An exploratory case study in the context of Company Builder

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Entrepreneurial Passion from an affective/cognitive-perspective:

An exploratory case study in the context of Company Builder

Master Thesis

By

Daniel Hoffmann S3292657

Word count: 12881

University of Groningen

Faculty of Economics and Business Economics 22^ndFebruary 2018

Supervisor: Dr. O. Belousova Co-assessor: Dr. S Murtinu

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Abstract

Passion is commonly seen as one of the most important characteristic of entrepreneurs in order to turn their ideas into the next Facebook, Google or Amazon. However, a lot remains unknown about the preconditions and consequences of entrepreneurial passion, despite the academic advances.

We looked at entrepreneurial passion from an affective/cognitive-perspective, in order to address

these existing gaps. This was carried out by means of an exploratory case study, in the context of

Company Builder, a new type of accelerator model, which has emerged in the last years. Moreover,

we employed a framework, based on the social system theory to produce new insights on the

influence of entrepreneurial passion for four main functions of the ventures and their related

capitals: strategic, cultural, economic and social. The results suggest that entrepreneurial passion

is existing in the context of Company Builder. Cognitive passion is prevailing and has a positive

influence on strategic, economic and social capital, while affective passion was observed, but

yielded no influence on the different functions.

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1. Introduction

Entrepreneurship and the notion of passion are deeply connected and not uncommonly used to explain the tipping point between success and failure where rational causality appears to be missing. Entrepreneurs need to convince employees to believe in a common dream or sell the business idea to potential investors. Tales of the passionate entrepreneur are manifold and often used as a general proxy for the likelihood of establishing a thriving venture or pursuing a business idea when challenges occur on the rocky road to success. Prior entrepreneurial studies share a common attribution of affect to the passion construct (i.e. Baum & Locke, 2004; Cardon et al., 2009; Shane, Locke & Collins, 2003) and suggest to a large extent positive effects of passion on the individual entrepreneur (Baron, 2008), the team (Cardon, 2008) or venture related activities such as acquiring capital (Cardon, Sudek & Mitteness, 2009; Chen, Yao & Kotha, 2009). Although passion has been mentioned in research dating back to the middle of the last century (i.e.

Schumpeter, 1951), research about entrepreneurial passion remains incomplete in conceptualization and lacks empirical evidence from testable theories, resulting in repeated calls for further exploration (i.e. Cardon et al., 2009; Chen, Liu & Wey, 2015).

For example, Chen et al. (2009) showed that conceptualizing between the cognitive and affective passion can be instrumental for understanding its consequences for entrepreneurial ventures. It was empirically tested in different venture funding decision settings (Cardon, Sudek

& Mitteness, 2009; Chen, Yao & Kotha, 2009), showing that the passion displayed by

entrepreneurs was influential for an investment decision, but has yet to be expanded to other

settings. Following Chen, Yao & Kotha (2009), we suggest that to understand and research

entrepreneurial passion, we should look at it from an affective/cognitive-perspective. This thesis

is going to address the prevailing research gap in the field of entrepreneurial passion and specially

explore the influence of passion for different functions in an emerging venture. We employ social

system theory adapted to entrepreneurship by Groen et al. (2008) to look at entrepreneurial

activities from four distinctive functions (goal attainment, pattern maintenance, social networking

and economic optimization) and their related capitals (strategic, cultural, social and economic

capital). This framework, therefore enables the systematic analysis of the role of passion for

diverse aspects of a startup development process.

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We propose to do it in a new and emerging context. In recent years, a different type of startup accelerator/incubator has emerged. We will address these organizations as Company Builders (CB), referring to their core activities to professionalize and outsource the startup process to test ideas, validate and scale up winning models. Instead of creating a new business around the initial inventor, this process is led by an externally assembled team of professionals that is hired for executing the idea.

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Not being the originator of the idea, this instated founder team should be theoretically less passionate, as opposed to the emotionally charged entrepreneur who is strongly attached to his own idea and venture (Cardon et al., 2005). Therefore, the context of CB-built ventures offers ideal conditions to study the role of entrepreneurial passion (or the lack of it) by looking at the Company Builder professional (CBP).

Consequently, the aim of this study is to explore the following questions:

What is the nature of the relationship between CBP and their venture?

What role does entrepreneurial passion play for a CBP in a CB-built venture?

How does the CBP’s entrepreneurial passion influence the four functions of a CB-built venture?

This is addressed by developing propositions about passion and carrying out an explorative case study within the context of CB-built ventures to refine and resolve current gaps found in the literature. By answering the research question we make the following contributions.

First, by way of exploring the ambiguous effect of passion from an affective/cognitive- perspective (i.e. Chen, Yao & Kotha, 2009), this study is adding to entrepreneurial passion theory and the ongoing discussion about it (Cardon et al., 2009). Thus, extending previous work to domains outside the venture funding process, resulting in a more holistic view for the theoretical understanding of entrepreneurial passion. Secondly, this is one of first studies in the new emerging phenomena of CB. The findings will help in understanding the preconditions, characteristics and the role of entrepreneurial passion in CB-built ventures adding to the entrepreneurial literature

1 Throughout this research, we will refer to the managers of CB-built ventures as Company Builder professionals.

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field. Finally, from a managerial perspective the results will be useful for CBs, by offering insights about factors of potential importance regarding the CBP and the CB-built ventures on the motivational domain of entrepreneurial passion.

The thesis is structured the following. First, the theoretical background will be developed, describing the CB phenomena, summarizing the research in the field of entrepreneurial passion and the four strategic functions of an organization. Followed by the methodology, analysis and findings from the explorative case study. Finally, a discussion and conclusion will be developed, resolving in suggestions for future research.

2. Theoretical Background

2.1 Business Incubator, Accelerator and Company Builder

In practice there are several ways of starting a business. Depending on the context they range from the solo-entrepreneur to corporate entrepreneurship. Different organizations offer their support along the endeavor from the early stage to scaling up in the later stage of the startup cycle.

Among the most prominent models are the business incubator, accelerator and more recent a phenomena called “Company Builder”. To clarify the difference between the models and establish a context for this research, incubators and accelerators will addressed and compared regarding key elements. Then, the CB as a new incubation model will be characterized. Table 1 summarizes the key differences in the three models.

