New firm gestation: Conception, birth, and implications for research

NEW FIRM GESTATION: CONCEPTION, BIRTH, AND IMPLICATIONS FOR RESEARCH PAUL REYNOLDS Marquette

University

BRENDA MILLER Marquette

University

Efforts to encourage or assist new firms are generally directed toward firms at some stage in the gestation (or incubation) process. Although manynewfirms come into existence every day, there has been little systematic study of the gestation-conception to birth-process. Alternative conceptions of the gestation process can lead to different procedures for estimating the point at which firms become active participants in the economy. This, in turn, can affect estimates of their contributions and age at “discontinuance.” Analysis of four key events of the gestation process (principal’s commitment, initial hiring, initialfinancing, and initial sales) in more than 3,000 establishedjrms indicates substantial variation in the length and patterns of the gestation process. Not all four events are reported by all active jrms (sales is the most prevalent event), and every possible sequence of events is reported. The duration of the gestation period ranges from one month (one-fifth report all events occurring in the same month) to 10 years: 90% report a gestation window of three years or less. Alternative definitions of the birthdate, the date at which the new firm is an active participant in the economy, suggest that any event that involves a transaction or relationship outside the firm (hrsthnancing, first hiring, first sales) results in similar survival patterns. Date ofjrst sales appears a suitable indicator of “birth” if only one event is to be used. More complex is identifying the conception of newhrms. The most common first event reported is the principal’s commitment (or involvement). As this may occur several years before the firm emerges as an economic actor, different research procedures must be used to iden@ such firms. Representative surveys of adults in the labor force (employed, self-employed, or unemployed) show that one in 30 (3%) appear to be involved in a new jrm start-up at any given time. The analysis suggests that the widely varying estimates of new firm survival and contributions may be related, in part, to variation in the criteria used to determine a new firm birth (founding, entrance). The rates of stillborns, discontinuances after conception but during gestation, are not yet clear.

EXECUTIVE SUMMARY

Address correspondence Milwaukee, WI 53233.

to Paul Reynolds,

Center for the Study of Entrepreneurship,

Marquette University,

Journal of Business Venturing 7, 405-417 @ 1992 Elsevier Science Publishing Co., Inc., 655 Avenue of tbe Americas, New York, NY 10010 405

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P. REYNOLDS AND B. MILLER

Programs, public or private, designed to facilitate new firms should give careful attention to the stage of the gestation process where they plan to make their contribution. Assisting firms at diSferent stages will have dtflerent costs; the nature and potential for assistance may vary at direrent stages of the gestation process.

INTRODUCTION “3verhalf a million new firms emerge in the United States each year-about

1,500 every day. Their foundings are not instantaneous, yet the nature of the gestation process, despite considerable speculation, is largely a mystery. Even the duration of gestation, from conception to birth, is unknown. Yet the specific nature of the gestation process has major implications for the study of or support of new firm ventures (births, entrances). After discussing two prevalent theories of organizational creation and development, we will examine the gestation patterns of representative samples of new firms. These samples reflect the considerable diversity in the gestation process. Several alternatives for defining the “birthdate” of new firms are reviewed, and their impact on new firm survival is discussed. Implications for research and practices are considered.

THEORIES OF BUSINESS START-UP There are two dominant theories that describe new start-ups: actor and the birth of a biologic organism.

the entrance

of an economic

Economic Actors

The classic model of the economy, focusing on a market system, treats business entities as rational players in the economic “greed game.” Considered equivalent to human actors, business organizations are anthropomorphized as participants that “enter” or “exit” competitive markets. The image is that of a singles bar, with young adults entering, participating in an exchange, and leaving when objectives are achieved or the cost of staying in the game (or market) exceeds the potential benefits. A key feature of this concept is the instantaneous nature of the “entrance” or “exit.” Most economists fully realize that it takes some time for new firms to get organized and enter a market or for an active firm to shut down, even to declare bankruptcy, but this simplified conception is accurate enough for many types of analysis. Katz and Gartner (1988) identify four characteristics of ongoing organizations: intention to achieve explicit organizational purposes, assembling resources (financial support, expertise), creating a boundary (e.g., incorporation), and exchanges (trading resources across the boundary). They propose that each characteristic will require different types of sampling procedures (e.g., random selections from different types of lists) for research on “organization-in-creation.” However, there is no discussion of either the sequence or time required for the four characteristics to emerge in new organizations. Biologic Analogy An alternative theory common to organizational and entrepreneurial scholars is based on a biologic analogy. Gestation is often viewed as part of an organizational life-cycle (Whetten 1987). A key feature of this concept is the attempt to specify the important gestation events

