The Origin and Evolution of New Businesses This page intentionally left blank The Origin and Evolution of New Businesses AMAR V. BHIDE OXFORD UNIVERSITY PRESS OXPORD UNIVERSITY PRESS Oxford New York Auckland Bangkok Buenos Aires Cape Town Chennai Dar es Salaam Delhi Hong Kong Istanbul Karachi Kolkata Kuala Lumpur Madrid Melbourne Mexico City Mumbai Nairobi Sao Paulo Singapore Taipei Tokyo Toronto Copyright © 2000 by Oxford University Press, Inc. First published by Oxford University Press, Inc., 2000 First issued as an Oxford University Press paperback, 2003 198 Madison Avenue, New York, New York 10016 www.oup.com Oxford is a registered trademark of Oxford University Press All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press. Library of Congress Cataloging-in-Publication Data Bhide, Amar, 1955- The origin and evolution of new businesses / Amar Bhide. p. cm. Includes bibliographical references and index. ISBN 0-19-513144-4 (cloth) ISBN 0-19517031-8 (pbk.) 1. New business enterprises. 2. Entrepreneurship. I. Title. HD62.5.B49 2000 658.1'1—dc21 99-38239 1 3 5 7 9 8 6 42 Printed in the United States of America on acid-free paper To the memory of my parents, for their example of courage and enterprise and unquestioning love This page intentionally left blank Contents Preface ix Acknowledgments xix Introduction 3 I. The Nature of Promising Start-ups 25 1. Endowments and Opportunities 29 2. Planning vs. Opportunistic Adaptation 53 3. Securing Resources 69 4. Distinctive Qualities 90 5. Corporate Initiatives 114 6. VC-Backed Start-ups 141 7. Revolutionary Ventures 166 8. Summary and Generalizations 196 II. The Evolution of Fledgling Businesses 207 9. Missing Attributes 213 10. Existing Theories and Models 238 11. Critical Tasks 260 12. Exceptional Qualities 290 III. Societal Implications 317 13. Reexamining Schumpeter 319 14. Facilitating Conditions 338 Conclusion 360 Appendix 1: Background Information: 1989 Inc. 500 Study 371 Appendix 2: Partial List of Student Papers Written 376 on Successful Entrepreneurs Notes 381 References 387 Index 397 This page intentionally left blank Preface This effort to demystify and organize our thinking about entrepreneurs through systematic research has practical roots. I undertook the research that has led to this book to address a problem in business education. Courses in entrepreneurship have gained great popularity as increasing numbers of students want to start and build their own businesses. In 1979, the year I graduated from the M.B.A. program at Harvard Business School (HBS), a solitary course in starting new ventures attracted fewer than one hundred students from a graduating class of about eight hundred. In 1996, nine courses filled more than fourteen hundred student seats from a class of nine hundred. Similarly, Stanford's business school reports that more than 90 percent of its M.B.A. students now elect at least one course in entrepreneurship. We still lack, however, a solid base of ideas for such courses. Over the past half century, business schools have devoted consid- erable resources to studying the entrepreneurial activities of large compa- nies—how Merck develops new drugs and Intel new microprocessors, how Disney produces and markets The Little Mermaid and McDonald's intro- duces Big Macs in China. Little effort has been devoted to systematic research about starting and growing new businesses. Researchers have focused on the initiatives of large corporations for sev- eral reasons. As business schools and research in the United States came of age in the 1950s and 1960s, large corporations dominated the economic landscape. According to the historian Alfred Chandler, a "new form of cap- italism," the "large managerial business enterprise," appeared in the last half of the nineteenth century.1 This new form, which was controlled by a hierarchy of salaried executives rather than the owners, "dominated the core industries in the United States"2 by the end of World War I, and by the 1960s it became ubiquitous. In 1967 John Kenneth Galbraith observed that the five hundred largest corporations produced nearly half the goods and services annually available in the United States. He wrote: "Seventy years ago the corporation was still confined to those industries— railroading, steamboating, steel-making, petroleum recovery and refining, some mining—where, it seemed, production had to be on a large scale. Now it also sells groceries, mills grain, publishes newspapers, and pro- vides public entertainment, all activities that were once the province of the individual proprietor or the insignificant firm."3 1X