The business incubation model has been present in the entrepreneurial world for several decades and has been well-studied in research (Hackett & Dilts, 2004). Incubators support early to late stage emerging businesses by creating a protected environment. They offer physical resources (facilities or offices) over a long period of time in exchange for a monthly rent. Or free of charge by non-profit incubators (i.e. University incubators)(Cohen & Hochberg, 2014). In addition, different services such as administrative help or access to a business network are provided in order to develop emerging business into self-sustained, independent ventures (Cohen &

Hochberg (2014); Grimaldi & Grandi (2005)). Last, incubators do not provide seed-capital in

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exchange for equity or take any other active investment role in their tenants business. Over the years the early business incubator model has evolved into more specialized incubators, with focus on specific industry or assistance in areas such as idea evaluation or product development (Bruneel et al., 2012). Moreover, several other forms of entrepreneurial support organizations have developed with its most prominent representative being the accelerator model.

The business accelerators model is relatively new phenomena with the first seed accelerator program dating back merely 12 years. Yet, a continuously growing number of accelerators can be observed, with an estimated worldwide dispersion of more than 2000 until today (Fehder &

Hochberg, 2014). While there are nonprofit accelerator organizations, the majority are privately run, for-profit organizations that take an equity stake in the cohorts in exchange for participation and services offered. Participants apply with an existing team and business idea, and run through an intensive, fast-paced program of usually three to six month, in close and extensive interaction with the accelerator personnel, as well as the cohort (Cohen & Hochberg, 2014). Due to the equity stake, business accelerators have more aligned goals with the ventures and an interest in the positive development of their portfolio companies. However, the controlling equity remains with the founding team which limits the accelerators influence in the post-acceleration phase. Overall aim of accelerator programs is to speed up the development of emerging business by constantly evaluating and adaptation of the business idea in order to quickly enter the target market or stop venturing in case of lacking potential. Whereas the accelerator model remains to be the most prominent one, other concepts have emerged which use a more direct approach in starting and scaling ventures.

In practice, terms such as “Startup Factory”, “Startup-as-a-Service” or “Company Builder”

depict a phenomena, which has not yet found its recognition in research and has only been described in one single-case study (Köhler & Baumann, 2016). Within the frame of this research,

“Company Builder” will be used as an umbrella term for the various notations.

From observing the existing CBs, their model can broadly be understood as an approach to

professionalize the startup cycle while making efficient use of resources and predetermined

processes for creating new ventures. CBs “artificially” create startups or assemble the necessary

resources in a production-like manner. Strong focus lies on designated process, efficiency and

speed from idea to market entry with common timeframe of three months (i.e. Germantech digital).

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The ideas originate from different sources and vary based on the focus of the CB. For example, some CBs pro-actively test solutions to present problems or needs in society or the business world in order to create new business models (i.e. Barefoot Studios ; Creative Dock). Yet others, act on behalf of large corporations to create innovative startups within the context of their industry focus.

An extreme type of CB can be observed in the German, Berlin-based company Rocket Internet SE (Claim: “We build companies”) who started venturing by using business models from existing e- commerce and rapidly built clones in markets that had not yet been targeted by the original business (Köhler & Baumann, 2016). Overall, these ideas are tested and validated with a matching business model before the next phase is commenced.

Another key difference to the incubator/accelerator model represents the founding team, respectively the team formation. CBs assemble a managing team, from a pool of professionals both inside the CB and outside from their network to match the previously validated ideas. The incentive regime for the founding team in a “traditional” startup is related to the ownership of the idea and the venture itself, whereas for the founding team of CB-built ventures the salary and an equity stake is defining. Further, the release of equity can be partly connected to key performance indicators (KPI), as well as a vesting period.

Moreover, the ownership structure of the startups differentiates the CB model from pre- existing incubation forms. As mentioned before, traditional incubators usually don’t take any active investment role in their tenants, nor require startups to give up equity in return for services.

The majority of shares remains within the control of the founding team. The same applies to the

accelerator model, although they commonly ask a minority stake from their cohorts. In contrast,

two extremes are recognizable for CB. One form has no ownership in the created startups and

operates purely on a fee-based service model. In the opposite form the CB holds the majority

shares and thus has a controlling influence, i.e. for the disposition of equity for acquiring funds or

incentivizing employees.

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Table 1 provides an overview of the characteristics to differentiate between incubators, accelerators and Company Builder along key dimensions.

Incubators Accelerators Company Builders

Duration 1 to 5 years 3 to 6 months 3 to 18 months

Cohorts No Yes No

Business model Rent; nonprofit Investment; nonprofit Fee; Investment

Startup stage early to late early pre-startup

Origin for venture idea Founder - within Startup Founder - within Startup Client; Company builder - outside Startup

Majority shareholder Founding team Founding team Client; Company builder

Team formation Independent; prior to participation

Independent; prior to participation

Company Builder -

assembling/matching process

Incentive regime (founding team)

Ownership in Startup Ownership in Startup Salary; Equity

Table 1: Differences between Incubators, Accelerators and Company Builders (extended illustration based on Cohen & Hochberg (2014)).

Due to the novelty of the phenomena and lack of academic research on CBs there is no definition at hand. In order to frame the Company Builder phenomena for this research, based on the review and presented characteristics, the following own definition is brought forward.

Company Builder is defined as:

“An organization that continuously tests and validates business ideas to create new ventures

in a factory-like manner. New ventures are created, by means of standardized processes, focus on

efficiency and a recruited founding team that is different to the originator of the idea”

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Concluding the review of the CB phenomena, it was found that a number of different CBs exist with various areas of specialization. CBs can be seen as an evolution from the preceding incubator/accelerator model. Although there are similarities in features, the analysis and proposed definition of the CB demonstrates that this is a different phenomenon valuable of study. In the next chapter entrepreneurial passion will be discussed in order to provide an understanding of the concept for the subsequent study.

2.2 Entrepreneurial Passion

In the more general use of the English language, passion is described as a reason for arousing great enthusiasm, the desire for something, or the state of mind with strong and barely controllable emotions (Hornblower, Spawforth & Eidinow, 2012). In the academic domain, researchers advance into this area from different perspectives. In the following chapter we will present the current state of this ongoing debate. First, entrepreneurial passion (EP) will be defined by exploring the nature of passion and its characteristics in the entrepreneurial context. As a result we will formulate a definition within the scope of this research. Next, by reviewing relevant literature we highlight what insights academia has brought forward about antecedents and outcomes of EP.

