The relationship of entrepreneurial skills and motivation to subsequent venture growth aspirations: evidence from gem data
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STATEMENT ABOUT THE INDEPENDENT CHARACTER OF THE MASTER THESIS 3
ABSTRACT 4
АННОТАЦИЯ 4
INTRODUCTION 5
CHAPTER I: THEORETICAL BACKGROUND 8
Enterprises funding stages 8
Entrepreneurship and its role in developing and developed countries 11
Factors influencing venture growth aspirations 14
CHAPTER II: METHODOLOGY 20
Data and sample 20
Measures 20
Data analysis 23
1. Descriptive statistics 24
2. Skills and motivation to venture growth aspirations 27
3. Awareness about entrepreneurship to skills and motivation 33
Results 36
CHAPTER III: DISCUSSION OF THE RESULTS 40
Model and managerial implications 42
LITERATURE 45
ABSTRACT 4
АННОТАЦИЯ 4
INTRODUCTION 5
CHAPTER I: THEORETICAL BACKGROUND 8
Enterprises funding stages 8
Entrepreneurship and its role in developing and developed countries 11
Factors influencing venture growth aspirations 14
CHAPTER II: METHODOLOGY 20
Data and sample 20
Measures 20
Data analysis 23
1. Descriptive statistics 24
2. Skills and motivation to venture growth aspirations 27
3. Awareness about entrepreneurship to skills and motivation 33
Results 36
CHAPTER III: DISCUSSION OF THE RESULTS 40
Model and managerial implications 42
LITERATURE 45
The role of entrepreneurial activity for technological and organizational innovations is well-know from 1934, when Schumpeter firstly mentioned it. In 1997, Kirchhoff underlined the importance of entrepreneurship in terms of work places. In addition, entrepreneurship is a binding constraint on economic development, as it helps the economy to grow and be more stable. However, based on Aldrich’s research, more than 50% of new companies failure within 5 years, where entrepreneurial decision-making model and entrepreneur plays key role. At the same time, scholars have reported that entrepreneur characteristics are extremely important for venture success (MacMillan et al, 1985; Baum et al, 2007). Hence, to increase the percent of successful organizations, we need to identify what entrepreneur’s skills and motivation can boost venture growth aspirations. With the identification, investors, who are ready to invest in firm’s early stages development, can increase conversion of successful investing projects.
Research gap
Entrepreneurship has dynamic and differentiated research field with its own conferences (International Conference on Institutional Entrepreneurship1, International Conference on Social Entrepreneurship and Innovation2, V International Scientific and Practical Conference "Entrepreneurship and Innovation in the Markets of the Asia-Pacific Region - 2023"3) and journals (Journal of Business Venturing, Entrepreneurship Theory and Practice, Strategic Entrepreneurship Journal, Entrepreneurship and Regional Development, Entrepreneurship Research Journal).
Scholars who firstly started to talk about entrepreneurship in scientific perspective are Schumpeter (1934) and later McClelland (1967). They and their followers analyzed entrepreneurship in psychological point of view, where entrepreneur was an object of analysis. However, since approximately 1980 and till 2005, scholars started to view entrepreneurship through economic and strategy theories (Kirchhoff, 1991). But more recently, psychological aspect returned to analysis, because “entrepreneurship is fundamentally personal” and it cannot be separated from each other (Baum et al, 2007; M. Frese, 2014).
There are many works that analyzed relationship between entrepreneur’s personal characteristics and further business success. However, these papers analyzed the problem in overall or too narrow, for example, for one industry in one country. In the work we divided dataset into two parts to analyze in general differences for two types of countries separately, as it is well-known that developing countries on average have higher GDP growth rates compared to developed countries. So, they should have on average higher growth aspirations and different set of skills or motivation can be more important in such type of countries. In addition, we connected the relationship of skills and motivation to venture growth aspirations with investment perspective, as in company’s early development stages entrepreneur’s figure is crucial.
Research goal
Thus, research goal is to build and verify a theoretical model of factors affecting entrepreneurial growth aspirations in developed and emerging economies and accordingly suggest recommendations for early stage investors. In addition, we are going to check whether awareness about entrepreneurship with associations about entrepreneurship as a desirable career choice can boost necessary motivation and skills, which are positively correlated with venture growth aspirations. It will help investors and other related stakeholders to decide invest or not in the mechanism.
To reach the goal we formulated next tasks:
1. collect samples of developing and developed countries based on data from GEM report 2020 via IMF classifications;
2. analyze descriptive statistics in these two samples;
3. check in what type of countries entrepreneurial skills and motivation have effect on venture growth aspirations based on regression analysis;
4. analyze connection between awareness about entrepreneurship to skills and motivation;
5. analyze differences in coefficients for developing and developed countries;
6. formulate conclusions about connection between skills, motivation, awareness and venture growth aspirations.
