The themes of technological innovation, entrepreneurship, and organizing

Entrepreneurial Learning and Innovation: Building Entrepreneurial Knowledge from Career Experience for the Creation of New Ventures

Jonas Gabrielsson

Lund University, Sweden

Diamanto Politis

Halmstad University, Sweden

ABSTRACT

The relation between entrepreneurial learning and innovation is poorly understood - especially with respect to how entrepreneurs build up their capability to create new ventures. In this chapter we employ arguments from theories of experiential learning to examine the extent to which entrepreneurs ’prior career experience is associated with entrepreneurial knowledge that can be productively used in the new venture creation process. We relate entrepreneurial knowledge to two distinct learning outcomes: the ability to

(1) recognize new venture opportunities, and (2) cope with liabilities of newness. Based on analysis of data from 291 Swedish entrepreneurs, we provide novel insights into how and why entrepreneurs differ in their experientially acquired abilities in different phases of the new venture creation process.

DOI: 10.4018/978-1-61350-165-8.ch014

Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

INTRODUCTION

The important role of entrepreneurs in bringing innovations into the economic system has been emphasized at least since the workings of Schum­peter (1934). A question that still intrigues schol­ars is why some individuals are more successful than others in the practice of entrepreneurship. Past research has shown that it is difficult - if not impossible - to point out a single factor that explains entrepreneurial success. The most widely acknowledged viewpoint, however, is that suc­cessful entrepreneurs have acquired relevant and valuable experiences throughout their professional careers (e. g., Minniti & Bygrave, 2001; Rae & Carswell, 2001; Shane, 2003). This experiential base in turn enables the development of personal and unique knowledge structures and insights that can be put into productive use in the new venture creation process (Politis, 2005; Corbett, 2007). Yet despite this general inference, there have been very few empirical studies that have examined the extent to which various career experiences lead to entrepreneurial knowledge that can be used in the practice of starting up and managing new innovative ventures. So far, the bulk of past research has instead primarily been concerned with examining associations between entrepreneurs’ career experience and the performance of their new ventures (e. g., Cooper, Woo & Dunkelberg 1989; Bruderl, Preisendorfer & Ziegler 1992; Reuber & Fischer 1993; Butt & Khan 1996). The focus in past research has thus primarily been on firm-level outcomes, while learning outcomes among individual entrepreneurs on the other hand have been largely neglected.

Scholars with an interest in learning and knowl­edge accumulation in entrepreneurial contexts have recently started to explore individual-level learning outcomes (e. g., Harrison & Leitch, 2008). The main argument emphasized for doing this is that previous studies have made great infer­ential leaps from career experiences directly to firm performance, without any attention to the intermediate learning processes that link inputs to outputs (Reuber & Fischer, 1999; Minniti & Bygrave, 2001; Corbett, 2005; Politis, 2005). Although convenient, such an approach treats the important issues of knowledge accumulation in entrepreneurial contexts as a “black box” and thus overlooks both the sources and outcomes of entrepreneurial learning. As a result, there is hitherto limited scholarly understanding of how enterprising individuals can build up their ability to spot and seize opportunities for entrepreneurial profit throughout their professional careers.

A change in focus towards individual-level learning outcomes, however, necessitates a dis­tinction between ‘experience’ on the one side and ‘knowledge’ on the other. One way to distinguish between the two is to follow Reuber, Dyke and Fischer (1990) and consider ‘experience’ as a direct observation of, or participation in, events - while the practical wisdom resulting from what an individual has encountered represents the ‘knowledge’ derived from this particular experi­ence (see also Kolb, 1984). Ifwe accept this, then a relevant question is to what extent there is an association between particular career experiences and the acquisition and development of valuable knowledge that can be put into productive use in the process of new venture creation. Prior studies are unfortunately of little help to answer this question. The two concepts ‘experience’ and ‘knowledge’ have instead most often been used interchangeably with an implicit assumption that entrepreneurs’ prior career experience automatically leads to entrepreneurial knowledge. Whether this implicit assumption bears some (or any) truth is however an empirical question and something which up to date has received very limited empirical attention despite its relevance for both theory and practice.

Based on the discussion above, the purpose of this chapter is to examine the extent to which entrepreneurs’ prior career experience is associated with entrepreneurial knowledge that can be put into productive use in the process of new venture creation. In the study we treat entrepreneurial

knowledge as a theoretical construct proxied by two distinct learning outcomes that have been emphasized in recent entrepreneurship research: their ability to (1) recognize new venture op­portunities and (2) cope with liabilities of new­ness. Through our literature review we identify four career experiences that can be expected to lead to these two learning outcomes: industry - specific experience, small business management experience, varied management experience, and cross-functional experience. Based on statistical analysis of empirical data gathered from 291 practicing entrepreneurs in Sweden, we find that entrepreneurs differ in their ability to perform in different phases of the new venture creation process depending on their prior career experi­ence. In all, the findings support our conjecture that there is a need to distinguish between the two concepts “experience” and “experientially acquired knowledge” in future research on en­trepreneurial learning.