Last, concluding the literature review, current gaps will briefly be addressed to provide a holistic view, along with a foundation for the subsequent chapters.

Vallerand (2003) defines passion as a general manifestation of a “strong inclination toward an activity that people like, that they find important, and in which they invest time and energy”

(p.756). In the entrepreneurial literature, EP is linked to terms such as mobilizing energy

(Brännback et al., 2006) or drive (Bird, 1989), willingness to work long hours or persistence when

facing resistance (Cardon et al., 2009). Earlier publications outline the construct as “the drive - the

determined, optimistic, and persistent desire to succeed at one’s own venture“ (Smilor,

1997:p.342). These views suggest a strong relevance of passion in the entrepreneurial endeavor,

with reference to it as “a tale of passion” (Cardon et al., 2005:p.23). Although the

conceptualization of EP differs in research, the various approaches share common, defining

aspects (Chen, Liu & Wey, 2015; Cardon et al., 2009). First, passion is a state of strong feelings

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that is caused by changes in one’s current condition. Second, passion has a behavioral effect, for example, in remaining engaged in an activity. Third, passion is usually target-specific such as venture-related opportunities or tasks. Next, these three aspects will be addressed more detailed.

First, the aspect of feelings in the discussion about passion is also referred to as affect. It is understood as an internal process caused by deep engagement with an issue of high value. Contrary to emotions caused by an outside stimuli, passion can be activated on purpose which means individuals are conscious about the origins of their feelings, as well as the direction of it (Cardon et al., 2013). In this context, researchers have used general terminology of affect or various metaphors to describe EP, such as enthusiasm, love, desire or joy (i.e. Cardon et al., 2009; Baum

& Locke, 2004; Vallerand et al., 2003).

Second, the behavioral affect is a common attribute in various definitions of EP (Murnieks, Mosakowski & Cardon, 2014). Individuals who experience strong feelings are inclined to take action that are meaningful to their personal identity (Cardon et al. 2009), working long hours or stay highly committed despite difficulties (Baron, 2009; Bird, 1989; Brännback et al., 2006). In this context definitions often refer to EP in terms of spirit, fire, emotional energy or drive (Bird, 1998; Cardon et al., 2009; Chen, Yao & Kotha, 2009).

Third, researchers agree that EP has a target-specific attribution, which is a requirement for the individual’s experience of affective feelings (i.e. Chen, Yao & Kotha, 2009; Vallerand et al., 2003). Specific activities, in the entrepreneurial domain related to creating and building ventures, represent source of EP and object alike, to which the motivation is directed, resulting in persistent, activities towards it. Here, the activities have been explored from recreational activities, such as sport or music (i.e. Rousseau & Vallerand, 2008; Bonneville-Roussy, Lavigne & Vallerand, 2011) to entrepreneurial activities (i.e. Chen et al., 2009; Ho & Pollack, 2014; Murnieks, Mosakowski &

Cardon, 2014).

Consolidating the review of definitions in the domain of passion, we propose to understand EP as:

“A consciously accessible affective state that is accompanied by cognitive manifestations and

behavioral inclination to engage, and maintain activities of personal value”.

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In order to understand the outcomes of EP and expand the existing finding to the new context of CB-built ventures, we briefly address an overview of findings relevant to this research.

2.3 Entrepreneurial Passion and venture-related activities

Although research on EP is still in its beginning stage, various papers have addressed different domains and advanced the theoretical understanding. Dominant on the research agenda is EP experienced and displayed by the individual entrepreneur with its possible antecedents and consequences towards venture-related activities. While earlier works conceptualized EP as a personal trait or characteristic of entrepreneurs (i.e. Baum, Locke & Smith, 2001) that influences a variety of outcomes (i.e. self-efficacy and motivation) direct or indirect, more recent publications approach EP by conceptualizing it as a construct of positive affect associated with a motivational aspect, directed towards entrepreneurial activities (i.e. Cardon, 2008; Chen, Yao & Kotha, 2009, Murnieks, Mosakowski & Cardon, 2014). The following section explores the current state of work on EP relevant within the scope of this research.

In the context of venture financing, research has brought forward some interesting, albeit divergent results. The general tenor among scholars suggest EP to be an important characteristic for the angel and venture capital investment decision alike (i.e. Cardon, Sudek & Mitteness, 2009).

Chen et al. (2009) found that in a business plan presentation the cognitive passion, perceived as

preparedness, was significantly related to funding decisions in favor of the entrepreneur. Similar

findings were presented for an angel investment decision (Cardon, Sudek & Mitteness, 2009)

suggesting the influence of displaced EP on the funding process. Depending on the stage of the

investment process, displayed passion (affective passion), displayed commitment (behavioral

passion) and preparedness (cognitive passion) yielded mixed positive or negative results. For

example, in some cases the displayed passion and commitment aroused a perception of EP with

the rater, yet also weariness of potential influential mechanisms. At the same time it is suggested

that cognitive passion might be independent from the investment stage positively related to a

successful funding outcome, which is coherent with the previous mentioned findings by Chen,

Yao & Kotha (2009). These findings offer an interesting starting point to build on, and extend the

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research on EP from the suggested affective/cognitive perspective into domains outside the funding situation.

Cardon et al. (2009) suggest a mechanism through which the experienced affective state influences goal-directed cognitive and behavioral actions, eventually influencing entrepreneurial effectiveness. Drawing on the identity theory and research on entrepreneurial behavior, they conceptualized a model of EP that is related to three entrepreneurial role identities. Depending on the dominant identity, EP activates the entrepreneurs self-regulation mechanism, which then leads to matching cognitive processes and behavioral actions. Consequently, creative problem solving, persistence and absorption are suggested to result in entrepreneurial effectiveness, such as opportunity recognition or venture growth. In the same context, Cardon et al. (2009) acknowledge the fact that EP could lead to negative consequences, in spite of the generally positive influence.

The abundance of (affective) passion might be related to a more obsessive form. As a consequence inverted effects on the proposed venture-related activities might result, such as diminished opportunity recognition or persistence in a failing business (Vallerand et al., 2003). It shows that the notion of a less beneficial influence is recognized, however not yet explored and therefore potentially fruitful to incorporate in this research, as well as the suggested favorable effect on entrepreneurial effectiveness.

