Complexity dynamics of nascent entrepreneurship

https://doi.org/10.1016/j.jbusvent.2006.06.001Get rights and content

Abstract

We  use theory and methods from complexity science to examine dynamic patterns among activities undertaken by nascent entrepreneurs in the Panel Study of Entrepreneurial Dynamics. We develop hypotheses predicting that certain dynamic patterns in start-up activities will lead to the emergence of new firms when: (1) the rate of start-up activities is high, (2) start-up activities are spread out over time, and (3) start-up activities are concentrated later rather than earlier over time. All three hypotheses are confirmed. The paper concludes with some suggestions for the role of complexity science for furthering insights into the process of organization creation.

Section snippets

Executive summary

We apply ideas from complexity science to the study of new venture formation. One of these ideas suggests that systems will self-organize towards the emergence of a new state when there is “adaptive tension”, i.e. a perceived difference between the system's current and desired states. In the context of a nascent entrepreneur, adaptive tension is created through a perceived opportunity or by a personal aspiration to start a business. Adaptive tension is manifest as activities that strive to

Toward a complexity theory of organization emergence

The growing body of research from complexity science can provide a theoretical explanation for the emergence of new ventures. Recent complexity science studies have generated insights into the emergence of innovations and inventions (Fleming and Sorenson, 2001, Garud and Karnøe, 2003); emergent modes of entrepreneurial organizing (Lichtenstein, 2000, Lichtenstein et al., 2006); emergent strategic groups and teams (Carley, 1999); the emergence of innovative firms in a dynamic industry (Malerba

When does an organization “emerge”?

A variety of perspectives have been used to distinguish the point at which a nascent firm shifts from “gestation” or “start-up” to being “operational” (Gartner and Carter, 2003). Complexity provides a useful theoretical approach to this problem, drawing from over 100 years of philosophical analysis of emergent phenomenon (Goldstein, 1999, Klee, 1984, Lewes, 1877, Popper, 1926). Most of these scholars agree that emergence involves “qualitative novelty” — an emergent level enacts system-wide

PSED sample

The data for this research are from the Panel Study of Entrepreneurial Dynamics (PSED), a national survey of individuals who were in the process of starting businesses, but had not yet reached positive cash flow. Detailed descriptions of the methods and sampling used to generate the PSED can be found in Reynolds (2000) and Gartner, Shaver, Carter and Reynolds (2004b). During 1998 the first wave of sampling for the PSED was undertaken, which is known as the “Mixed Gender” sample: totaling 15,118

Organizing activities

The PSED includes questions on 27 organizing activities or start-up indicators that represent various aspects of firm emergence. The list of activities, presented in Table 1, was generated from prior theoretical and empirical studies on the relationship between start-up behavior and the creation of new ventures (Carter et al., 1996, Gatewood et al., 1995, Reynolds and Miller, 1992). Table 1 shows how activities have been added and modified over time in response to accumulating theory and

Results

Table 3 provides the summary statistics and correlations of our independent and dependent variables. From the mean values we can observe several things. First, the entrepreneur is almost twice as likely to perceive the creation of a new firm (0.54) than they are to experience positive cash flow (0.28). The two outcomes are significantly and positively correlated with one another (0.24), providing evidence of construct validity. The average rate of start-up activity is 0.70 events/month, meaning

Combined findings

Do the temporal dynamics of organizing activities affect the likelihood that a new venture will emerge? Yes they do. Our findings demonstrate that the ventures which emerged, compared with those that did not, pursued organizing activities at a faster rate, with a lower concentration, and with timing that was later in the process. A visual image of these combined findings is shown in Fig. 1.

Organization emergence requires a certain kind of momentum to be successful (Jansen, 2004). A useful

Conclusion

Using theoretical insights from complexity science we developed a model of emergence that explored dynamic processes within the system that might not depend on contingencies of the nascent entrepreneur, characteristics of the emerging venture, or the industry. Using a representative sample and longitudinal data from nascent entrepreneurs who were in the process of starting new ventures, we tested our propositions linking organization emergence to (1) a higher rate of organizing activities, (2)

References (108)

  • R. Adams

    The eight: social evolution as the self-organization of energy

    (1988)
  • R. Agarwal et al.

    The conditioning effect of time on firm survival: an industry life cycle approach

    Academy of Management Journal

    (2002)
  • H. Aldrich et al.

    Solutions to the problem of selection bias in the sampling of nascent entrepreneurs

  • G. Alsos et al.