The rest ofthe chapter is structured as follows. The next section presents the background where we review relevant literature and define our key concepts. The literature review is followed by a section where we present the hypotheses guiding our study. Once the hypotheses are outlined, we present the method section with a description of the sample and variables used. Thereafter follows the analysis and a presentation of the results. The study ends with a discussion of the findings and suggestions for future research.

BACKGROUND

Innovation involves a complex evolutionary process, where many actors and institutions in­teract in the creation of new entities of economic significance (Edquist, 1997) - from the initial embryonic pieces of information and knowledge that create opportunities for doing novel things, to the innovation’s ultimate diffusion in society (Fagerberg, 2005). Entrepreneurs play a crucial role in this process as they are the ones who make ideas for new or better ways of serving customers and markets come into existence by identifying and acting on opportunities for entrepreneurial profit (Shane & Venkataraman, 2000). Several scholars emphasize the role of knowledge for the pursuit of entrepreneurial activitie s, by relating the opportunities that people recognize and exploit to information and knowledge asymmetries in the economy (e. g., Venkataraman, 1997; Shane, 2000; Ardichvili, Cardozo & Ray, 2003; Shane, 2003; De Clercq & Arenius, 2006; see also Kirzner, 1973). A common argument in their writings is that only a few people have knowledge about in­ventions, inefficiencies or resources that currently are not put to their best use, and that by making productive use of this knowledge they are able to spot and seize opportunities for entrepreneurial profit. This knowledge is moreover based on the education and accumulated career experience they have obtained throughout their professional lives (Shane, 2000).

In this study we have set out to examine the extent to which entrepreneurs ’ prior career experi­ence is associated with entrepreneurial knowledge. By this, we mean knowledge that entrepreneurs can put into practical use to produce or create a desirable outcome in the process of new ven­ture creation. Shane and Venkataraman (2000) delineate entrepreneurship as an activity that involves the discovery, evaluation and exploita­tion of opportunities to introduce new goods and services, ways of organizing markets, processes and raw materials through organizing methods that previously have not existed. This definition helps us to identify two distinct phases in the new venture creation process - the first being opportunity recognition where opportunities for new ventures are discovered and subsequently evaluated (Ardichvili et al., 2003), and the second being opportunity commercialization where a new venture is formed and established (Delmar & Shane, 2004). Individuals may in reality engage in both phases simultaneously, for example ifthey are involved in several concurrent projects that are in different stages of development. However, the initial organizing and development of a new venture centers on a new venture opportunity that must have been recognized and evaluated at some earlier point in time. Thus, from a theoretical point of view, opportunity commercialization cannot take place without prior opportunity recognition.

In line with this discussion, we relate entre­preneurial knowledge to two distinct learning outcomes that have been emphasized in recent en­trepreneurship research (Politis, 2005; Huovinen & Tihula, 2008). The first learning outcome refers to knowledge that increases entrepreneurs’ ability to effectively recognize new venture opportunities. A successful entrepreneur is in this respect often described as an alert person who is aware of, or receptive to, unevenly distributed information about market imperfections (Kirzner, 1973; Shane & Venkataraman, 2000). This personal and highly localized information can then be used as a basis for developing the first entrepreneurial insights into a more developed idea of how the market need might be served and resources deployed to yield profit (Ardichvili et al., 2003). The sec­ond learning outcome refers to knowledge that increases entrepreneurs’ ability to organize and manage new ventures, which in practice means coping with “liabilities of newness” (Shepherd, Douglas & Shanley, 2000). The term was origi­nally coined by Stinchcombe (1965) who in his seminal study reported that the risk of business closure is highest at the point of founding of an organization, and decreases with growing age of the organization. The reasons for this risk were certain liabilities that newcomers suffer compared to already established players, such as the lack of a stable portfolio of clients and the time required for learning new organizational roles to be performed by their members. In sum, entrepreneurial knowl­edge can from this discussion be conceptualized as knowledge facilitating the ability to recognize new venture opportunities, and to effectively cope with liabilities of newness when organizing and managing new ventures.

Extant research points toward the importance of personal first-hand work experience for devel­oping the ability to recognize and exploit new venture opportunities (Politis, 2005; Corbett, 2007). For example, empirical studies suggest that experienced business founders throughout their career develop a unique “knowledge cor­ridor” through which they interpret the outside world, which in turn enhances their ability to recognize and evaluate additional new venture ideas (Ronstadt, 1988; Venkataraman, 1997). It is this knowledge corridor that enables them to use their experientially acquired knowledge base to assess the potential benefit in an opportunity in either a positive or negative light (Park, 2005). The ability to make sense and use of new information to find ideas for new venture opportunities, to as­similate them and apply them to commercial ends can hence to a large extent be seen as a function of an individual’s prior experience (Cohen an&d Levinthal, 1990; Rae, 2000; Shane, 2000).