As presented in the preceding literature review, the academic progress in unraveling the multi-layer, multi-dimensional EP took a big step forward. Despite the accumulated knowledge literature shows that further research is needed to close some of the existing gaps, both theoretically and empirically. Within the frame of this work, we focus on the relevant findings that conceptualize and differentiate EP towards an affective and cognitive component. However, we acknowledge that researchers offer alternative models of passion such as Vallerand’s dualistic model of passion (Vallerand, 2003) on basis of the self-determination theory, which has not yet been adequately extended to the entrepreneurial field except for a few first approaches (i.e.

Thorgren & Wincent, 2013).

Until today very little is known about the different levels of EP (intensity of EP) and venture-

related activities. Briefly acknowledged by Cardon et al. (2009), proposing an inverted U-shape

function with regards to creative problem solving, the majority of paper centers around the

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favorable aspects of EP.

In research outside of the context of entrepreneurship, the majority builds on the mentioned dualistic model of passion brought forward by Vallerand (i.e. Chen, Liu & He, 2015: Forest et al., 2011). Incorporating these theoretical ideas into EP might give rise to new perspectives and a better understanding about differentiating intensity levels. Moreover, the pathway from EP to venture performance (i.e. growth) or venture success (i.e. survival) is still in need of substantial work and remains uncovered (Brännback et al., 2006, Chen, Liu & He, 2015) and relies largely on stories from successful entrepreneurs.

2.4 Affective/cognitive passion in the context of Company Builder

Based on the previous review we are now going to conceptualize EP from a motivational perspective with an affective and cognitive part. We build on the past research and transfer it to the emerging CB setting, to investigate the nature of EP and how this affects venture-related domains. Whereas a suggested strong emotional connection and identification of a founders and their idea/the business exist, should CBPs who are recruited for building and scaling up ventures, theoretically less passionate, respectively less strongly invested in the venture (Cardon et al., 2005; Daily & Dalton, 1992). Hence, the occurrence of the postulated aspect of strong emotional feelings (affective passion) is likely to be less frequent or strong in the CBP within the CB-built context. In contrast to this, this difference between the originator of the idea (founder) and the instated CBP might be assumed to not prevail for the cognitive side of EP which is operationalized as preparedness (Chen, Yao & Kotha, 2009). For instance it is suggested that nonfonder (manager), might use a different approach when making decision compared to a founder (Schein, 1968), such as continuous evaluation of alternatives or frequent occupation with the venture-related issues (Chen, Yao & Kotha, 2009; Chwolka & Raith, 2012).

Summarizing the view on affective and cognitive passion in the context of the CB, the following overarching proposition is formulated:

Proposition 1: In the context of a CB-built venture cognitive passion is predominant to affective

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passion.

In order to analyze the effect of passion on entrepreneurial outcomes in a more systematic way, we further employ the social system theory which describes how social systems of different levels work. Being so prominent, it provides a great opportunity to consider diverse sides of a venture development simultaneously. Next, we will present the four function framework (Groen et al., 2008) by which the explorative case study will be guided.

2.4 Social system theory framework and Entrepreneurial Passion

Based on the social system theory, Groen et al. (2008) developed a framework that can be

employed to analyze central functions and align these for the business development. Established

in the context of a high tech firm, the framework is applicable to different settings. In order to

balance the rising tensions between long-term exploration and short-term value creating

exploitation, the entrepreneur has to implement the four functions in a dynamic pattern. These four

functions are (1) goal attainment; (2) pattern maintenance; (3) social networking and (4) economic

optimization, and related to these functions exist four types of corresponding capitals: strategic,

cultural, social and economic capital. Within these four dimensions of the framework every

process from opportunity recognition to opportunity exploitation can be projected. Thus, allowing

the entrepreneur to analyze their business and through accumulating capital for each dimension

grow their business. Here, the four types need to be seen as related to each other in such a way that

transactions for either involves an alteration of the others (Groen, 2008).

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Figure 1: Four Capitals built up in an Entrepreneurial Process (Groen et al., 2008).

This study will employ the framework and apply it to the present setting of CB. The work by Groen et al. (2008) presents a well applicable instrument, to address this new type of accelerator from the four central functions. By investigating the effect of passion, or the lack of it, along the dimensions, propositions will be developed that can be used in future research. Furthermore, a preliminary data research has brought forward the notion that a lot of the ventures originating from the context of CBs are in relatively young industries such as fintech, smart mobility or energy.

Therefore, a good fit with the four function framework can be assumed.

Next, the four functions and their related capitals will be shortly addressed and propositions brought forward, conveying theoretical reflections into a context of CB-built ventures .

Strategic Capital

For organizations one of the four basic functions according to Parsons (1991) is to realize

certain goals. In order to achieve this, actors need to build and utilize strategic capital. It is defined

as the “set of capacities that enables actors to decide on goals and to control resources and other

actors to attain them”(Groen, 2008). Also, conceptualized as political power, it can be understood

as the means to set strategic goals in an organization, while at the same time having enough

influence to carry them out. Strategic capital is not limited to a person, but can also comprise of

patents or knowledge, among others.

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Within the frame of this work, the focus will be placed more on the strategy aspects of this function. Strategy can be understood as a holistic plan, that is designed to achieve postulated goals or objectives within an organization (Hunger & Wheelen, 2003). It includes decisions, adaptation to environmental changes and allocation of resources for goal attainment. In strategic management, numerous framework are existent to analyze the competitive environment, the organization or other driving forces (i.e. Porter’s Five Forces, RBV, et cetera). While the unit of analysis is different, as well as for example the proposed strategies, they are unified in their approach to understand strategy as a manifestation of planning and a rational process, that takes a variety of information into account.

Entrepreneurial research has shown that a multitude of factors can influence strategic decision making (i.e. Shepard et al., 2014). It is proposed that rational planning helps entrepreneurs assess mutually exclusive strategies and adapt those in time when necessary (Chwolka & Raith, 2012). This would suggest that cognitive arousal, accompanied by the active mind (Chen, Yao &

Kotha, 2009), and a frequent occupation by thinking about current or alternative strategies is beneficial for strategic capital. This preparedness for alternative scenarios or the considerable effort spent is associated with cognitive passion (Cardon et al., 2009). Contrary to this is a reasoning based on intense feelings. For instance, if an initial idea was designed to address a very specific problem and letting go of this idea, exploring other options or even taking into account a radical shift in the business model seems inconceivable to a strongly attached or affective person (Cova & Svanfeldt, 1993). Similar to this idea is the metaphor of Cardon et al. (2005) comparing the founder-venture-relationship to parenthood. A strongly attached entrepreneur who has difficulties giving away control, is restraint to fewer strategic options and ultimately limits the opportunities for growth.

