Gabrielsson Politis 2012
Gabrielsson Politis 2012
Gabrielsson Politis 2012
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IJEBR
18,1 Work experience and the
generation of new business ideas
among entrepreneurs
48
An integrated learning framework
Received 10 November 2010
Revised 1 July 2010
Jonas Gabrielsson
6 December 2010 CIRCLE, Lund University, Lund, Sweden and
Accepted 4 February 2011 School of Business and Engineering, Halmstad University, Halmstad,
Sweden, and
Diamanto Politis
School of Business and Engineering, Halmstad University, Halmstad, Sweden
Abstract
Purpose – This paper seeks to develop an integrated framework to examine how entrepreneurs’
work experience is associated with the generation of new business ideas. The framework combines
human capital theory with theory and research on entrepreneurial learning.
Design/methodology/approach – A statistical analysis on a sample of 291 Swedish entrepreneurs
is conducted.
Findings – The paper finds that a learning mind-set that favors exploration is the strongest predictor
of the generation of new business ideas. It also finds that breadth in functional work experience seems
to favor the generation of new business ideas while deep industry work experience is negatively
related to new business idea generation. In addition, the paper finds indications that a learning
mind-set that favors exploration is required to more fully benefit from investments in human capital.
Research limitations/implications – The study’s findings add to knowledge of how investments
in human capital via work experience, and the employment of a learning mindset that favors
exploration, influence performance outcomes in the early stages of the entrepreneurial process.
Practical implications – The study’s findings suggest that entrepreneurs should develop and
nurture a learning mind-set that favors exploration as this will increase their ability to generate more
new business ideas. Moreover, movements across different functional work areas appear to have great
potential as sources of ideas for new products and markets.
Originality/value – Prior empirical studies have not taken individual learning preferences among
entrepreneurs into account. Nor have they explicitly tested the effect of depth versus breadth in work
experience. The paper thus provides novel insights with respect to how these factors interact in the
process of generating new business ideas.
Keywords Business ideas, Ideas generation, Entrepreneurs, Experiential learning, Human capital,
Work experience
Paper type Research paper
International Journal of This work has been conducted within the Linnaeus research program “Innovation,
Entrepreneurial Behaviour entrepreneurship and knowledge creation – dynamics in globalising learning economies”,
& Research
Vol. 18 No. 1, 2012 financed by the Swedish Scientific Council. The authors are grateful for the helpful contributions
pp. 48-74 from two anonymous reviewers in the course of developing this work. They are also grateful for
q Emerald Group Publishing Limited
1355-2554
the comments received from Sofia Avdetchikova, Goya Harichi, Hans Landström and Craig
DOI 10.1108/13552551211201376 Mitchell.
Introduction Generation of
There is little disagreement among entrepreneurship scholars that the accumulated new business
work experience that enterprising individuals gain during their course of life is an
important source for the generation of new business ideas (Shane, 2000; Politis, 2005; ideas
Shepherd and DeTienne, 2005). The general explanation is that work experience
exposes individuals to personal and often unique insights into customer problems,
viable markets, product availability and competitive resources that ultimately 49
influence their ability to identify shortcomings or inefficiencies in current ways of
doing things. These insights may then trigger ideas for new or better ways of serving
customers and markets, which ideally connect to unmet needs that other individuals
and firms are willing to pay for.
The observation that work experience plays a crucial role in the process of
entrepreneurial discovery has in recent research been linked to human capital theory
explanations (e.g. Davidsson and Honig, 2003; Ucbasaran et al., 2008; Wiklund and
Shepherd, 2008). Originating from the work of Becker (1964) and Mincer (1974), this
theoretical perspective suggests that the ability to successfully engage in
entrepreneurial activities is largely a function of the education, training and
practical learning that people experience throughout their careers and professional
lives. Thus, the theory emphasizes the value of personal investments in human capital
via education and work experience for explaining performance differentials and higher
success in entrepreneurial settings.