Methodology
We divided our analysis into two steps. The first one is concentrated on relationship between entrepreneurs’ motivation and skills to growth aspirations. The goal of this analysis is to understand on what aspects investors should pay attention when they choose in what company to invest. Main articles for hypotheses development are C. C. Chen, Greene, Crick, 1998; J.R. Baum,E.A. Locke, 2004; Carreon-Gutierrez, 2019; J.R. Baum and E.A. Locke, 2004; Ho and Wong, 2007; F.Madjdi and B. Zolfaghari, 2022; Cassar, 2007; Morris et all, 2006.
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Research gap
Entrepreneurship has dynamic and differentiated research field with its own conferences (International Conference on Institutional Entrepreneurship1, International Conference on Social Entrepreneurship and Innovation2, V International Scientific and Practical Conference "Entrepreneurship and Innovation in the Markets of the Asia-Pacific Region - 2023"3) and journals (Journal of Business Venturing, Entrepreneurship Theory and Practice, Strategic Entrepreneurship Journal, Entrepreneurship and Regional Development, Entrepreneurship Research Journal).
Scholars who firstly started to talk about entrepreneurship in scientific perspective are Schumpeter (1934) and later McClelland (1967). They and their followers analyzed entrepreneurship in psychological point of view, where entrepreneur was an object of analysis. However, since approximately 1980 and till 2005, scholars started to view entrepreneurship through economic and strategy theories (Kirchhoff, 1991). But more recently, psychological aspect returned to analysis, because “entrepreneurship is fundamentally personal” and it cannot be separated from each other (Baum et al, 2007; M. Frese, 2014).
There are many works that analyzed relationship between entrepreneur’s personal characteristics and further business success. However, these papers analyzed the problem in overall or too narrow, for example, for one industry in one country. In the work we divided dataset into two parts to analyze in general differences for two types of countries separately, as it is well-known that developing countries on average have higher GDP growth rates compared to developed countries. So, they should have on average higher growth aspirations and different set of skills or motivation can be more important in such type of countries. In addition, we connected the relationship of skills and motivation to venture growth aspirations with investment perspective, as in company’s early development stages entrepreneur’s figure is crucial.
Research goal
Thus, research goal is to build and verify a theoretical model of factors affecting entrepreneurial growth aspirations in developed and emerging economies and accordingly suggest recommendations for early stage investors. In addition, we are going to check whether awareness about entrepreneurship with associations about entrepreneurship as a desirable career choice can boost necessary motivation and skills, which are positively correlated with venture growth aspirations. It will help investors and other related stakeholders to decide invest or not in the mechanism.
To reach the goal we formulated next tasks:
1. collect samples of developing and developed countries based on data from GEM report 2020 via IMF classifications;
2. analyze descriptive statistics in these two samples;
3. check in what type of countries entrepreneurial skills and motivation have effect on venture growth aspirations based on regression analysis;
4. analyze connection between awareness about entrepreneurship to skills and motivation;
5. analyze differences in coefficients for developing and developed countries;
6. formulate conclusions about connection between skills, motivation, awareness and venture growth aspirations.
Methodology
We divided our analysis into two steps. The first one is concentrated on relationship between entrepreneurs’ motivation and skills to growth aspirations. The goal of this analysis is to understand on what aspects investors should pay attention when they choose in what company to invest. Main articles for hypotheses development are C. C. Chen, Greene, Crick, 1998; J.R. Baum,E.A. Locke, 2004; Carreon-Gutierrez, 2019; J.R. Baum and E.A. Locke, 2004; Ho and Wong, 2007; F.Madjdi and B. Zolfaghari, 2022; Cassar, 2007; Morris et all, 2006.
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Entrepreneurial skills to venture growth aspirations
Self-efficacy is not significant in both, developing and developed, countries, meaning that our hypothesis is not supported and for venture growth aspirations it is not so important how entrepreneurs self-confident and how they evaluate their own skills.
Strategic skills are the most significant in developed countries, as here for entrepreneurs the most important things are long-term planning and how efficiently use resources to satisfy customers’ needs in better and less costly way than competitors. In developing countries accent goes to opportunities and its quick commercialization, so strategic skills go to the second place.
Innovative skills have slightly stronger influence on venture growth aspirations in developing countries than strategic ones. It proves what we discussed in theoretical part, that developing countries on average have higher GDP growth rates, which leads to more opportunities for entrepreneurs in emerging markets, which makes innovative skills (to see the idea and quickly commercialize it) be more important than strategic ones. However, for developing countries, innovative skills are not significant. It can happen because markets in developed countries are saturated, so for entrepreneurs there are little amount of new opportunities.
Therefore, during team evaluation early-stage investors (venture funds, business angels, etc.) should give first priority to teams with high innovative skills in developing countries and strategic skills - in developed, if everything else being equal.
