Why do nascent entrepreneurs use external assistance programs?
| DOI | https://doi.org/10.1108/20452101211261444 |
| Pages | 166-182 |
| Published date | 05 October 2012 |
| Date | 05 October 2012 |
| Author | Juita‐Elena (Wie) Yusuf |
| Subject Matter | Strategy |
Why do nascent
entrepreneurs use external
assistance programs?
Juita-Elena (Wie) Yusuf
Department of Urban Studies and Public Administration,
Old Dominion University, Norfolk, Virginia, USA
Abstract
Purpose – The purpose of this paper is to study support factors influencing the entrepreneur’s use of
external assistance programs and explain why some entrepreneurs obtain support from these
programs while others do not. The proposed framework suggests that outside assistance programs
are a support option of last resort that entrepreneurs utilize only when the start-up team and personal
network are incapable of providing support.
Design/methodology/approach – Data from the Panel Study of Entrepreneurial Dynamics I are
used to perform logistic regression of use of assistance programs on the entrepreneur’s human capital
and characteristics of the start-up team and personal network.
Findings – A total of 26 percent of entrepreneurs in the sample made contact with assistance
programs. Regression results suggest that entrepreneurs who are more educated and experienced,
rely extensively on the start-up team, have a less experienced start-up team, and have larger personal
networks are more likely to use assistance programs.
Practical implications – This study informs policy and support practices about the different
factors that drive entrepreneurs to use assistance programs provided by public agencies,
professional organizations, and educational institutions.
Originality/value – This research fills the gap in existing research of entrepreneurial assistance
programs by studying both entrepreneurs who do and do not obtain support, thus addressing the
selection bias problem.
Keywords Policy, Resources, Start-ups, Sub-national policy, Business development,
Entrepreneurialism
Paper type Research paper
Introduction
Organization formation and creation are often thought of as the core characteristics of
entrepreneurship. Gartner and Carter (2003), for example, view entrepreneurship as an
organizational phenomenon, and more specifically, as a process involving coordinating
and establishing routines, structures, and systems. This organizing process involves
interactions between the entrepreneur and other individuals or organizations, including
those external to the start-up organization.
The process of star ting or organizing a business, however, requires many different
skills and resources. The entrepreneurial process involves obtaining and marshalling
resources from both internal and external sources. Limited internal resources, such as
the entrepreneur’s human and financial capital, may pose significant challenges to the
start-up effort. As such, entrepreneurs might be expected to tu rn to other individuals
and/or organizations for assistance. These individuals or organizations may include
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/2045-2101.htm
Journal of Entrepreneurship and
Public Policy
Vol. 1 No. 2, 2012
pp. 166-182
rEmeraldGroup PublishingLimited
2045-2101
DOI 10.1108/20452101211261444
This research was funded in part by the Ewing Marion Kauffman Foundation. The contents of
this publication are solely the responsibility of the author.
166
JEPP
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members of the start-up team, members of the entrepreneur’s personal network, and public
agencies or other assistance organizations. The programs o ffered by these assistance
organizations typify the policy approach used by many local, state, and national
governments for promoting and encouraging entrepreneurship and entrepreneurial
activity. While most assistance programs are provided by the public sector, they mayalso
be provided by semi- or quasi-public agencies or by private sector o rganizations.
Assistance can also be delivered by private sector organizations that are partly funded by
government entities.
Research has shown that use of outside assistance enhances start-up success, survival,
performance, and growth. Jansen and Weber (2004) cited evidence from Germany that
public advice and training programs for entrepreneurs have had a positive effect on the
success of new firms. Using a sample of US entrepreneurs, Cooper, et al. (1991)determined
that extensive use of professional sources of information was related to a greater
likelihood of venture survival. Robinson (1982) found that use of outsider-based strategic
planning had a positive impact on venture performance, while Ostgaard and Birley
(1996) concluded that inclusion of professional advisors (such as consultants, bankers,
accountants, and lawyers) in the entrepreneur’s support network positively impacted
venture growth. Finally, a review of the literature also determined that 45 percent of
studies in the review sample identified lack of use of outside advisors as a contributing
factor to start-up failure (Lussier, 1995).
Despite the prevalence of external assistance programs , research suggests that
few entrepreneurs actually obtain external assistance. A su rvey by Smallbone et al.
(1993) of small- and medium-sized enterprises in the manufacturing sector found that
21 percent of the firms obtained outside assistance from public or semi-public agencies.
Similarly,R am and Sparrow (1993) identified that three-fourths of fir ms in their sample
of Asian businesses in the UK neither used consultants nor engaged in any for m
of external management training. How, then, can assistance programs be effective
at supporting entrepreneurship if they are not us ed by the entrepreneurs they are
intended to assist?
Furthermore, a critical issue to be answered is whether assistance programs reach
those entrepreneurs and start-up firms that ne ed advice and training the most. Part of
answering this question involves determining why only some entrepreneurs seek
outside assistance and others do not. This is a key question for government policy
makers and those stakeholders interested in encouraging entrepreneurial activities.
This paper studies the support factors that influence the entre preneur’s use of
external assistance programs. It describes a framewo rk for understanding the
entrepreneur’s support system and models how external assistance may serve as
the entrepreneur’s option of last resort if other elements of the support system are
unable to provide needed resources. While sources of outside assistance can comprise
of formal or institutional sources such as professional advisors (accountants, lawyers,
etc.), this study is interested only in external support in the form of assistance programs
provided by non-profit organizations; government entities; business, professional or
voluntary groups; educational institutions; and for-profit organizations.
The support system available to entrepreneurs is argued to be hierarchically
structured. Entrepreneurs compensate fo r capital deficits or resource gaps by tapping
first the start-up team, followed by their personal networks and finally, by seeking
outside assistance. Through the start-up team and personal network, the entrepreneur
obtains access to those critical resources which the entrepreneur does not possess.
When these sources are unable to provide resources or support, only then does the
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Nascent
entrepreneurs
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