    The business gestation process of novice, serial and parallel business founders

    Entrepreneurship Theory and Practice

    (1998)
  • J. Amis et al.

    The pace, sequence, and linearity of radical change

    Academy of Management Journal

    (2004)
  • P. Anderson

    Complexity theory and organization science

    Organization Science

    (1999)
  • P. Anderson

    Seven levers for guiding the evolving enterprise

  • A. Ardichvili et al.

    A theory of entrepreneurial opportunity identification and development

    Journal of Business Venturing

    (2003)
  • B. Arthur

    Positive feedbacks in the economy

    Scientific American

    (1990)
  • W.P. Barnett et al.

    The Red Queen in organizational creation and development

    Industrial and Corporate Change

    (2002)
  • R. Baron

    Cognitive mechanisms in entrepreneurship: why and when entrepreneurs think differently than other people

    Journal of Business Venturing

    (1998)
  • R. Baron

    The cognitive perspective: a valuable tool for answering entrepreneurship's basic “why?” questions

    Journal of Business Venturing

    (2004)
  • J. Baron et al.

    The road taken: the origins and evolution of employment systems in emerging high-technology companies

    Industrial and Corporate Change

    (1996)
  • J. Bartunek et al.

    Developing ‘complicated’ understanding in administrators

    Academy of Management Review

    (1983)
  • A. Bhidé

    The Origin and Evolution of New Businesses

    (2000)
  • M. Binks et al.

    Entrepreneurship and Economic Change

    (1990)
  • S. Birley

    The role of new firms: births, deaths and job generation

    Strategic Management Journal

    (1986)
  • S. Brown et al.

    The art of continuous change: linking complexity theory and time-based evolution in relentlessly shifting organizations

    Administrative Science Quarterly

    (1997)
  • W. Bygrave

    The entrepreneurship paradigm (II): chaos and catastrophes among quantum jumps

    Entrepreneurship Theory and Practice

    (1989)
  • K. Carley

    Learning within and among organizations

    Advances in Strategic Management

    (1999)
  • N.M. Carter

    Entrepreneurial processes and outcomes: the influence of gender

  • N. Carter et al.

    The career reasons of nascent entrepreneurs

    Journal of Business Venturing

    (2003)
  • Center for Women's Business Research 2004 (accessed May 24, 2005.)...
  • T. Chiles et al.

    Organizational emergence: the origin and transformation of Branson, Missouri's Musical Theaters

    Organization Science

    (2004)
  • A. Corbett

    Experiential learning within the process of opportunity identification and exploitation

    Entrepreneurship Theory and Practice

    (2005)
  • S. Covey

    The 7 Habits of Highly Effective People

    (1989)
  • P. Davidsson

    Nascent entrepreneurship: empirical studies and developments

    Foundations and Trends in Entrepreneurship

    (2006)
  • P. Davidsson et al.

    The role of social and human capital among nascent entrepreneurs

    Journal of Business Venturing

    (2003)
  • P. Davidsson et al.

    New firm formation and regional development in Sweden

    Regional Studies

    (1994)
  • F. Delmar et al.

    Does business planning facilitate the development of new ventures?

    Strategic Management Journal

    (2003)
  • F. Delmar et al.

    Legitimating first: organizing activities and the survival of new ventures

    Journal of Business Venturing

    (2004)
  • A. Demaris

    Logit Modeling: Practical Applications

    (1993)
  • K. Dooley et al.

    Explaining complex organizational dynamics

    Organization Science

    (1999)
  • F. Dubinskas

    On the edge of chaos: a metaphor for transformative change

    Journal of Management Inquiry

    (1994)
  • K. Eisenhardt

    Making fast strategic decisions in high-velocity environments

    Academy of Management Journal

    (1989)
  • H. Farmer

    Diversity and women's career development: from adolescence to adulthood

    (1997)
  • J. Foster

    Competitive selection, self-organization and Joseph A. Schumpeter

    Journal of Evolutionary Economics

    (2000)
  • W. Gartner

    A conceptual framework for describing the phenomenon of new venture creation

    Academy of Management Review

    (1985)
  • W. Gartner et al.

    Entrepreneurial behavior and firm organizing processes

  • W.B. Gartner et al.

    The language of opportunity

  • Cited by (267)

    • Outlier entrepreneurs: Nonlinear paths and novel ventures

      2024, Journal of Business Venturing Insights
    • The thermodynamic driving force in entrepreneurship

      2024, Journal of King Saud University - Science
    View all citing articles on Scopus
    View full text