NEW FIRM GESTATION

407

and the sequence in which they occur. If this sequence is invariant, the issue shifts to determining that point when the gestation process is completed and a new business entity is created. (This is similar to the problem of determining that point in a pregnancy when a fetus is considered to have full rights of citizenship.) Birley (1984) proposes eight different events in the incubation process. These events are assumed to occur in the following order: (1) owner’s decision to start firm; (2) owner becomes self-employed (quits regular job); (3) incorporation; (4) bank account established; (5) premises and equipment acquired; (6) first order received; (7) tax first paid; and (8) first full-time employees hired. Each of these can be associated with different types of sampling procedures, capturing the development of the firm at different stages in the incubation process. These two theories complement each other. The biologic analogy focuses on the time of conception, the events involved in the development of an economic system, and ends with the new firm birth. The economic actor perspective ignores the conception processes and emphasizes alternatives for deciding when the nascent firm is to be considered an active business entity. Our study suggests that the gestation processes of firms are much more diverse and complex than previous theories imply. The following analysis will review the presence, sequence, and time frame associated with four major events in the gestation prc;ess. The analysis concludes that first sales may be an appropriate “birthdate” for most research that requires a “birthdate” for new business entities. A suitable specification of “conception” is more difficult to establish.

DATA

SETS:

THE

MINNESOTA,

PENNSYLVANIA

NEW

EIRM

SAMPLES

This study is based on data collected from representative samples of Minnesota (1984 and 1987) and Pennsylvania (1986) new firms. The samples were developed from listings purchased from Dun’s Marketing Services as a random sample of all single-site or headquarters establishments representing all industries and all regions of these states. In all three cases, the spread of “year start dates” is from one to six years prior to drawing the sample. Initial phone screening eliminated half of the listings as inactive (about 20%), not new (about 20%), not autonomous (about 5%), or not firms (about 5%).’ The phone screening identified a current manager who was active in the start-up of each firm. The managers were sent an individualized letter with a questionnaire, a postcard reminder and, if they filed to respond, up to two subsequent mailings. From 40-50% returned tbe mailed questionnaire. The remainder were contacted for a phone interview. The overall response rate was 75% for the two Minnesota surveys and 67% for the Pennsylvania survey. There were 550 new firms in the 1984 Minnesota sample; 1,524 in the 1986 Pennsylvania sample; and 1,119 in the 1987 Minnesota sample. For the 1984 Minnesota sample, subsequent phone interviews were completed with the same individuals in 1985, 1986, and 1988. As of 1988, personal contact was made with someone associated with 447, or 8 1 %, of the 1984 Minnesota sample. Refusal rates for the follow-ups in firms known to be active was about 1%. Judgments regarding the inactive or dormant status of the remaining 18% were based on the failure to make phone contact after repeated attempts in 1988, no contact was made despite several follow-up attempts several years apart, absence of listings in current phone books, verification of their closing from a ‘Details are provided in Reynolds et al. (1985), Reynolds and Freeman (1987), and Reynolds and Miller (1988).

408

P. REYNOLDS AND B. MILLER

TABLE I

Percentage

of New Firms Reporting Gestation Events

Dates provided for:” Persona3 comm~~nt First sales First hiring First financial support aExcIndes those new firms for which Ihere were no and 0.6% d the Pennsyhania sample.

Minnesota: 1987 f%b)

Pennsylvania: 1986 (a)

95 90 74 67

94 95 84 64

dates for any of ihe

gestation events, about 5% of the

Minnesotasample

neighbor, etc.’ Identifying a firm as “out of business” has not been particularly difficult. In two eases a firm that was dormant went back into business. A few firms changed their line of business. A few merged or bifurcated. The majority, over 99%* were clearly either in or aut of business in the last half of 1988.