Based on the reasoning above, it seems fair to argue that the extent to which individuals are effectively involved in recognizing and exploiting new venture opportunities can be expected to be highly dependent on their prior career experi­ence. A conceptual foundation for understanding how individuals acquire and develop knowledge based on their career experience can be found in theories and models of experiential learning (for applications of experiential learning theory in entrepreneurship studies, see e. g. Bailey, 1986; Johannisson, Landstrom & Rosenberg, 1998; Baum et al., 2003; Corbett, 2007). A key tenet in theories of experiential learning is the need to draw a distinction between the experience of an individual and the knowledge he or she acquires from that experience (Reuber et al., 1990; Politis, 2005). This observation can be related back to Kolb (1984) who argues that experiential learn­ing requires at least two interrelated dimensions, namely the grasping of experience, and then some transformation of this particular experience into knowledge. Hence, the simple perception of an experience is not sufficient for learning to hap­pen, which requires that something must be done with it. Similarly, transformation alone cannot represent learning for there must be something to be transformed, some state or experience that is being acted upon. This distinction means, at least conceptually, that the experience of an individual will not automatically represent the knowledge derived from this particular experience. Further, it can be conjectured that some career experiences are more beneficial than others for the acquisition and development of entrepreneurial knowledge. Thus, the conceptual distinction between experi­ence and knowledge that is made in theories of experiential learning intensifies the question of how different kinds of career experiences may lead to the development of entrepreneurial knowledge that can be productively used by entrepreneurs in the process of new venture creation.

DEVELOPMENT OF HYPOTHESES

In the following section we will develop hypoth­eses which associate particular career experi­ences with the two learning outcomes that were previously identified. For this discussion we have deliberately chosen career experiences that have received limited empirical attention in past research, even though they are often expected to be conducive to entrepreneurial learning. Theo­retically, the hypotheses are grounded in the con­ceptual discussion above together with empirical literature and research on entrepreneurial learning and development.

Industry-Specific Experience

Past research suggests that prior industry-specific experience can facilitate the development of valuable knowledge that enhances entrepre­neurs’ ability to both spot and seize new venture opportunities and to organize and manage new ventures. For example, studies have shown that entrepreneurs tend to start businesses in industries in which they were previously employed, because this allows them to take advantage of important information and knowledge gained during this period (Aldrich, 1999). Entrepreneurs with prior industry experience also generally have a better understanding of how to meet demand conditions in the market place (Shane, 2000). Moreover, the products, services, customers and suppliers of surviving ventures have been found to be more closely related to the products, services, custom­ers and suppliers of the entrepreneurs’ previous employers, compared to non-surviving ventures (Cooper, Dunkelberg & Woo, 1988; Bates & Servon, 2000). Industry-specific experience can hence be expected to provide entrepreneurs with valuable insights about relevant contacts, reliable suppliers, viable markets and product availability, all of which could influence their ability to rec­ognize new venture opportunities and cope with liabilities of newness (Cooper et al., 1993; Politis, 2005). Based on these arguments, the following hypotheses are proposed:

H1a: Prior industry-specific experience is posi­tively associated with a higher number of recognized new venture opportunities. H1b: Prior industry-specific experience is posi­tively associated with an ability to better cope with liabilities of newness.

Small Business Management Experience

Another kind of career experience that has been highlighted in research on entrepreneurial learn­ing is management experience (Cooper, Woo & Dunkelberg, 1989; Duchnesneau & Gartner, 1990; Reuber & Fischer, 1994). Management experience may in this respect provide entrepreneurs with knowledge of markets, ways to serve markets, and customer problems, all of which are impor­tant dimensions in the process of entrepreneurial discovery (Shane, 2000). A consistent finding from previous reviews of management studies is however that managerial work is contextually dependent, rather than task-dependent (Hales, 1986; Whitley, 1989). This implies that managerial work requirements vary considerably, depending on functional area, management level, and orga­nizational attributes such as type, structure, size and industry (Reuber, 1997). Empirical studies suggest that small firms are the most typical setting where entrepreneurs carry out their managerial work (Butt & Khan, 1996; Cooper et al., 1989; Gimeno et al., 1997; Lee & Tsang, 2001; Reuber & Fischer, 1994). Previous experience from managing a small business can thus be expected to provide budding entrepreneurs with training in many of the skills needed for recognizing and acting on entrepreneurial opportunities, including negotiating, leading, planning, decision-making, problem-solving, organizing and communicating (Romanelli & Schoonhoven, 2001; Shane, 2003). Entrepreneurs with previous management experi­ence are moreover generally found to have a higher likelihood of success, implying that they are better prepared to cope with traditional obstacles facing new ventures (Cooper et al., 1989; Duchnesneau & Gartner, 1990; Stuart & Abetti, 1990). Based on these arguments, the following hypotheses are proposed:

H2a: Prior small business management experience is positively associated with a higher number of recognized new venture opportunities. H2b: Prior small business management experi­ence is positively associated with an ability to better cope with liabilities of newness.