In the context of CB-built ventures, the initial idea doesn’t originate with the later installed,

external professional, resulting in a hypothesized weaker bond and the absence of affective passion

(Cardon et al., 2005). Further, the close proximity to the CBs with their often distinct operational

processes is suggested to influence how strategies are defined or altered to changes internal and

external, by means of a rational, reasoned approach. Accordingly, it is presumed that if passion

exists, it will be cognitive passion manifesting in concentrated work or the ongoing occupation of

the mind with venture-related strategic concerns. Thus, the following propositions are formulated:

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Proposition 2a: Greater cognitive passion will be associated with greater strategic capital in a CB-built venture.

Proposition 2b: Greater affective passion will be associated with lesser strategic capital in a CB- built venture.

Cultural Capital

Cultural Capital can be understood as the collective norms and values that are inherent in an organization. It comprises also beliefs, assumptions, rules and artefact manifested in a system for the purpose of organizing, learning and change (pattern maintenance) (Groen et al., 2008). It has to be seen in a relationship with participants within as well as outside the organization. Following the definition presented, the organizational culture is dynamic and strongly influenced by its members, especially in the context of a newly established venture (Schein,1983). The development of an organization culture is directly associated with the personal belief system of the founder (i.e.

Baron, 2002; Schein, 1983). They bring in assumptions about concepts, such as the role of individuals, the organization or themselves which are influenced by past experience. In contrast, the professional manager is presumed to operate under a more objective-driven approach and less personal commitment to the venture (Schein, 1986).

As EP has mostly been researched in the context of the individual entrepreneur or founding team, there appears to be no conclusive answer about the relationship of passion and cultural capital (Cardon et al., 2008). A possible mechanism of how EP contributes in forming the organizational culture is by organizational identification (Dutton & Dukerich, 1991) or the process of emotional contagion (Cardon et al., 2008). It is suggested that the displayed passion (affective passion) of a founder is transferred to employees by a process of contagion and in unison with social comparison (Sullins, 1991) leads to identification with the leader and organization.

Employees might experience similar emotions as an affective founder. They encounter a collective

feeling (“We are all in the same boat”), which is suggested to have beneficial outcomes in a more

effective organization as a whole (Cardon et al., 2008).

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It is presumed that the preceding discussed mechanisms for influencing the organizational culture apply as well in the context of CB-built ventures. The close collaboration between the CBP and team is advantageous for forming collective norms and values which, in unison with displayed passion, could result in the proposed effect in the organizational culture. Bringing together the presented line of thoughts, the following proposition is formulated for the condition that passion is influencing the cultural capital dimension:

Proposition 3: The more a CBP displays affective passion, the stronger will be the organizational culture of a CB-built venture.

Economic Capital

The economic capital consists of the sum of financial means that are existing and accessible to an organization. It can be used, exchanged or marketed in interaction with the environment and is commonly measured in terms of money

²

(Groen et al, 2008). For newly established ventures it is first and foremost capital to dispose of, in order to operate and maintain venture-related activities. It fulfills several functions and provides entrepreneurs with the flexibility to set strategic objectives that ensure venture growth (Gilbert et al.,2006). If sufficient capitalization cannot be generated by everyday operation, several options are available to acquire the economic capital necessary (Fraser, 2005). External capital is often provided by family and friends, angel investors or venture capitalists. In the context of CB, the newly founded ventures are financially well- equipped to start the venture. Yet, to ensure steady growth additional funding has to be raised.

Although the origin and underlying conditions differ between CB-built and “traditional”

ventures, they are likely to share the same characteristics regarding the overall process seeking investment. Past research has offered several criteria in favor or against an investment decision that are used by angels or venture capitalists (VC) in the funding process (i.e. Hall & Hofer, 1993:

Sudek, 2006). A track record of personal achievements, both past and present, was found to present

2 Although there are several forms of economic capital reflected in the presented definition, this research focuses only on monetary capital as a mean to finance ventures.

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an important criteria for VC in the funding process (Fried & Hisrich, 1994). Further, an association with a CB might turn out to be valuable. The professionalism of the CB and act as a signaling mechanism (Connelly et al., 2011).

EP is a rather new criteria that is, despite fruitful advances, still in need of further research to unveil its relationship for accumulating funds (Cardon, Sudek, Mitteness, 2009). Yet, it was empirically shown that the display of cognitive passion was associated with a favorable evaluation of the business plan by VCs (Chen, Yao & Kotha, 2009), as well as funding potential by angel investors and was found to be more consistent during the process (Cardon, Sudek & Mitteness, 2009). In order to prepare these information for presenting the venture in a credible and sound structure, the cognitive side of EP is suggested to be active. Displayed in a business idea presentation (pitch) with potential investors this is perceived as preparedness, such as a coherent and in-depths line of argumentation or valuation of the business potential. Additionally, in the first business presentation it is suggested that the display of affective passion, for example an expressive body language by the presenter, is perceived as EP which is positively rated and leads to increased interest from the audience (Cardon, Sudek & Mitteness, 2009). At the same time, it can also lead to heightened skepticism and be regarded as potential deception. Bringing the theoretical reflection together, the following proposition is formulated:

Proposition 4: Cognitive passion will be prevailing in the funding process and will be associated with greater economic capital for CB-built ventures.

Social Capital

The concept of social capital is well-discussed in research and is suggested to explain the relational success in numerous organizational contexts (Adler & Known, 2002). Vital in obtaining for instance information, capital or legitimation, networks are an important part of the entrepreneurial process, with a proven positive influence on varying outcomes (i.e. Hoang &

Antoncic, 2003; Shane & Cable, 2002). Social capital is defined as the sum of links that connect

an actor to others and provides access to resources, either direct or indirect (Groen, 2008). Social

skills is suggested to hold explanatory potential in contributing to the aggregation of social capital

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(Baron & Markmann, 2000). Including skills like perception or impression management, research findings indicate an increased level of positive attribution for entrepreneurs with high social skills for venture-related activities (Forgas, 1998).

