described as helpful by a majority of incubatees. In addition, the training sessions were portrayed as an environment for participants, in which business ideas could be discovered, developed and foremost, be discussed among likeminded people.
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They emphasized the utility of the business incubator program concerning the financial readiness and the ability to better understanding what banks or private investors like business angels are looking for when assessing their business for possible funding. On the other hand, participants with existing business knowledge and experience described a lot of the content as redundant, as the information presented during the training sessions was too superficial, already known or not applicable to their individual business cases. Overall, training-sessions were described as rather academic with little practical insights.
However, besides the enhancement of general business and entrepreneurship knowledge, the training sessions were described to be very valuable with regards to raising the consciousness and awareness of participants in terms of which steps or actions had to be considered when setting up a business and what to be aware of in the market environment. Specially participants having a background solely planted in engineering and the development of technology, with practically non-existent or rudimentary knowledge about financing, marketing and business environment have described to benefit a lot from the training sessions in terms of developing awareness and knowledge beyond the field of expertise and development of new technology. Some of the business incubatees described to develop a business perspective, which is not only from the technology standpoint, but a rather market oriented and customer oriented perspective. They emphasized their learning throughout the training sessions, especially about the importance of analyzing the possible target markets and its competitors, as well as how to determine possible customer segments and how to eventually sell their product.
Therefore, we can conclude that training sessions may lead to a stronger extension of the means basis (“what I know”: business knowledge, awareness about steps, skills) of participants in case their background is largely technical, and a less strong extension of means basis for participants with business knowledge (awareness about the steps to take, and skills on use of models).
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Aspect Observation Interpretation Main effect: causal
or effectual?
Enhance knowledge • Sharing expertise
• Giving feedback • Extend skillset • Applicability of business analysis models • Iterative development
• Expand Means (“what I know”)
• Exploitation and inclusion of contingencies
Effectuation
Table 5 – Overview results training
Coaching/Mentoring effect
The coaching/mentoring business support service was commonly described as the most valuable feature provided by the business incubator, as this service allows for a very personal and close interrelation between the mentor and the participating entrepreneurs, which leads to a very situation specific and applicable characteristic of this service. Concluding the results, the service provided by the VentureLab changed the participants behavior concerning causation and effectuation in several ways. In order to provide a more differentiated analysis of the complex impact, the service has on the causational- and effectuational development process of the new ventures, a distinction between the development on the individual and team as well as the business level seems most effective.
Individual and team level impact
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the entrepreneurs self efficacy, which can be related to a more effectuational behavior as it is needed to operate in an high uncertain environment as predictions about the future are not possible and making difficult decisions in such situations ask for high self-confidence to rely on.
The close interaction with the coach and the critical assessment of the entrepreneurs individual development seems to help entrepreneurs to develop their professional competencies as well as their personal qualities and soft-skills. This is also reflected in the impact of the service on the team level. The results also show that group dynamics pose an issue during the difficult start-up stage, where competencies and clear roles are not necessarily developed yet. Here coaches had an impact on the personal development of the entrepreneurs in terms of critically assessing the strengths and weaknesses of each individual team member, which is important in order structure the team and make teamwork more efficiently. By addressing deficiencies and the iteratively improvement of such personal weaknesses as well as enhancing the individual self efficacy, we can conclude that the coaching sessions leads to an extension of the means base (“who I am”: identity, traits, tastes and abilities) which may lead an enhanced flexibility in incorporating and dealing with possible contingencies and therefore indicating the facilitation of an effectuational development process.
A different aspect, showing the impact of the business coaching service on an individual level, is the enhanced motivation of entrepreneurs, especially in phases where motivation to develop the business was at a low level. Through constructive pressure exerted by the coach and goals developed during their coaching meetings, the entrepreneurs described the feeling achievement and success, which enhanced their motivation. The goal setting and structuring mechanism can are indicating a planned approach and therefore relate to a more causational development of the new ventures.
Business level impact
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The participants indicate the determination of smaller goals and deadlines during the coaching sessions, helped them to keep focus and develop in a more structured way, especially participants in early stage new ventures, who may only have abstract ideas of their business and who do not have precise, tangible business problems to conquer. They described the feeling of having a certain obligation to achieve the determined goals when meeting with their coach. Another aspect, illustrating the enhancement of the new ventures structure is represented in the change of business models, in some cases of the new ventures. Similar to the critical personal dispute and analysis, the results indicate an enhancement of entrepreneurs to be more open to critical feedback of stakeholders and the critical analysis and adaption to impediments and contingencies on a business level. The entrepreneurs were confronted with taking different angles on their business during the discussions with their coaches and along the development process, which improved the entrepreneurs ability to relate to possible business partners, clients or other stakeholders in their network. In developing such skills and the entrepreneurs ability to communicate more effectively with their stakeholders allows for a more efficient work environment and sustainable results in the long run.
In the same sense, the data analysis revealed that the critical feedback from the mentor, as well as other stakeholders and the critical consideration and incorporation of the feedback enhances the robustness of the new ventures business model. As a logical and positive consequence, the enhanced business model allows the company to be more flexible dealing with contingencies and adapting to new unforeseen circumstances, because rather than providing exact future predictions and outcomes, a robust business aims to cushion possible negative shocks. These arguments indicate a long-term development impact of the mentoring service, where the enhancement of competencies as well as providing a strong means base enhances the flexibility of the company and short term returns fade into the background. Moreover, the results show how new ventures were able to adapt and change over time according to the new means acquired over time. In summary, these aspects do not represent a planned approach or development process of the new ventures and therefore indicate a rather effectuational development.
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one of the many solutions in order to acquire additional money. As the process of applying for domestic or international subsidies usually needs the new ventures to fulfill a certain set of requirements, the entrepreneurs were forced to develop certain characteristics and to acquire a certain structure, in order to achieve the requirements for a subsidy. This situation exemplifies, that the development facilitated by the mentor very often requires causational processes including precise analysis and business planning processes, in order to acquire and maintain critical resources like financials. Therefore we can conclude, that the coaching service may lead to a stronger planned and structured development of the new venture under the condition of the application for subsidies or the securing of intellectual property rights, although these aspects lead to an extension of resources and means.
With respect to the different examples of how the mentoring or coaching service has an impact on the causational and effectuational development of the new venture, the results are ambiguous. On the individual level and team level, proposition 3 cannot be supported as the results mostly indicate an enhancement of the entrepreneurs means base, which can be attributed to a rather effectuational development process. On the business level on the other hand, the results show divergent impacts of the business coaching service. The results show an extension of the business structure on the one hand side, implying a causational development process and an extension of the entrepreneurial means, indicating an effectuational development. Therefore, proposition 3 can only be partially supported on a business level.
Aspect Observation Interpretation Main effect: causal
or effectual?
Enhance knowledge • Sharing expertise
• Soft skills
• Expand Means (“what I know”)
Effectuation
Enhance structure • Developing small
development goals • Deadlines
• Planned approach (focus on end goal)
• On the other hand iterative development process (no
predetermined objective)
39 Enhance self efficacy • Feedback • Critical assessment of strengths and weaknesses • motivation
• Expand means base (“Who I am”) Effectuation Connection to network • Introduction to other stakeholders
• Expand means (“Who I know”)
Effectuation
Table 6 – Overview results coaching/mentoring
External effect