Varied Management Experience

In addition to small business management ex­perience, there are also indications that varied management experience may be beneficial for individuals that are involved in new venturing activities (Reuber 1997; Reuber & Fischer 1994). Varied management experience refers to experi­ence from managing people in different firm contexts. Individuals with such experience are for example generally used to dealing with sub­ordinates in the organization and it may also bring valuable knowledge about a wider set of potential customers and reliable suppliers, as well as valu­able social contacts with important stakeholders (Baucus & Human 1994; Hambrick & Crozier 1985). Moreover, varied management experience may provide exposure to a wider variety of situa­tions and problems, and it is often through surviv­ing and understanding such novel situations that learning takes place (Fiol & Lyles, 1985; Reuber, 1997). Varied management experience from firms with different sizes may in this respect increase entrepreneurs’ ability to handle problems that are “taken for granted” in the small firm context, as diversity in cognitive inputs often reduces the risk of home-blindness, path-dependence and lock-in (e. g., Krueger, 2009). Thus, having management experience from businesses of varied sizes can be an additional dimension that also may be fruitful to consider when investigating sources of entrepreneurial knowledge (Dyke, Fischer & Reuber, 1992). Hence, the following hypotheses are proposed:

H3a: Varied management experience is positively associated with a higher number of recog­nized new venture opportunities.

H3b: Varied management experience is positively associated with an ability to better cope with liabilities of newness.

Cross-Functional Experience

Another experience dimension that has attracted scholarly interest is the functional experience of the entrepreneur (Cooper, 1985; Reuber & Fischer, 1994; Stuart & Abetti, 1990; Sykes, 1986; Vesper, 1980). This type of experience relates to profes­sional experience from various functional areas, such as management, production, product develop­ment and R&D, marketing and selling, accounting, finance, etc. Previous research has failed to find any consistent associations between particular types of functional experience and new venture performance (Stuart & Abetti, 1990). Rather, the empirical findings indicate that entrepreneurial learning stems from having functional experience across different kinds of business functions. In a study of success factors of new ventures, Ves­per (1980) found that experience from different functional areas was an indicator of better new venture performance. In line with these findings, Cooper (1985) found that the participation in or observation of a wide range of business functions was an experience relevant to successful venture formation in his study of incubator organizations. Moreover, Sykes (1986) found a very strong cor­relation between new venture financial success and having both previous management and sales experience. Experience from a broad array of functional areas seems consequently to result in the consideration of more alternatives and more careful evaluation of alternatives - cognitive processes that generally also are considered to contribute to the quality of decision-making in uncertain environments (Milliken & Vollrath, 1991). Based on these arguments, the following hypotheses are proposed:

H4a: Cross-functional experience is positively as­sociated with a higher number of recognized new venture opportunities.

H4b: Cross-functional experience is positively associated with an ability to better cope with liabilities of newness.

RESEARCH METHOD Sample

To answer the research question and test the hy­potheses developed in this chapter, we designed the empirical study as a questionnaire survey. The measures were derived from a careful review of previous theoretical and empirical work on experiential and entrepreneurial learning. Before sending out the questionnaire, it was pilot-tested on a smaller group of practicing entrepreneurs and entrepreneurship scholars. Based on this feedback, the questions were honed and clarified for the final research instrument.

The initial sample included 1000 randomly selected entrepreneurs who each started an independent new firm in 1998-2002. We col­lected information about contact addresses from Statistics Sweden and the questionnaire was sent out in early fall 2004 addressed to the CEOs of the targeted firms. To verify that the person who answered the questions had experience of starting up a new firm, we included a control question in the questionnaire. After the first mailing round we immediately received 15 envelopes in return, due to problems of finding the individual entrepreneur (unknown address, ownership changes, liquida­tion etc.). This reduced the total number of cases to 985. After one postal follow-up we received 303 complete questionnaires, corresponding to a valid response rate of approximately 30.8%. This response rate compares favorably to similar studies of entrepreneurial learning (e. g. Dyke, Fischer & Reuber, 1992; Reuber & Fischer, 1994; Ucbasaran, Westhead & Wright, 2008). Before making the final analyses we excluded responses from 12 individuals who had no experience of starting up a business. This led to a final sample of 291 cases.

We conducted chi-square and t-tests to assess whether the results from the sample could be generalized to the population. These tests revealed no statistically significant differences between respondents and non-respondents with regard to industry, geographical location, firm size and age of their current business. In addition, we con­ducted chi-square and t-tests to examine if there were any differences between first-round (69.6% of total responses) and second-round (30.4% of total responses) respondents. No significant dif­ferences could be found between the early and late responses with respect to the same variables. Moreover, no significant differences were found between early and late respondents with regard to the variables used in the study (see next section below). Hence, on these criteria we have no reason to suspect that there are any significant response biases in our sample.