From the perspective of EP, the wide recognition of promoting virtues also holds for building, maintaining and utilizing networks (Ho & Pollack, 2014). Displayed affective passion appears to be beneficial for persuasiveness and the increase of social capital (Baron, 2008). Visible characteristics such as rich body language , expressive facial expression or variation of tone and pitch, indicate affective emotions which are likely to be perceived as passion by others (Cardon, Sudek & Mitteness, 2009). Further, passion is suggested to be contagious in transferring one’s energy to others (Cardon, 2008; Chen, Liu & He, 2015; Ho & Pollack, 2014). As a result, actors might be drawn to become part of a certain network or grant access to theirs by entering in a relationship with a passionate actor.

Although the origin and underlying conditions differ between CB-built and “traditional”

ventures, it is legitimate to expect that the same characteristics regarding interaction with social capital are prevailing. Therefore, the presented findings are assumed to apparent in the context of CB-built venture. Under the presumption that the CBP experiences and displays EP, the following proposition is formulated:

Proposition 5: The more a CBP displays affective passion, the greater social capital will be built and utilized in the context of a CB-built venture.

3. Methodology

To study the effect of EP on the four main functions of an organization in the context of

newly established ventures an exploratory case study design was chosen. The underdeveloped,

emerging research field of EP and CB makes exploratory research especially suitable

(Eisenhardt,1989; Yin, 2009). Focusing on the “what” and “how”, this type of research brings

forward relevant variables and leads to propositions for further studies (Eisenhardt,1989). In the

research’s initial design stage, it was planned to follow the recommendation in academia to study

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between four to ten case, which allows to study EP in the emerging phenomena of CB in-depth (Eisenhardt,1989). However, the novelty of the subject, alongside the resource limitations resulted in less analyzed case studies. An account and reflection about the efforts made and possible reasons for falling short related to the planning will be given in end, alongside with implications for generalization of this case study and results which will be addressed in the end of this research.

3.1 Data Collection

The selection of an appropriate sample group depends on the academic research type that is employed. For an exploratory multiple-case study researchers suggest theoretical sampling (opposed to probability sampling) (Eisenhardt, 1989). It allows to purposefully select cases based on defined criteria, resulting in observations across different cases and therefore enrich or revise the insights made from the studied phenomena (Yin, 2009). Furthermore, the novelty of CB context, in which context the case studies will be conducted only facilitate a limited number of potential samples. Thus, a thorough selection is advised (Yin, 2009). Selection criteria are based on the guiding research question, as well as the propositions developed in the literature review. To identify and select cases the following process was used:

First, based on the idea of a service like startup creation an initial internet research with the term “company builder” was conducted in order to find relevant companies and concepts with diverting notations. Among the organizations alternative keywords such as “startup studio”,

“startup factory”, “startups-as-a-service”, or “venture builder” were identified. Further, a brief check of the corresponding website was concluded to learn about the organizations’ own definition of the business model and the fit with this research. In case of the absence of any keyword this ensured the inclusion to the potential sample group.

Second, to narrow down the potential cases, the focus was on the type of CB with

characteristics based on the definition developed in this thesis. Specifically, we looked for

organizations that (a) create validated business models, (b) have a standardized process for

building ventures by (c) executing the ideas with an assemble team whose members are not origin

of the idea. From the initial compiled sample group of more than 40 entries, the majority had to be

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excluded. The notation CB, or similar as presented before, were used regularly, however the thorough analysis showed that the organizations were mostly other types. Where the information was accessible from the CB’s website, the CB-built ventures where then added to the sample list for the subsequent contacting, which resulted in the final sample group (Appendix B).

Finally, for CB-built ventures relevant contact persons for conducting the interview were researched. If previously information about CB-built ventures could not be obtained, then the contact information for the CB’s. Again, based on the guiding research question, the CEO or similar top-management was selected and confirmed for having joined the organization for execution of the presented business idea. In order to establish contact with the CB, respectively the ventures, several methods were used in succession, when no response was received. First, direct contact via the business network LinkedIn and e-mail was used. In the process, the background and purpose of the research project was explained together with the request for participation for an interview. Second, reminder e-mails were send out at two week intervals. Last, contact via telephone and for one CB the direct approach by walking into the office were used.

To ensure confidentiality, which was a precondition for participation from the interviewees, the cases were anonymized. If needed, defining characteristics were left out in the description and/or interview transcripts. Further, to enrich the analysis of the case and help with data triangulation, additional information from different sources were gathered, such as online available interviews, videos or data about the venture itself (Overview Appendix C). This process is suggested to improve the validity of the study (Yin, 2009).

In preparation for conducting the interviews a protocol was developed based on the

recommendations by Evans (2004) (Appendix A). The interview consisted of open-questions, to

allow for in-vivo explanations, in-depth studies of the research objectives and emphasis of relevant

information by the interviewee (Yin, 2009). Furthermore, the interviews were recorded and field

notes were taken for additional information, such as perceptions of the situation at the moment.

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24 3.2 Data Analysis

The process of analyzing qualitative data is challenging and the least structured part of work (Eisenhardt, 1989). Following Miles, Huberman & Saldaña (2014), the interviews were analyzed following the suggested steps of (1) data reduction; (2) data display and (3) conclusion. After the data collection by means of conducting interviews with the CEOs of CB-built ventures, the audio recordings were converted into transcripts within the suggested 24-hour period after conducting each interview (Eisenhardt, 1989). Raw field notes were then added to the transcribed text in preparation for the subsequent analysis (Miles, Habermann & Saldaña, 2014). First, content relevant to the categories was identified by reading the transcripts multiple times, then linking these to the different capitals. The analysis was guided by the four strategic functions and their definitions which were derived from the reviewed theory. Sample quotes and interpretation of the within-in cases can be found in Appendix D. Following this procedure, the case findings were compared to identify possible pattern.

Due to the chosen research design the methodology is subject to some limitations regarding reliability and validity, even though measures were taken to improve these quality aspects. To increase the reliability, we followed a recommended, structured approach for data collection, analysis and interpretation (Eisenhardt, 1989; Miles, Huberman & Saldaña, 2014). Reliability needs to be considered for this research, as the sample is very limited in number and restricted to singular interviews. Also, reliability implications that result from subjectivity due to prior postulated propositions and potential biased questioning. Last, the generalizability of the study is considered low, since the findings are only based on two analyzed cases.