IDENTIFYING THE BEGINNING: GESTATION MARKERS Fully devefoped new firms usually require the full time involvement of one or more individuals, are selling a product or service, may have formal financial support, and may have hired one or more individuals. In the three surveys, informants were asked to provide the month and year in which four gestation events occurred? P~3sitnal ~~~~~r~~~

When did members of the start-up team i&t begin to make major investments-personal time, personal resources--in the new firm?

Financial Support When was the first outside financial support obtained? Safes When did the firm receive its first sales income? Hiring When did tbe firm first hire anybody--&If

or pti

time?

A firm in which all four events have occurred can be considered fully established. The time that elapses from the first to last event can be considered the gestation period, analogous to the gestation period for living systems. If most new firms were to report all four events, in the same sequence, and take about the same amount of time, the analogy to the gestation period for living systems would be quite strong. We found that nune of these features of gestation in living systems are shared by new firms. Not all events occur. Every possible sequence of events was present. There is substantial variation in length of the gestation period. The reporting of these events is presented in Table I. The patterns are quite similar to two samples. Personal commitments and first sales are reported by over 90% of the firms, and hiring by about three of four. The lack of dates for financial support reflects the absence of formal financial support for the new firms, not missing data. It is assumed that the 10% %re 1984 Minnesota sample was siightty expanded by several bifurcations, and stightiycontracted by one firm initially counted as two because both owner-spouses completed the questionnaires for the first three waves. ‘The first three were asked in the initial questionnaire in the 1984 Minnesota survey, the last in the first follow-up. All faur were included in the initial questionnaire for the 1986 Pennsylvania and 1987 Minnesota surveys. %e ‘next time” such data cofkection is done, it would he useful to separate the timing of the personal co~11~~t (expertise, energy) from the timing of the personal financial investment.

NEW FIRM GESTATION

TABLE 2

409

Overview of Gestation Events Number of Events Reported One or More

Two or More

MN

PA

MN

PA

1,063 95%

1,523 99%

1,013 90%

1,492 97%

832 74%

Range (months) Average Standard deviation Kurtosis (peakedness) Skewness (assymetry)

11.18 16.68 7.41 2.42

12.85 16.57 4.75 1.99

Length of Gestation (Monrhs) 1% of the sample (minimum) 20% of the sample 40% of the sample 50% of the sample (median) 60% of the sample 80% of the sample 90% of the sample 99% of the sample 100% of the sample (maximum)

0.0 0.0 1.8 4.0 7.0 17.0 35.0 77.0 I141 .o

First Event Personal commitment Sales Hire employees Financial support Last Event Hire employees Sales Financial support Personal commitment

No. with Data Percent of Sample

Three or More MN

PA

All Four MN

PA

! ,320 86%

544 49%

789 51%

12.49 17.06 6.01 2.20

13.41 16.79 4.54 1.94

13.61 17.96 6.11 2.21

15.05 17.12 5.07 1.93

0.0 0.5 3.5 6.0 10.5 23.0 36.0 77.0 120.0

0.0 0.5 3.0 5.0 8.0 21.0 36.0 77.0 141.0

0.0 0.5 4.0 6.5 11.0 23.5 37.0 77.0 120.0

0.0 0.7 3.7 6.0 10.0 23.0 36.0 82.0 141.0

0.0 1.5 6.0 9.5 12.0 25.0 37.0 84.0 120.0

86% 38% 25% 30%

82% 44% 31% 25%

88% 37% 27% 34%

83% 44% 34% 28%

87% 33% 28% 38%

83% 41% 35% 38%

51% 50% 37% 27%

52% 50% 34% 25%

57% 47% 43% 22%

55% 48% 37% 24%

58% 44% 50% 17%

51% 43% 48% 19%

of the firms for which no “major personal commitment” has been made are those where the principals have retained their primary job or economic activity, which could be running another firm. A summary of the major features of the gestation period of the 1987 Minnesota and 1986 Pennsylvania new firm samples is presented in Table 2. Because half did not report all four events, the presentation is organized around the number of events reported: firms reporting two or more events, three or more events, or four events. The first and last events (regardless of their nature) mark the gestation period, computed in months. The average two-event gestation period is about a year; the median about six months. Both the average and median increase slightly as more events are reported. The four-event gestation period is several months longer, probably because these are larger and more complex new firms. More significant than the average is the lopsided distribution. All gestation events occurred in the same month for about one in five (20%). At the other