Variables and Measures

Dependent Variables

In the study we treat entrepreneurial knowledge as a theoretical construct, proxied by the self-assessed ability to recognize new venture opportunities and cope with liabilities of newness. In line with our frame of reference, the first learning outcome variable was constructed by an item measuring the number of new venture ideas which the entrepre­neur had in the last year and which could lead to a potential new business or a significant part of a business. This conceptualization is consistent with previous research on opportunity development, suggesting that the process starts with the percep­tion of opportunities for recombining resources on the market that the entrepreneur believes will yield profit, and where the idea for a new venture continually develops as individuals shape these elemental insights into a notion of an emerging business concept (i. e., Bhave, 1994; Ardichvili et al., 2003; Klofsten, 2005). We validated the measure against an item measuring the number of business opportunities (defined as unmet customer needs) that the entrepreneur had seized during the last five years. The result shows that the two items are positively and significantly associated at p <.01, which also supports our conceptualization ofthe opportunity development process described above. A higher score on this item indicates a higher number of recognized new venture opportunities. Due to a skewed distribution, the variable was transformed using a logarithmic transformation. We acknowledge that this item is biased towards the quantity rather than the quality of new venture opportunities. However, in a larger pool of new venture opportunities there is greater likelihood that one or some of them can develop into a vi­able business concept (Ucbasaran, Westhead, & Wright, 2008). Based on this argument, we thus posit that there is a value in generating more rather than fewer new venture opportunities.

The second learning outcome variable was the entrepreneur’s self-assessed ability to cope with liabilities of newness. This variable was constructed using the mean of four items on a Likert-type scale, where respondents were asked to rate the extent (1 = very low extent, 5= very high extent) to which they would consider the following obstacles as problematic if they were currently involved in creating and organizing a new venture: (1) convincing potential clients about the new venture, (2) uncertainty regarding the market potential for the product or service, (3) lack of stable relationships with key stakeholders, and (4) uncertainty regarding roles and functions in the organization that a new venture would require. The responses were then reverse-coded so that a higher score on the scale indicates an ability to better handle liabilities of newness. These ques­tions were developed expressly for this research based on prior theoretical work on the liabilities ofnewness (Aldrich, 1999; Shepherd et al., 2000; Starr and Bygrave, 1992; Stinchcombe, 1965). Cronbach’s alpha (a) for this construct was.59. However, as a can be a relatively weak indicator of internal consistency when few variables are employed in a composite measure, we also checked item-to-total correlations by applying the rule-of - thumb procedure suggested by Hair et al. (1998). Here we found that the item-to-total correlations were between.59 and.71, which was well above the suggested limit of above.50. Moreover, to assess whether our measure could be associated with any firm-level performance advantages when exploiting new venture opportunities, we initially set out to collect information about firm survival. These data were collected in 2007 by identifying the number of firms in the sample that were still operating during 2006. However, we could locate only a handful of firms (n=27) that had closed down. This rendered us unable to correlate our liability of newness measure against a measure of survival. Instead, we made analyses with respect to firm sales growth (the year-to-year average change in sales). Through this procedure we found that entrepreneurs with a higher reported ability to handle liabilities of newness to a significantly higher extent were in a high-performing group (with a sales growth which was 2.5 or higher, p. >.05), which may be a sign of an ability that the entrepreneur can cope with traditional obstacles more effectively in the early development of a firm.

Independent Variables

The research model involves four main indepen­dent variables. “Industry-specific experience” was measured as the entrepreneurs’ total number of years of experience from the industry they now operate in. “Small business management experi­ence” was measured as the number of years that the entrepreneur has had a management position in a small firm. Here, we followed the EU defini­tion of a small firm as a firm with less than 50 employees. “Experience from varied management positions” was measured as a dichotomous vari­able, indicating ifthe entrepreneur had experience also from management positions in medium-sized or large firms (0= no, 1= yes). “Cross-functional experience” was measured as the number of dif­ferent business functions that the entrepreneur had experience from. Based on the work of Stuart and Abetti (1990), McGee, Dowling and Megginson (1995) and Entrialgo (2002), we used six func­tional areas to identify and distinguish between different work functions: (1) general management,

(2) R&D, (3) manufacturing/production, (4) sales/ marketing, (5) finance, and (6) law.