Entrepreneurial motivation to venture growth aspirations
Social motivation is only significant in developing countries, in developed - insignificant. In theoretical part we assumed that in developed countries social motivation should be higher as here are more opportunities for growth for such investors (like additional grands for development, mentoring programs etc.) The negative results in our research can be explained by personality traits of such entrepreneurs and their goals - in developing countries such entrepreneurs are still growth-oriented and may have commercial interest even though they stated social motive (as with social aspect they can get higher funding and opportunities). However, in developed countries such entrepreneurs can be altruist, who do not consider further organization growth.
Financial motivation is significant for both types of countries and it even has more effect on venture growth than social motivation. In developing countries the result can be explained by lower economic level - average GDP per capita for middle-income countries is about $6 thousand, while in developed - more than $40 thousand, the difference can drive entrepreneurs in emerging markets and more orient them to future growth to get higher income and living standard.
Therefore, in developing countries, early stage investors should priorities teams with financial motivation (0.38) and here firstly investors need to evaluate teams’ innovative skills (0.31) and then strategic ones (0.23). On the second place, investors can consider teams with social motivation (0.29), who want to make world better, but in this case only innovative skills should be evaluated (0.25). For developed countries, only entrepreneurs with financial motivation are growth-oriented with only significant strategic skills.
We also need to mention, that when motivation was added in the models for developed countries, gender (control variable) becomes not significant, meaning that motivation is more important factor and it pulls over influence on venture growth aspirations. However, in developing countries there were not such results, gender was still important factor, it means that in developed countries there are more opportunities for women, that they can take and use, and entrepreneurship infrastructure is better developed, so their enterprises do not lack in growth aspirations.
Awareness about entrepreneurship to skills and motivation
For both developing and developed countries awareness of entrepreneurship as a desirable career choice is not highly effective instrument to potentially increase venture growth aspirations, in any calculation scenarios its effect is less than 1 employee per 5 years. Hence, it can be in portfolio of instruments for government, venture funds and other interested stakeholders, but just as additional tool.
Self-efficacy is not significant in both, developing and developed, countries, meaning that our hypothesis is not supported and for venture growth aspirations it is not so important how entrepreneurs self-confident and how they evaluate their own skills.
Strategic skills are the most significant in developed countries, as here for entrepreneurs the most important things are long-term planning and how efficiently use resources to satisfy customers’ needs in better and less costly way than competitors. In developing countries accent goes to opportunities and its quick commercialization, so strategic skills go to the second place.
Innovative skills have slightly stronger influence on venture growth aspirations in developing countries than strategic ones. It proves what we discussed in theoretical part, that developing countries on average have higher GDP growth rates, which leads to more opportunities for entrepreneurs in emerging markets, which makes innovative skills (to see the idea and quickly commercialize it) be more important than strategic ones. However, for developing countries, innovative skills are not significant. It can happen because markets in developed countries are saturated, so for entrepreneurs there are little amount of new opportunities.
Therefore, during team evaluation early-stage investors (venture funds, business angels, etc.) should give first priority to teams with high innovative skills in developing countries and strategic skills - in developed, if everything else being equal.
Entrepreneurial motivation to venture growth aspirations
Social motivation is only significant in developing countries, in developed - insignificant. In theoretical part we assumed that in developed countries social motivation should be higher as here are more opportunities for growth for such investors (like additional grands for development, mentoring programs etc.) The negative results in our research can be explained by personality traits of such entrepreneurs and their goals - in developing countries such entrepreneurs are still growth-oriented and may have commercial interest even though they stated social motive (as with social aspect they can get higher funding and opportunities). However, in developed countries such entrepreneurs can be altruist, who do not consider further organization growth.
Financial motivation is significant for both types of countries and it even has more effect on venture growth than social motivation. In developing countries the result can be explained by lower economic level - average GDP per capita for middle-income countries is about $6 thousand, while in developed - more than $40 thousand, the difference can drive entrepreneurs in emerging markets and more orient them to future growth to get higher income and living standard.
Therefore, in developing countries, early stage investors should priorities teams with financial motivation (0.38) and here firstly investors need to evaluate teams’ innovative skills (0.31) and then strategic ones (0.23). On the second place, investors can consider teams with social motivation (0.29), who want to make world better, but in this case only innovative skills should be evaluated (0.25). For developed countries, only entrepreneurs with financial motivation are growth-oriented with only significant strategic skills.
We also need to mention, that when motivation was added in the models for developed countries, gender (control variable) becomes not significant, meaning that motivation is more important factor and it pulls over influence on venture growth aspirations. However, in developing countries there were not such results, gender was still important factor, it means that in developed countries there are more opportunities for women, that they can take and use, and entrepreneurship infrastructure is better developed, so their enterprises do not lack in growth aspirations.
Awareness about entrepreneurship to skills and motivation
For both developing and developed countries awareness of entrepreneurship as a desirable career choice is not highly effective instrument to potentially increase venture growth aspirations, in any calculation scenarios its effect is less than 1 employee per 5 years. Hence, it can be in portfolio of instruments for government, venture funds and other interested stakeholders, but just as additional tool.