410

P. REYNOLDS AND B. MILLER

TABLE 3

Gestation Period by Industry Average gestation period (two-event window, months) Minnesota

Pennsylvania

Agriculture Construction Manufacturing Distributive service Producers service Health, education and social service Retail Consumer service

13.4 13.9 13.1 12.5 13.8 8.9 8.4 8.6

14.3 13.8 15.3 14.9 14.2 _a 10.7 10.3

All industries

11.2

12.8

This industrysector not includedin Pennsylvaniasample.

extreme, about one in five (20%) report that it took two or more years, one in 10 (10%) three or more years, and one in 100 (1%) over six years for the gestation period. Overall, four of five of all new firms go through gestation within two years; nine of 10 within three years. The sequence of events is harder to summarize. With only two events (say income and hiring), there would be only three possible sequences: hiring then income, income then hiring, and both occurring simultaneously. With four events there are 16 possible sequences if all four events are reported at different times. The possibility of simultaneous events increases the number of alternatives. If two, three, and four gestation events and simultaneous occurrences are permitted, 107 different sequences are possible. Virtually all possible combinations were present in both the Minnesota and Pennsylvania samples. It is possible, however, to attend to the first and last events in the sequences, which can be identified regardless of the number of events reported. The percentage of firms reporting each type of event as first or last in the sequence is reported in Table 2. The totals exceed 100% because several events can occur simult~eously (within the same month) as the first or last in the sequence. About half of all firms report simultaneous first events; about one in three report simultaneous last events. As noted above, about one in 20 report that all four events occurred simultaneously. The most common first event is a personal commitment by the start-up team members, reported by five out of six new firms. The second most colon first event is sales, reported by two in five new firms. Hiring and financial support are equally likely to be among the first, reported by about one in four new firms. The patterns of last events are quite different. Hiring employees and first sales income are reported as among the last events for one-half of the new firms. Financial support is among the last events for about two in five. Major personal advent by the start-up team is among the last events for about one in four. It is interesting that personal commitment would be the last event at all. The length of the gestation process associated with new firms in different industry sectors is presented in Table 3. It appears that the average gestation period is about one month longer for Pennsylvania in every industry except coristruction. The differences among

NEW FIRM GESTATION

411

industries are similar for the two states, with retail and consumer services having the shortest periods, suggesting that new firms in these industries may be easier to establish. There is no significant difference in the pattern of first and last events across industries. There is so much diversity among new firms within each industry sector that industry sector is not very helpful in predicting major features of the gestation process. Most new firms in all industry sectors are small endeavors with a brief gestation period. Rural-urban differences in gestation were also insignificant. We considered the 23 multicounty regions within the two states, 10 in Pennsylvania and 13 in Minnesota. Population density varied from a high of about 3,000 per square mile (Philadelphia) to less than 10 per square mile (northern Minnesota). Although there was a positive correlation between the population density and length of the gestation period, it was low and not statistically significant. The most important finding is the lack of support for the biologic theory of gestation of new firms. The analogy fails to hold on three important characteristics: the substantial difference in the number of events reported in the new firm gestation process, the extreme diversity in the order or sequence of events, and the substantial variation in the length of the gestation process. There are, nonetheless, some patterns. In both states the average gestation period was about 12 months, with a high proportion (20%) completing gestation within one month and a substantial majority (90%) completing gestation within three years. The most frequent initial event is the personal commitment of individuals to start a new firm.