3.3 Case Description Case A

The Belgium-based startup built an app that enables commuters to car-pool on their way to

work. By using a matching algorithm, drivers and passengers get assigned, providing an easy Uber-

like carpooling experience. To lower the barriers of use and improve acceptance, the startup has a

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strategic partnership agreement with a major insurance company to cover for cancelled trips or emergency situations for all users.

Being active in the smart mobility sector, the startup focuses on B2B with corporate clients as the main customer group such as their present customers ING or Carrefour. The benefits for these customers are lower cost for the company fleet, no expenses for parking or even tax reductions. Further, carpooling is beneficial for the social interaction between employees from different departments, another favorable aspect to the corporates. The startups business model is to sell package of usage measured in kilometer to the clients companies, which then in return promote using the free app among their employees.

The idea for this startup originated from a problem raised by one of the clients of a Brussels- based CB. The idea was then validated and in 2016 the existing startup was founded. After testing a beta-version in a pilot (May 2017), the final version was released with six major launching customers. Since its founding the startup has been led by an outside professional who was hired to develop and scale the business. The first period was from June 2016 to April 2017, when the current CBP took over from his predecessor. The team consists of 16 people with the majority working in product development/IT and design. Most of these team members are also working on other project in the affiliated company builder. The startup successfully started a small crowd invest campaign, despite being funded by the CB. A funding round for the first half of 2018 is planned to raise external money. The turnover in 2017 is stated as 300.000 Euro, with the aim of reaching breakeven in 2018. Recent success included the third place as “startup of the year 2017”

at an European fleet management fair, followed by a second place as best “startup of 2018”at a Belgium mobility conference.

The startups strategy is to expand to the French market in 2018, where Europe’s biggest

consumer carpooling company recently launched a product addressing commuter traffic. Further,

instead of scaling to other countries, an exit to the French competitor in the next 2-3 years is

favored.

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26 Case B

The Belgium-based startup developed and operates a fleet management application that is aimed to encourage a more responsible way of driving. By means of observing the driving behavior, i.e. the use of smartphones while driving or ecological driving.. Based on this, the app gives recommendation for a safer driving, resulting in a more eco-friendly and cheaper fleet management. Further, it provides corporate fleet manager with a centralized management interface, including key performance indicators or messaging. The startup is active in the mobility sector, where the target groups are corporates (B2B) with their own company fleet, such as hauling companies, public organizations or leasing companies.

The initial idea for the 2015 founded startup originated from a Brussel-based CB. Addressing the high accident rate on roads, the first version blocked all communication except for functionalities unlocked by the fleet manager. This approach resulted in a very low acceptance, leading to a pivot to the current concept: encouragement instead of restriction. The current version was launched in Q3 of 2017. Since its founding, the startup was managed by two different CBP, which have been hired to execute the given idea and scale the business up. The first period was from the founding of the startup until June 2016, when the current CBP took over. The team consists of four full-time employees (including the CBP) and an additional pool of specialist for product development or graphic design as a shared resource from the company builder. Further, three full time positions are listed on their website, suggesting growth of the venture. The startup received seed financing in July 2015 and has successfully closed an angel investment round of 158.000 Euro in January 2016. The same year they got awarded with an innovation award for fleet supplier coming in on second place.

The startups strategy is to enter in cooperation with leasing and insurance companies to use

and promote their application while offering a discount on leasing rated. The partnership operates

with a commission model on the turnover generated by the partners.

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4. Findings

4.1 Case A Strategic Capital

Strategic capital is understood as the abilities and resources to decide on goals and follow through with them in order to reach the intended objectives. In this startup we see them for example in the shape of the close proximity to the CB and the interaction with it, which represents a resource to create and implement processes in the CB-built ventures.

The interview showed that the CBP makes use of a structured approach to create, refine and decide on strategies. Strategic decisions in the context of the startup are made on several levels, involving different stakeholders and originating in its idea almost always from the CBP. Along the process experts are available with whom the CBP challenges ideas in order to get the best outcome.

These regular meetings and guidance are crucial to the CBP and influences the outcome of strategic reflections. Thus, the CBP presumably reconsiders goals often, until they are entirely reviewed.

Therefore, we conclude that the cognitive side of passion is existing and positively affects the strategic capital. It was stated that strategies rarely fail, due to the rational decision making processes that are put in place, leading to high goal attainment.

Coexistent to the cognitive aspect of EP, the interview indicates that an affective aspect is

connected to the strategic capital as well. It was directly mentioned by the CBP as the emotions

carried towards the product and service they built. Contrary to earlier suggested lower emotionality

related to detachment of idea and instated founder, passion could be observed. This found affective

passion is suggested to emerge and increase over time. These feelings occur when thinking about

the venture process or reminiscing about achievements. However, no evidence could be found that

the affective passion experienced by the CBP is influencing the strategic capital. In fact, it was

mentioned that in case of a misguided idea or concept, this would be changed, initiating a new

rational process of market research, testing and validating. Thus, we conclude that affective

passion is existing in the CB-built venture, but with no influence on strategic capital, respectively

the goal attainment for Case A. Further, cognitive passion is existing and suggested to be positively

associated to strategic capital.

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28 Cultural Capital

Cultural Capital is defined as collective norms and values that are inherent in an organization, manifested in a system of organizing, learning and change. Aspects that can be seen in this case are for example the way of working together by challenging each other’s ideas or belief that certain processes are crucial and need to be put in place (i.e. IT processes).

The culture in the venture was described as being at a transition between “the way a startup works”, with task changing on daily basis, to a more formalized organization with clear processes.

So far patterns can be observed with ideas originating mostly from the CBP (“I am dreaming big and know exactly where I want to go”) and then being challenged by the team surrounding the CBP. Next, there is a strong believe that it is crucial to be absolutely dedicated or have a strong positive feelings towards the activities carried out. Consequently, this will positively influence the likelihood of success according to the CBP: “You need to be passionate about what you are doing or you will never succeed.”. Based on the description about low hierarchical barriers, the constant interaction between the team and the insights from an additional video showing the office environment, we can presume that the team works closely together and in interaction, with the CBP among them. By the proposed effect of social contagion alongside with the CBP’s affective passion, this might strengthens the organizational culture. However, in what way the CBP displays affective passion and to what extent, remains unclear from the information. Therefore, we conclude that the affective passion can be observed and is positively associated with the cultural capital, yet the role of the CBP in it remains mostly unknown.

