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Start-up Actions and Outcomes: What Entrepreneurs Do to Reach Profitability

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  • Reynolds, Paul D.

Abstract

Globally, hundreds of millions enter the firm creation process every year. About a third will actually develop a profitable new firm. Understanding how these successful efforts reach initial profits has been a major challenge for entrepreneurial scholars. A recently developed research protocol has involved systematic collection of data on the start-up activities of representative samples of nascent ventures and tracking their outcomes; a number of Panel Study of Entrepreneurial Dynamics [PSED] projects have been completed. Assembling data from five PSED cohorts in four countries has allowed for attention to the effect of start-up activities on the outcomes of a harmonized sample of 2,500 nascent ventures. There is no difference in outcomes related to the gender of the nascent entrepreneur, a small effect associated with age, and modest impacts associated with educational attainment, work history, and experience with other start-up initiatives. There is a systematic country effect; the U.S. has a lower proportion of profitable new firms than Australia, China, or Sweden. Many aspects of the start-up effort are related to the outcomes. A greater range of start-up activities early in the start-up process is associated with profitability, less terminations, and fewer with a long tenure in the start-up process. Activities emphasizing promotion of the nascent venture, assembling a firm infrastructure, and implementing a production process are associated with initial profitability and fewer terminations. Business planning increases the tendency to quit and reduces the proportion active in the start-up process. It may reduce the time to reach disengagement. Implementing of promotion, infrastructure development, and establishing a production process also reduces the time to reach initial profits. The results have implications for both aspiring entrepreneurs and policy development.

Suggested Citation

  • Reynolds, Paul D., 2016. "Start-up Actions and Outcomes: What Entrepreneurs Do to Reach Profitability," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 12(6), pages 443-559, December.
    • Handle: RePEc:now:fntent:0300000071
    DOI: 10.1561/0300000071
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    References listed on IDEAS

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    1. Susan Mueller & Thierry Volery & Björn von Siemens, 2012. "What Do Entrepreneurs Actually Do? An Observational Study of Entrepreneurs’ Everyday Behavior in the Start–Up and Growth Stages," Entrepreneurship Theory and Practice, , vol. 36(5), pages 995-1017, September.
    2. Reynolds, Paul D., 2012. "Entrepreneurship in Developing Economies: The Bottom Billions and Business Creation," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 8(3), pages 141-277, July.
    3. Yang, Tiantian & Aldrich, Howard E., 2012. "Out of sight but not out of mind: Why failure to account for left truncation biases research on failure rates," Journal of Business Venturing, Elsevier, vol. 27(4), pages 477-492.
    4. C. Praag & Peter Versloot, 2007. "What is the value of entrepreneurship? A review of recent research," Small Business Economics, Springer, vol. 29(4), pages 351-382, December.
    5. Paul D. Reynolds & Nancy M. Carter & William B. Gartner & Patricia G. Greene, 2004. "The Prevalence of Nascent Entrepreneurs in the United States: Evidence from the Panel Study of Entrepreneurial Dynamics," Small Business Economics, Springer, vol. 23(4), pages 263-284, November.
    6. Claudia B. Schoonhoven & M. Diane Burton & Paul D. Reynolds, 2009. "Reconceiving the Gestation Window: The Consequences of Competing Definitions of Firm Conception and Birth," International Studies in Entrepreneurship, in: Richard T. Curtin & Paul D. Reynolds (ed.), New Firm Creation in the United States, chapter 0, pages 219-237, Springer.
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    Cited by:

    1. Li-Min Chuang & Cheng-Chung Yeh & Chung-Wei Lin, 2019. "Applying the self-organizing maps to analyze and interpret the clustering and characteristics of nascent entrepreneurs: A cross-country study," Business & Entrepreneurship Journal, SCIENPRESS Ltd, vol. 8(1), pages 1-3.
    2. Per Davidsson & Jan Henrik Gruenhagen, 2021. "Fulfilling the Process Promise: A Review and Agenda for New Venture Creation Process Research," Entrepreneurship Theory and Practice, , vol. 45(5), pages 1083-1118, September.
    3. Shahid, Pirzada Syed Rizwan, 2023. "Founder's Human Capital and the Entrepreneurial Process Duration," OSF Preprints yf6mg, Center for Open Science.
    4. Shim, Jaehu & Davidsson, Per, 2018. "Shorter than we thought: The duration of venture creation processes," Journal of Business Venturing Insights, Elsevier, vol. 9(C), pages 10-16.
    5. Kim Klyver & Benson Honig & Paul Steffens, 2018. "Social support timing and persistence in nascent entrepreneurship: exploring when instrumental and emotional support is most effective," Small Business Economics, Springer, vol. 51(3), pages 709-734, October.
    6. Susan Müller & Alyssa Lara Kirst & Heiko Bergmann & Barbara Bird, 2023. "Entrepreneurs’ actions and venture success: a structured literature review and suggestions for future research," Small Business Economics, Springer, vol. 60(1), pages 199-226, January.
    7. Shashi Bhushan Kumar & Nandan Sudarsanam, 2022. "A Decision-Making Framework for Entrepreneurial Venture in Emerging Economies," International Journal of Global Business and Competitiveness, Springer, vol. 17(1), pages 11-23, June.
    8. Maresch, Daniela & Leo, Hannes & Walsh, Steven T., 2023. "Hotspurs in, sober bores out: A call and an agenda for entrepreneurship and innovation policies that foster rapidly scaling ventures," Technological Forecasting and Social Change, Elsevier, vol. 196(C).
    9. Arenius, Pia & Engel, Yuval & Klyver, Kim, 2017. "No particular action needed? A necessary condition analysis of gestation activities and firm emergence," Journal of Business Venturing Insights, Elsevier, vol. 8(C), pages 87-92.

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    More about this item

    Keywords

    Firm creation; PSED; Nascent entrepreneurship; Business planning;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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