Temporal Patterns and Gestation Events In the follow-ups of the 1984 Minnesota sample, we explored the temporal patterns in more detail. Perhaps more important, we also explored the effects of alternative definitions of “firm birthdate” on survival times, as described in the next section. Starting with the first event reported, the number of start-up events increases over time. This pattern is presented in Figure 1. Note that the proportion reporting only one event is 80% at the initial, starting month, but drops to 10% within two years. By the third year, 30% have reported three events and 50% all four start-up events. In other words, within three years four of five new firms have reported at least three start-up events. The actual events reported arc presented in Figure 2. The most frequently reported start-up events are personal commitment and sales. Within two years 19 of 20 (95%) report sales income and almost nine of 10 (88%) report personal commitment. The percentage reporting initial formal financial support peaks at about 60% (at five years) and the percentage reporting first hiring peaks at slightly more than half, again at five years. However, as almost all report some employees, the procedure for obtaining dates of first hiring may not be accurate. These patterns show the difficulty of identifying the date at which a firm is born. As virtually every possible sequence of events is present and there is substantial variation in the gestation period, there is no obvious point at which a new firm is or is not a “live birth.” Two strategies are possible to resolve this problem. One is to develop a rationale based on a conception of the phenomena. The second is to review the impact of alternative definitions on important issues, such as estimates of new firm survival times. There are at least two criteria related to concepts of the emergence of new firms. One is to assume that a new firm is not part of the economy until sales begin; the “date of first sales” could be the birthdate. The second is to consider the wider implications of creating

412

P. REYNOLDS AND B. MILLER

Montt~a

Since ANY Efrst Event

FI;GURE1 Numberofstart-up events reported over time.

a new business organization--a new social and economic entity. New firms may be considered a new participant in a system of social and economic relationships. The earliest date of a re~at~onsh~~with others external to the firm could be considered the birthdate, This would include an external financial re~at~onsh~~,employment relationship, or first sales; in short, the occurrence of any gestation event except the personal commitment of the startup team. The effect of these alternatives on descriptions of survival patterns is discussed b&W.

A&s-native IEirthDates and Survival Times One procedure for evaluating an operational definition is to determine the impact of various alternatives on descriptions of important outcomes. Descriptions of new firm survival seemed irn~~t in the study of e~trep~neurs~ip. Data from one of the three samples, foltowed over four years, can be used to determine the impact of different definitions of the birthdate on portrayals of new firm survival. The hazard rate is used as an indicator of the risk of death. The proportion of firms that go out of business, or discontinue, in a given year is the hazard rate for that year. With a sample composed of firms with diverse ages, the hazard rates provide a useful measure of the risk of death. With the appropriate computation

413

NEW FIRM GESTATION

1.0

0.6 8 8

0.2

0.0

0

12

24

36

46

I

60

72

64

96

106

120

Months Since ANY First Event

FIGURE 2

Type

of start-up events reported over time.

procedures, such estimates can be produced that are adjusted for the firms that have not reached death-the “censored” observations.5 The life of a firm is measured from the birthdate until its death. For example, the new firm can be considered to be born when all gestation events have occurred. The impact of these four criteria on the hazard rates is presented in Figure 3. For example, the “l+ event” hazard curve reflects the proportion at risk of death for each year following the birth of the firm, with birth defined as the date when one or more events first occurred. The “2+ event” hazard curve represents the proportion at risk of death for the year following the date when two or more gestation events occurred. As the number of gestation events varies, the number in each analysis (indicated in parentheses) decreases as more events are required before the birthdate is determined. This analysis ignores the nature of the events or their sequence. The result is a family of curves with similar form. The more events used as a measure of birth, the earlier the hazard rate curves rise-reflecting the birthdate’s placement later in the gestation period. When the birthdate is placed closer to the conception date, more of the gestation period, where failure rates may be lower in these samples, is in%e standardized estimates.

survival procedures included in SPSS-X V3.0 are the basis for all the following presentations. As a version of a substantial range of survival analysis procedures, it provides relatively conservative

414

P. REYNOLDS AND B. MILLER

0.08

1

2

3

$

8

6

7

8

Years Since First Event(s) IXXJRE

3

Hazard rates by number of start-up events.