Control Variables

We also included three control variables in the research model. The first control variable was related to the individuals’ experience of discon­tinuing their earlier ventures due to bankruptcy. We included this control as research has shown that owners often believe they learn significantly from a business closure process so that they are better equipped to run businesses in the future (Stokes & Blackburn, 2002; Politis & Gabriels - son, 2009). Experience from business closure may moreover affect the entrepreneur’s ability to attract further resources in his or her subsequent venturing activities (Cope, Cave and Eccles,

2004) . Bankruptcy experience was measured as a dichotomous variable, indicating ifthe respondent had previous experience from discontinuing an earlier venture due to bankruptcy (0= no, 1=yes). The second control variable was the prior start-up experience of the respondent. We included this control as it is widely acknowledged that prior experience from starting a new venture increases the probability that an individual will continue to identify and exploit new venture opportuni­ties (Duchesneau & Gartner, 1990; Shane, 2003; Shane & Khurana, 2003). The primary reason for this expected association is that the experience gained from starting up one business enables the entrepreneurs to recognize and act on further en­trepreneurial opportunities they could neither see, nor take advantage of, until they had started their initial venture (Ronstadt, 1988; see also Shepherd, Douglas & Shanley, 2000; Starr & Bygrave, 1992 for similar findings). Prior start-up experience was measured as a dichotomous variable, indicating if the respondent had previous experience from starting up a new venture (0=no, 1=yes). The third control variable was related to the entrepreneur’s experience from working in high-growth indus­tries, i. e. sectors of the economy that experience a higher-than-average growth rate (Storey, 1994). High-growth industries are generally characterized by rapid changes and fast technological progress, which in turn can influence the level of opportunity present in those industries (Shane, 2003). New business opportunities are hence more likely to occur in growing markets. Studies of managers operating in high-growth industries have moreover suggested that these individuals often are more alert in acting on opportunities while repressing environmental threats (Covin & Slevin 1989). Studies have furthermore indicated that the environment can be highly heterogeneous both within and across industries (Keats & Hitt, 1988; Zahra, 1993). Therefore we chose to measure the entrepreneur’s perception of this type of experi­ence, rather than to classify specific industries that we thought could be considered high-growth industries. We measured industry growth as the entrepreneur’s experience from working in high - growth industries on a Likert-type scale (1=minor experience, 5=major experience).

Sample Characteristics

The individuals in the final sample represent a broad cross-section of entrepreneurs. Their mean age was 47.3 years (min=24, max=73), and the average total years of work experience was 25.4 (min=4, max=50).About 12% ofthe entrepreneurs had compulsory school education (7 or 9 years) as their highest education level, 33.7% had edu­cation also from gymnasium/senior high school, and 50.8% had some sort of higher education (university studies). The majority of these indi­viduals (68.7%) were moreover entrepreneurs with multiple start-up experience, so-called “habitual entrepreneurs” (MacMillan, 1986; Westhead & Wright, 1998). The average number of start-ups was 2.51 (min=1, max=15), and the average total work experience of self-employment was 12.8 years (min=1, max=41).

The most common industry-specific experi­ence was from consulting and other business services (49.3%), followed by wholesale and retail (28.5%), and construction (28.2%). About 69% of the entrepreneurs had experience from working in two or more industries. About 85% had experience from having a management po­sition in a small firm (i. e., firms with less than 50 employees), and the average number of years in this position was 9.6 years (min=0, max=35). About 62% of the entrepreneurs had experience from three or more functional areas of expertise, where functional expertise in general manage­ment, marketing/sales and accounting/finance was the most common. The number of years of experience from these three functional areas were highly correlated with the number of years from working as a small business manager (r=69, r=45, and r.=44 respectively). Over two thirds of the entrepreneurs (69.6%) had experience as board members, and 34.5% of the entrepreneurs had experience from investing their own money as risk capital in unlisted firms in which they have no previous family connections.

ANALYSIS AND RESULTS

In our research model we have metric measures as dependent variables and several metric or dichotomous independent variables, so we con­sidered linear multiple regression analysis as an appropriate statistical technique (Hair et al., 1998). A description of the variables used in the analysis (correlations, means and standard deviations) is displayed in the table in Figure 1.

We expected some difficulties with using variables connected to entrepreneurs’ career ex­perience in the study. For example, individuals with prior start-up experience also generally have experience from managing these ventures. As we expected, there were inter-correlations among some of the independent variables even though they are well below threshold levels for multicol - linearity problems. All correlation coefficients are less than r =.70, which according to Nun - nally (1978) is the standard threshold used to determine high correlation. Moreover, all ex­planatory variables in the regression analysis had

Figure 1. Pearson correlation matrix, means and standard deviations

Variables

1.

2. 3.

4.

5. 6.

7. 8.

9.

Means

Std. dev

1.

Opportunity recognition

1.00

.91

.82

2.

Liabilities of new ness

-.05

1.00

3.30

.70

3.

Bankruptcy

.11

.14* 1.00

.15

.36

4.

Start-up experience

.31**

.07 .27**

1.00

.69

.46

5.

Industry growth experience

.33**

.07 .15*

-.10

1.00

2.67

1.20

6.

Industry specific experience

-.16*

.06 -.02

-.09

-.10 1.00

14.3

11.8

7.

SBM experience

.05

.16** .24*

.23**

.09 .27**

1.00

9.61

8.54

8.

Varied management experience

.14*

.17** .08

.29**

.11 -.11

.05 1.00

.17

.38

9.

Cross functional experience

.30**

.00 .14*

.23**

.20** -.14*

.19** .05

1.00

3.06

1.61

*p < .05.

~p< .01.

