Knowledge, innovation and entrepreneurship: business plans, capital, technology and growth of new ventures in Austin, Texas

Abstract

This study addresses the themes of knowledge, innovation and entrepreneurship, all of them key factors that contribute to the development and growth of new ventures. The study focuses specifically on the impacts of business plans, initial sources of capital, and technology on the patterns of growth and development of a group of new ventures in Austin, Texas from 1990 to 2003. For the most part, these new ventures were in the early stages of their respective lifecycles and were analyzed through their stages of survival, growth, or demise. The enterprises conducted operations during a period that witnessed rapid business growth, and culminated through the rise and fall of the Dot-Com Bubble. The relationships among their initial sources of capital, business plans, technology, and growth were collectively analyzed both quantitatively and qualitatively. The research involved a questionnaire survey of more than seventy-five Austin software enterprises. Additionally, in-depth interviews were conducted with seven key entrepreneurs and two venture capital investors. This study uses the Resource-Based View, and it categorizes styles of entrepreneurship, according to their initial sources of capital, into three major groups: self-funded, venture capital (VC) funded and corporation funded. The findings demonstrate that the initial sources of capital significantly impact the selected styles of business plans. 50% of VC funded ventures, as opposed to 15% of selffunded ventures, started with formal business plans. Ninety percent of VC funded ventures that started with a formal business plan, however, used those plans for external communication with the third parties, essentially for funding purposes. One-year after startup, 55% of the VC funded ventures had developed formal business plans while 45% of them still followed informal business plans. One year after startup, among the selffunded ventures, only 20% of them developed formal business plans while 80% of them followed informal, but adaptive, business plans. Only three ventures, out of the total sample group of seventy-five, started with patented technologies, but more than thirteen eventually registered patented technologies. An analysis of the role of patented technologies in the process of venture development suggests that new technology assumes a more critical role in the latter stages of enterprise development than it does during the initial stages. Patents, accordingly, appear to be more a result of growth rather than a basis for growth. The overall rate of growth of VC funded ventures was about twice that of selffunded ventures. Self-funded ventures often proceed cautiously and try to grow in accordance with their limited resources in an evolutionary fashion. VC funded ventures may follow more ambitious patterns of growth, depending on the amount of initial capital at their disposal, but the presence of capital does not guarantee long-term sustainability. The study concludes that formal business plans are used mostly as communication tools with external sources of capital and do not necessarily serve to guide operations. Formal business plans are, however, distinct from the process of business planning. The latter tends to be a creative, complex, and on-going attempt to envision potential courses of action for the development of enterprises, and is relatively unique for each case.