eluded in tbe post-birth period. Hence, the hazard of death will be lower in the earlier years. Further, the overall hazard curve is somewhat lower for the four-event birthdate. This is probably due to the absence of 40% of the sample that do not repoft all four gestation events; the missing part of the sample may include less viable firm~.~ Another strategy is to consider the nature of the gestation events. Several are presented in Figure 4. The hazard curves using the first sales date as the birthdate is indicated by “sales start.” The use of any event other than personal commitment-that is, hiring, financial co~itment, sales-as the birthdate is indicated by “eXternai eomrnitment;” the analysis included 536 of the firms. For comparison, the “2 + event” and “3 + event” curves from Figure 3 are repeated in Figure 4. The hazard curves based on sales start and any external commitment are almost identical and midway between the 2-k and 3+ event curves. In summary, most variation in measures of new ktrt survival does not appear to be @l%e“spikes” at the six-year and three-year periods may reflect the unique sampling for this s@tof firms; they all had Dun’s Marketing Identifier file year start dates of 1979 or 1982 as of 19114. Hence there may have been a concentration of marginal firms initiated at these two periods that is reflected in the three- and six-year hazard rates four years later. The decrzase in die hazard rate at year eight may be a reflectian of a smaller sam@e at this time.

NEW FIRM GESTATION

1

2

3

4

5

6

7

415

6

Years Since First Event(s) FIGURE 4

Hazard rates by type of start-up event.

related to different measures of new firm birth. Date of first sales, as a convenient, easily remembered event common to all firms that are involved in the economy, may be the optimal choice as a new firm birthdate. It can be considered a key indicator that a new business organization is taking an active role in the economy.

IMPLICATIONS FOR RESEARCH Procedures for identifying new firms at different stages of the gestation process remains one of the major problems to be confronted by researchers. The analysis developed above suggests dividing this problem into two parts: sampling the conception of new firms and sampling new firms at birth. If the first formal relationship with an external economic actor is considered the birthdate of a new firm, any number of strategies can be used to provide an estimate of the total universe of business entities. This may include the use of commercial lists developed for marketing purposes (such as the Dun’s Market Identifier, DMI), credit rating files, unemployment insurance tax records, bank records, sales tax payments, phone book listings, association membership lists, etc. The problems and comparisons arc discussed at some

416

P. REYNOLDS

AND B. MILLER

length in other sources in the literature (Aldrich et al. 1989; Birley 1984; Katz 1989). While no list is perfect, they are better than nothing (e.g., haphazard samples of convenience). For some, such as the DMI, the problems in coverage and inaccuracies are becoming well known and can be compensated for (Birch and McCracken 1983; Reynolds et al. 1985). The cost and complications of purchasing and verifying a list from a commercial credit rating firm or government agency should not be underestimated. Much more complex is the problem of identifying new firms at conception. The most common first events appear to be the personal commitment of one or more start-up team members, but this follows more tentative, informal activity: speculation regarding a new firm start-up. Conception may be considered as taking place when the “entrepreneurial gleam in the eye” begins to appear. As such, conception is unlikely to be systematically recorded in any listing, public or private, or have any obvious physical manifestation such as a sign on a door or a postal address. One straightforward procedure is to utilize surveys to identify those considering or actually involved in the conception (start-up) of a new firm. The widespread availability of general purpose surveys of adults, generally based on random selections of households and adults within the household, makes this a relatively inexpensive proposition. Such an effort was undertaken on a pilot basis in Minnesota by Knudsen and McTavish (1988a, 1988b). In a fall 1987 household survey of Minnesota, 13% of adults said they were seriously considering participating in a new firm start-up. A follow-up completed within a year found that 25% of the 13% had taken steps to start a new firm. Hence, one in 30 (3%) of a representative sample of adults were activity involved in starting a new economic entity in a single year. As only a few minutes (two pages of simple questions) are needed in an omnibus phone interview schedule to identify these adults, this is a relatively economical way of identifying new firms at conception-when the participants are beginning to take the first steps to create a new firm. For example, a household survey of 3,000 adults would generate a sample of those starting a new firm of about 90, certainly adequate for many types of analysis. Costs may be further reduced by asking each respondent if they know of anybody planning or involved in a new firm start-up, substantially reducing the cost of locating a representative sample of those involved in the gestation process (Sudman et al. 1988). While the costs may seem high, when computed for each “firm in gestation” included in the sample, the procedures are technically feasible and the research may be justified by the importance of the issue.