VIF’s between 1.02 and 1.35, which lead us to conclude that no problems of multicollinearity exist in our data set.

To identify the separate effects of the control variables and the four experience variables, we conducted a stepwise multiple regression. First we entered the control variables (Step 1). This step is presented as Equation I. Then we included the four experience variables (Step 2). This step is presented as Equation II. Additional analyses of the data controlled for the possibility that the control variables moderate the relationship be­tween independent and dependent variables, but these tests did not reveal any significant results. The results of these analyses will therefore not be reported. The result ofthe final multiple regression analysis is presented in Figure 2.

The final regression model (Equation II) shows that there is no association between industry - specific experience and a higher number of rec­ognized new venture opportunities. There is also no association between industry-specific experi­ence and the ability to cope with liabilities of newness. Hence, the empirical data do not support either Hypothesis 1a or 1b. We can also see in Figure 2 that Hypothesis 2a is not supported, showing no association between small business management experience and a higher number of recognized new venture opportunities. However,

Hypothesis 2b is supported as there is a positive and significant association between small business management experience and the ability to cope with liabilities of newness (p <.05). There is no significant association between varied manage­ment experience and a higher number of recog­nized new venture opportunities, indicating no support for Hypothesis 3a. The data in Figure 2 support Hypothesis 3b, however, as there is a positive and significant association between var­ied management experience and the ability to cope with liabilities of newness (p <.01). The data in Figure 2 also support Hypothesis 4a, as cross­functional experience was positively associated with a higher number of recognized new venture opportunities (p <.01). But there was no significant association between cross-functional experience and coping with liabilities of newness, indicating no support for Hypothesis 4b.

DISCUSSIONS AND CONCLUSION

Opportunity recognition

Coping with liabilities of newness

Step

Model and variables

P

R2

Adj R2 F (sign

)

(3 R2 Adj R2 F (F-sign)

1.

Equation 1

Bankruptcy experience

.07

.10

Start-up experience

.11

-.09

Industry growth experience

.23**

.09

.07 8.0**

.09 .02 .00 1.8

Equation II

2.

Bankruptcy experience

.05

.06

Start-up experience

.07

-.13

Industry growth experience

.20**

.07

H1: Industry specific experience

-.08

.05

H2: SBM experience

-.03

.17*

H3: Varied management experience

.07

.22**

H4: Cross functional experience

.19**

.13

.11 5.4**

-.00 .10 .07 3.9**

The table reports |3 (partial standardized со efficients), R 2,adjusted R2- and significance level *p< .05, and **p< .01

Entrepreneurial learning is a key ingredient in successful innovation, as it supports the produc­tion and transformation of knowledge into the creation of new ventures. It is in this respect widely acknowledged that different career paths create knowledge asymmetries which in turn lead

individuals to value resources differently (Shane, 2000). Opportunities for entrepreneurial profit oc­cur on the basis of such asymmetries when some people, throughout their careers, learn to discover and develop ideas for new products or processes that other people are willing to pay for. The ability to make productive use of their personal stock of knowledge that entrepreneurs develop from career experience is thus a key ingredient in the overall process of innovation where new ideas are com­mercialized and diffused in society.

In this study we add to past research on en­trepreneurial learning and innovation by showing that entrepreneurs differ in their ability to make productive use of their knowledge in the new venture creation process, depending on their prior career experience. The value of different kinds of career experience can in this respect be related to different phases in the process of new venture creation (Shane & Venkataraman, 2000). Professional experience from various functional areas is of value for the entrepreneur before the formal establishment of the new venture, as it influences his or her ability to come up with en­trepreneurial ideas and insights. Small business management experience and varied management experience, on the other hand, are of value for the entrepreneur after the formal establishment of the new venture, as they influence his or her ability to effectively cope with liabilities of newness. Our empirical findings contribute to current research on entrepreneurial learning where ‘ experience’ and ‘knowledge’ often have been used interchange­ably with the implicit assumption that career experience automatically leads to entrepreneurial knowledge. The findings thus suggest that there is a need to reconsider this implicit assumption, and future research will hopefully use these insights to advance our understanding of how entrepreneurs develop knowledge from experience. In addition, our findings provide valuable insights into the practice of new venture creation, specifically suggesting that different career experiences may lead to different kinds of knowledge advantages among entrepreneurs. As such, our study supports the importance of experiential learning for the development of knowledge that can be produc­tively used by entrepreneurs in the new venture creation process.

Limitations

Some potential limitations of the present study should be mentioned. First, we have used a simplified model with the aim of examining per­sonal experience-related factors that are located extensively in the entrepreneur. However, new venturing activities are in many ways also a so­cial exchange process (Pittaway & Cope, 2007), and entrepreneurs have frequently been found to base their decisions on personal and professional advice through their personal networks (Birley, 1985; Aldrich & Zimmer, 1986; Bruderl & Pre- siendorfer, 1998). Their personal networks seem in this respect to provide them with critical and essential information, and also expose them to new and different ideas and worldviews (Johan - nisson, 2000; Singh, 2000; Ozgen a&d Baron,

2007) . Our findings are hence only part of the story, and further research should also consider dimensions of experience related to entrepre­neurs’ social surroundings when investigating the relationship between prior career experience and entrepreneurial knowledge.

Second, our two measures of entrepreneurial knowledge were based on the self-assessed ability to recognize new venture opportunities and cope with liabilities of newness respectively. Although self-perceptive measures can be a fairly good indication of an individual’s ability to perform certain tasks (Gist, 1987), this is not necessarily the same as the actual long-run performance of these tasks. To examine this issue further we sug­gest developing, combining and comparing both subjective and objective measures in future studies.

Third, we should also like to mention that we are aware ofthe potential limitations in measuring only the amount or quantity of career experience of entrepreneurs. The reason why we bring this up is that we could observe that some entrepreneurs derived greater, and others less, benefit from their career experience. Hence, even though the regressed mean in our analyses showed significant associations between some particular career expe­riences and learning outcomes, there were some entrepreneurs who seemed to learn “more” than others from the same amount of career experi­ence. Interestingly, this may suggest that there exist not only knowledge advantages depending on differences in their prior career experience, as we point out in this study, but also some kind of learning advantages among entrepreneurs with similar amounts of career experience. If so, this would imply that some entrepreneurs are more effective in transforming their experience into knowledge that can be productively used in the practice of starting up and managing new ventures. However, this discussion is highly speculative and an examination of these issues would require additional variables and more rigorous statistical analyses. Nevertheless, it provides some interest­ing and relevant ideas for further research which may increase the explanatory power of our theo­retical model.

Implications

Despite the above-mentioned potential limita­tions, we believe our study has some important implications for the practice of entrepreneurship. A general conclusion that can be drawn from our findings is the important role that an individual’s prior career experience plays for the successful acquisition and development of entrepreneurial knowledge. The professional career seems in this respect to expose enterprising individuals to distinct learning opportunities (van Gelderen, van de Sluis & Jansen, 2005) that can enhance their ability to recognize and exploit new venture opportunities. In addition, the findings suggest that different kinds of career experience lead to different kinds of entrepreneurial knowledge (Politis, 2005). Cross-functional experience seems to provide individuals with productive knowledge that improves their ability to recognize new ven­ture opportunities. Small business management experience and varied management experience seem on the other hand to provide individuals with productive knowledge that increases their ability to handle liabilities of newness in the new venture creation process.

Interestingly, the empirical findings also show that there are no significant associations between the ability to effectively recognize new venture opportunities and the ability to effectively cope with liabilities of newness. This implies that individuals who have developed one kind of knowledge advantage have not necessarily de­veloped the other type of knowledge advantage. This should be kept in mind, as it implies that an individual entrepreneur is generally not able to cover all the skills and knowledge areas necessary to successfully develop and pursue an identified opportunity through the different phases in the entrepreneurial process. It also speaks in favor of new venture teams (e. g., Chandler, Honig & Wiklund, 2005; Foo, Sin & Yiong, 2006) for successfully handling the process of developing a new venture from initial conception to establish­ment. Empirical findings, for example, point to a positive relationship between team size and new venture growth, especially in cases where the team possesses diverse educational and professional backgrounds (Luthje & Prugl, 2006). Hence, even if entrepreneurs do not possess all relevant kinds of experience and knowledge themselves, they may have access to valuable knowledge resources through a well-composed new venture team.

Conclusion

Recent studies have highlighted the need to better understand the relationship between entrepre­neurial learning and innovation by examining how individuals learn to act entrepreneurially in different contexts (e. g., Harrison and Leitch,

2008) . In this chapter, we add to this growing body of literature by presenting an empirical study of the extent to which entrepreneurs’ prior career experience is associated with their productive use of knowledge in the new venture creation process. Based on theories of experiential learn­ing, we provide empirical evidence suggesting that different career experiences are associated with different kinds of knowledge, which in turn provide the basis for performance differentials in the new venture creation process. Conceptually, we also argue that there is a need to distinguish between “experience” and “knowledge” in future studies of entrepreneurial learning. In all, we believe that our arguments and findings in this study contribute a more detailed understanding of entrepreneurship as an experiential learning process, which also provides some general impli­cations for future research.

The themes of technological innovation, entrepreneurship, and organizing

About the Contributors

Farley S. Nobre (PhD, MSc, BSc) is Professor at the School of Management of Federal University of Parana, Brazil. His research interests include organizations, knowledge management systems, innova­tion and sustainability. …

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Farley Simon Nobre Federal University of Parana, Brazil ABSTRACT This chapter proposes innovative features of future industrial organizations in order to provide them with the capabilities to manage high levels …

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Jason G. Caudill Carson-Newman College, USA ABSTRACT The purpose of this chapter is to examine computer technology as a tool to support innovation and innovative processes. The primary problem that …

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