Economic capital is defined as the sum of financial means that are existing and accessible to

an organization. It can be used, exchanged or marketed in interaction with the environment and is

commonly measured in terms of money. In this venture it can be seen in the shape of the equity

that can be exchanged or the funding provided by the CB. Further, the process of acquiring funds

by external investors was subject of analysis.

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Currently the CB is providing the capital for the startup to operate, because there is not enough revenue from existing clients. However, it is planned to start a funding round in the first quarter of 2018. Using the equity stake in exchange for money and additional value brought in by an active investor, the CBP is aiming for benefits exceeding a mere monetary investment.

Conveying EP in a venture presentation was found to be positively associated to the interest and investment decision, these aspects are suggested to be shown by preparedness received as cognitive passion. For example being able to explain the impact of the product or "the big picture"

to investors. In this CB-built venture, we observe them in the shape of three aspect which were named by the CBP to arouse interest and consequently convince investors to back the CB-built company: “We have to show them, what we can do as a team and how we work together as a team to achieve this. That is one of the major or probably the critical factor for an investor, beside the idea and the potential, that we present in the prepared pitch deck”. Similar to other contexts the close collaboration with the CB represents a source of input and guidance, further adding to the notion of thorough preparedness. Therefore, we conclude that cognitive passion is existing, prevailing in the funding process with a positive influence in it.

Social Capital

Social capital is defined as the sum of links that connects an actor to others and provides access to resources, either direct or indirect. In this venture it can be observed in the contacts established at conferences in the smart mobility sector the CBP is attending on a regular basis.

The approach described is that of a sales person, analytical and considerate, adopting the strategy and pitch depending on the setting and the counterpart. In this context, emphasizing facts and achievements is frequently used to present the venture and stimulate a favorable outcome.

While a rational approach doesn’t exclude an enthusiastic, engaging presentation, the analysis of an additional video interview did not show a multitude of affective aspects. For example, the variance in tone or facial expression, as well as body language is suggested to show the enthusiasm.

This is perceived as affective emotions by others. However, in the video interview, this was used

sparsely by the CBP. In contrast to the video, the CBP showed aspects of strong enthusiasm

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speaking about the team, achievements (i.e. the received awards) and acquired partners in the interview, which was done for this research. We suggest that this difference is attributed to the mentioned context-relatedness of the approach. In line with this notion is the CBP’s reference to beneficial aspects for networking situations. Among these, the use of body language was stated.

Based on the information and analysis, we conclude that cognitive passion is predominantly utilized in the context of networking and likely to be beneficial for social capital. But no conclusive statement can be made to what extent the CBP displays emotions while presenting the venture to network partners, or in what way the presented facts are supported by aspects of affective display.

4.2 Case B Strategic Capital

One example for strategic capital in the context of Case B can be observed in the shape of

feedback or information gathered from the clients and market. Also, in the experiences made by

testing ideas, respectively strategies to achieve the best outcome. From the interview with the CBP

it became clear that creating and executing strategies follows a clear process, beginning with the

information from the market and environment surrounding the venture. It is the CBP who is in

contact with the market, current or potential clients in order to get an understanding of needs and

possible trends. The information gathered is then processed, before brought up for further

discussion in a larger group. A practice of discussing ideas on multiple layers of expertise has been

put into place to ensure that the information presented by the CBP is properly understood and not

interpreted unilateral. These observed aspects, such as thoughtful and in-depths content

preparation, are suggested to be associated with the cognitive side of EP. Therefore we conclude

that cognitive passion is existing, leading to comprehensive strategies and finally positively

influencing the strategic capital. Moreover, no signs of emotional aspects were found, which might

influence the strategic capital, leading to the conclusion that affective passion is not related to

strategic capital for Case B.

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31 Cultural Capital

In Case B aspects of cultural capital can be observed in various shapes creating the organizational culture. For example, the mission and vision of the venture that provides reference and aim for the team in working towards a common goal.

Analyzing the interview, the organizational culture can be described as very transparent and inviting. Patterns can be observed in the very structured way of working, with a good team dynamic and a clear motivational aspect. Accordingly, every aspect of the interaction between CBP and team, as well as the processes help to shape the culture in an ongoing mechanism. The interviewee referred to this as: “Culture is energy through processes. Which I believe very much. You make an organization to get a certain culture, so almost everything you do helps get a certain culture in the company”. Further, a motivational aspect for success was emphasized. This individual, inherent motivation is centered around the three aspects of a valuable purpose, the comprehensive knowledge to achieve it and self-determination. According to the CBP’s believes and self- understanding, it is important to be aware of these aspects and it is his responsibility to provide adequate input for the team. Moreover, even though not mentioned as an integral part of the organizational culture, passion was described to act as a motivational driver in relationship with the venture’s mission of promoting greener and safer driving via the use of their application.

Based on the analysis we conclude that the aspects of motivation and energy, often associated with affective passion, are existing related to the CBP and the venture. Further, in the understanding of the CBP, the aspect of passion being influential for motivation and persistence is existing. Yet, how and to what extend this is displayed by the CBP and positively affects the organizational culture cannot be assed from the information at hand.

Following the presented definition, in this venture aspects of the economic capital can be found in the supplied infrastructure from the CB or the turnover generated from existing clients.

The venture is privately held by the CB with a few smaller angel investors and a group of micro

investors from an campaign in 2015. Not being part of the venture at that time, the CBP

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participated in the last funding round, where he came in direct contact with the potential investors.

This involved presenting the venture at the pitch, followed by subsequent meetings. His role was central for the initial stage and evoking the investors interest. In this context the approach was based on presenting the venture and the team in an authentic way: “I think transparency being the number one thing here. Because whatever you do and say will be checked. So overselling your people and company doesn't pay off”. The next influential aspects mentioned in the interview were the strategy and the vision, which are presented in the pitch. Based on the additional material analyzed the venture addresses the problem-solution-side along with facts, such as potential savings when using the application. In addition to this, communicating the possibility for future profits is part of pitch. Presenting and properly conveying the information in a venture presentation is suggested to be associated with cognitive passion. Therefore, we can conclude that the cognitive passion is prevailing in the approach used by the CBP in acquiring external capital. Furthermore, affective does not appear to be relevant to the CBP in the context of economic capital.

Social Capital

An exploratory case study in the context of Company Builder

Entrepreneurial Passion from an affective/cognitive-perspective: