FEATURE
PAPER
Experimental Entrepreneurship:
A Research Prospectus & Workshop
The
following paper was witten by Norris Krueger Jr., Entrepreneurship
Northwest and Isabell Melanie Welpe of Ludwig-Maximilians-University
and was presented at
the 2008 United States Association for Small Business and
Entrepreneurship (USASBE)
.
Abstract
Experimental
research conjures a vision of abstract, ivory tower research
far removed
from the “real world” that
entrepreneurship research has long and proudly embraced.
What happened when experimental research entered fields like
marketing? Experimental methods have barely penetrated entrepreneurship
research.
However, where they have done so, the results have been powerful.
However, in this workshop we will show that (I) experiments
offer significant methodological opportunity and value to the
researcher and (II) the range of applicable topics is broad
and deep, making
it attractive to top scholars.
Introduction
Understanding
entrepreneurial behavior requires that we focus at the deepest,
most fundamental
levels. The early days of
entrepreneurship often emphasized personality research. That
led us to studying attitudes, rather than traits (Shaver & Scott,
1991). The next step in the field's evolution was to explore
individual differences through the lenses provided by cognitive
and developmental psychology. This step now allows us to address
deep, fundamental issues in entrepreneurial cognition through
rigorous
experimental research (that need not abandon relevance). It
also allows us to take the next logical step
and take advantage of the recent breakthroughs in neuroscience.
Experimental
research conjures a vision of abstract, ivory tower research
far removed
from the “real world” that
entrepreneurship research has long and proudly embraced.
What happened when experimental research entered fields like
marketing? Deep theory, yes. Profound practical applications,
yes.
This interdisciplinary workshop will focus on the experimental
investigation of entrepreneurial behaviour from the perspectives
of economics, cognitive, social and developmental psychology,
neuroscience, philosophy, evolutionary anthropology, etc.
Experimental methods have barely penetrated entrepreneurship
research. However,
where they have done so, the results have been powerful.
In this workshop we will show that (I) experiments offer significant
methodological opportunity and value to the researcher and
(II) the range of applicable topics is broad and deep, making
it
attractive to top scholars.
We also have a huge body of proven methods to call upon.
USASBE 2008 Proceedings - Page 1070
Our main goal is to contribute to the understanding of the
factors which determine entrepreneurial processes in different
contexts (for-profit, not-for profit, academe, etc.). This
project concentrates not only on the psychological, social
(and eventually biological/neurological) bases of entrepreneurial
behaviour, but also on the social and economic consequences
of people displaying entrepreneurial behaviour. Economic
experiments are a good method for research questions relating
to cognitive processes in entrepreneurship yet are an approach
rarely used in the field of entrepreneurship to date (Schade
2005). Why not take advantage?
As such, this USASBE workshop
will provide a forum to share this prospectus and identify
the most fruitful directions for experimental research in entrepreneurship.
Read
the Entire Paper...
TIP
OF THE WEEK
Preparing
to Raise Debt or Equilty Financing
Once a start-up’s financial needs exceed what personal
funds, friends and family, and bootstrapping can provide, debt
and equity are the two most common sources of funds. The most
important thing an entrepreneur must do at this point is determine
precisely what the company needs and the most appropriate source
to use to obtain those funds. A carefully planned approach to
raising money increases a firm’s chance of success and
can save an entrepreneur considerable time.
Step 1 Determine precisely how much the company needs
Constructing
and analyzing documented cash flow statements and projections
for needed capital expenditures are actions taken to complete
this step.
Knowing exactly
how much money to ask for is important for at least two reasons.
First, a company doesn’t want to get caught short, yet it doesn’t
want to pay for capital it doesn’t’ need. Second, entrepreneurs
talking to a potential lender or investor make a poor impression when they
appear uncertain
about the amount of money required to support their venture.
Step 2 Determine the most appropriate type of financing
or funding
The
two most common alternatives for raising money are equity and
debt financing. Equity
Financing
(or funding) means exchanging partial ownership in a firm, usually in the form
of stock, for funding. Angel investors, private placement, venture capital,
and initial public offerings are the most common sources of equity funding.
Equity
is not a loan—the money that is received is not paid back. Instead, equity
investors become partial owners of the firm. Some equity investors invest “for
the long haul” and are content to receive a return on their investment
through dividend payments on their stock. More commonly, equity investors have
a 3-to-5-year investment horizon and expect to get their money back, along
with a substantial capital gain, through the sale of their stock. The stock
is typically
sold following a liquidity event.
Because of the risks
involved, equity investors are very demanding and fund only
a small percentage of the business plans they
consider. An equity investor
considers
a firm that has a unique business opportunity, high growth potential, a clearly
defined niche market, and proven management to be an ideal candidate. In contrast,
businesses that don’t fit these criteria have a hard time getting equity
investors apply and get discouraged when they are repeatedly turned down by
venture capitalists and angel investors. Often, the reason they don’t
qualify for venture capital or angel investment isn’t because their business
proposal is poor, but because they don’t meet the exacting standards
equity investors usually apply. Debt financing is
getting a loan. The most common sources of debt financing are commercial
banks and Small Business Administration
(SBA) guaranteed loans.
The
types of bank loans and SBA guaranteed loans available to entrepreneurs are
discussed later in this chapter. In general, banks lend money that must be
repaid with
interest. Banks are not investors. As a result, bankers are not interested
in minimizing risk, properly collateralizing loans, and repayment, as opposed
to
return on investment and capital gains. The ideal candidate for a bank loan
is a firm strong cash flow, low leverage, audited financial statements, good
management,
an a healthy balance sheet. A careful review of these criteria demonstrates
why it’s difficult for start-ups to receive bank loans. Most start-ups
are simply too early in their life cycle to have the set of characteristics
bankers
want.
Step 3 Developing a strategy for engaging potential
investors or bankers
There are three steps to developing a strategy
for engaging potential investors or
bankers. First, the lead entrepreneurs in a new venture should prepare an elevator
speech (or pitch)—a brief, carefully constructed statement that
outlines the merits of a business opportunity. Why is it called an elevator
speech?
If an entrepreneur stepped into an elevator on the 25th floor of a building
and
found that by a stroke of luck a potential investor was in the same elevator,
the entrepreneur would have the time it takes to get from the 25th floor to
the ground floor to try to get the investor interested in the business opportunity.
Most elevator speeches are 45 seconds to 2 minutes long.
There are many occasions when a carefully constructed elevator
speech might come in handy. For example, may university-sponsored
centers for entrepreneurship
hold events that bring investors and entrepreneurs together. Often, these
events include social hours and refreshment breaks designed
specifically for the purpose
of allowing entrepreneurs looking for funding to mingle with potential investors.
Entrepreneurship
Successfully Launching New Venture
Second edition pgs: 288-289
Bruce R. Barringer & R. Duane Ireland
Copyright 2008, 2006 by Pearson Education, Inc., Upper Saddle River, New Jersey,
07458
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ANNOUNCEMENTS
2008
SBI Registration Form
The Small Business
Institute will be hosting their Annual International Conference
at the Handerly Hotel in San Diego, California. Click
here for more information and hotel arrangements.
National
Urban Inititiatives Competition
Clark University
is hosting the National Urban Inititiatives Competition.
They are seeking proposals that have practicality, creativity,
and are well rooted in theory. Proposals should trnslate
from theor to model or vice versa. Furthermore, it should
be feasible to enact into legislation.
An award of $20,000 will be given to each winner of the three categories:
1. Affordable and
sustainable housing.
2. Neighborhood based
economic development.
3. Financial services
to low income communities.
All applicants must
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organization.
Submission of Step
1 proposals are due January 25, 2008.
For more information
please click
here.
SBI
Journal - Request for Papers
The Small Business
Institue is now requesting papers for the Small Business
Institute Journal. If you are interested in submitting a
paper, please let us know. The first issue is to be printed
April 2008. For more information please click
here or email us at sbij@uca.edu.
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