SlJhlMARY AND IMPLICATIONS This analysis suggests that the lack of consensus on the nature of the new firm gestation or start-up process may reflect its substantial diversity. Data from three representative samples of established new firms indicate that the nature of gestation events, their sequence, and the length of the gestation process are all subject to substantial variation. The most important implication is the importance of separating the founding process into two parts. The gestation period, from conception to birth, should be treated separately from the post-birth period. While no strategy for identifying and tracking infant new firms, after birth, is optimal for all purposes, there is some consensus on the major issues and the advantages of the different procedures. Procedures for research on the gestation process, which would involve identifying new firms at conception and tracking the nature of and inter-relationship of critical gestation events, are still largely undeveloped. Given the possibility that a large proportion of new

NEW FIRM GESTATION

417

firm conceptions do not lead to new business entities, there is reason to suspect that analysis based on firms that do reach birth, such as those above, may not be representative of all firms conceived. One strategy for studying new firm conception is to identify, from surveys of typical adults, those taking actions to initiate new firms. Many local, state, and federal programs designed to encourage entrepreneurship have been established. This analysis suggests that such programs might be modified depending upon that stage of the founding processes to be emphasized. If entrepreneurship is being developed as alternatives for underutilized individuals, they are more likely to be successful if oriented toward individuals considering career options. Such programs should probably emphasize the basics of planning a new business (marketing, financing, selecting locations, management, and human relations). In contrast, public programs designed to assist new firms as a source of new jobs, sales, and out-of-region exports may be more effective if they focus on those entities already in place; those that have completed gestation and are “born.”

REFERENCES Aldrich, H.E., Kallenberg, A. Marsden, P. and Cassell, J. 1989. In pursuit of evidence: Sampling procedures for locating new businesses. Journal of Business Venturing 4:367-386. Birch D.L. and McCracken, S. 1983. The Small Business Share of Job Creation: Lessons Learned from the Use of a Longitudinal File. Cambridge, MA: MIT Program on Neighborhood and Regional Change, Mimeo. Birley, S. 1984. Finding the new firm. Proceedings of the Academy of Management Meetings 47:6468. Katz, J. 1989. Penurious strategies for parsimonious research: Little guy alternatives for “big-buck” research. Journal of Business Venturing 4:361-366. Katz J. and Gartner, W.B. 1988. Properties of emerging organizations. Academy of Management Review. 13(3):429-441. Knudsen, K.R. and McTavish, D.G. 1988a. Interest in Venturing in Minnesota. Duluth, MN: University of Minnesota, School of Business Economics, Bureau of Business and Economic Research, Working Paper No. 88-19. Knudsen, K.R. and McTavish, D.G. 1988b. Venturing: The Search for the High Potential Entrepreneur. Duluth, MN: University of Minnesota, School of Business Economics, Bureau of Business and Economic Research, Working Paper No. 88-21. Reynolds, P.D. and Freeman, S. 1987. 1986 Pennsylvania New Firm Survey. Washington, DC: Appalachia Regional Commission. Reynolds, P.D. and Miller, B. 1988. 1987Minnesota New Firm Survey. Minneapolis, of Minnesota, Center for Urban and Regional Affairs.

MN: University

Reynolds, P.D., West, S. and Finch M. 1985. Estimating new firms and new jobs: Considerations in using the Dun and Bradstreet files. J.A. Homaday et al., eds., Frontiers of Entrepreneurship Research--1985. Wellesley, MA: Babson College, pp. 383-399. Sudman, S., Sirken, M.G., 240:91-996.

Whetten, D.A.

and Cowan, C.D. 1988. Sampling rare and elusive populations.

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growth

and decline

processes.

Science

Annual Review of Sociology