However, although human capital theory has contributed much to our
understanding of how education and experience may lead to a higher likelihood of
entrepreneurial success (Cooper et al., 1994; Gimeno-Gascon et al., 1997), it can also be
observed that current theorizing fails to fully explain why entrepreneurs with largely
similar amounts of accumulated work experience still can show distinct differences in
terms of performance. This critique relates to research within the field of
entrepreneurial learning which emphasizes that there are differences in the extent to
which entrepreneurs have a mindset that makes them more open to learn from
exploration activities and search for variety in experience (e.g. Minniti and Bygrave,
2001; Politis, 2005), something which in turn may influence their motivation and ability
to spot and seize new business ideas. Thus, there seems to be a need to acknowledge
that entrepreneurs differ not only in terms of their accumulated work experience but
also in terms of preferences for learning (Politis, 2005), and that a combination of these
two dimensions can better explain performance differentials.
To address this observed research gap and further advance our scholarly
knowledge in the field, we will in this study build an integrated framework to examine
the role of work experience for the generation of new business ideas among
entrepreneurs. In the framework we combine insights from human capital theory
(Becker, 1964; Mincer, 1974), especially as it has been applied to the entrepreneurship
domain (e.g. Davidsson and Honig, 2003; Ucbasaran et al., 2008; Wiklund and
Shepherd, 2008), with theory and research on entrepreneurial learning (e.g. Minniti and
Bygrave, 2001; Politis, 2005). Based on our framework we develop hypotheses
concerning how entrepreneurs can be expected to benefit from investments in human
capital via work experience, and how this may be influenced by individual differences
among entrepreneurs in their preferred way of learning from experience. Our
IJEBR hypotheses are tested on a sample of 291 Swedish entrepreneurs that started a new
18,1 independent firm between 1998 and 2002.
The study makes three important contributions. First, we present an integrated
framework for understanding how entrepreneurs’ work experience is associated with
the generation of new business ideas, by combining human capital theory with theory
and research on entrepreneurial learning. This combination is a novel approach that
50 responds to recent calls in entrepreneurship research emphasizing the need to focus on
the role of knowledge and the acquisition and processing of information in the early
stages of the entrepreneurial process (Corbett, 2007; Dimov, 2007; Westhead et al.,
2005). Second, we make an analysis of various sources of work experience on business
idea generation, thus differentiating not only between industry-level and firm-level
influences (Shane, 2003) but also whether the entrepreneur has more of a specialist or a
generalist career path. This differentiation provides a more fine-grained analysis of
work experience than usually is applied in entrepreneurship research, where we
acknowledge that the career trajectory of entrepreneurs can vary both in depth and in
breadth (Marvel and Lumpkin, 2007). Third, we examine the effect that a learning
mindset that favors exploration (Minniti and Bygrave, 2001; Politis, 2005) has on the
generation of new business ideas, thereby advancing our scholarly knowledge of how
accumulated work experience and individual learning preferences interact in the
entrepreneurial process.
The rest of the paper proceeds as follows. The next section presents a literature
review where we discuss the generation of business ideas based on investments in
human capital via different kinds of work experience, and how this process can be
expected to be influenced by entrepreneurs’ preferred way of learning from experience.
Thereafter follows the method section where we describe our sample and variables.
After this, there is a section presenting the results. This is followed by a discussion of
the results in relation to theory and research on the generation of business ideas. The
study ends with a concluding section.
Literature review
Entrepreneurship and the generation of new business ideas
Shane and Venkataraman (2000) describe entrepreneurship as the process through
which future goods and services come to be in existence. Past research (e.g. Bhave,
1994; Ardichvili et al., 2003; Klofsten, 2005) suggests that this process starts with the
initial perception of an opportunity for recombining resources on the market, and
where a new business idea eventually develops as the entrepreneur shapes these
elemental insights into an emerging business concept that he or she thinks will yield
future profit. The generation of new business ideas can in this respect be seen as an
important part of the entrepreneurial process, where entrepreneurs – based on their
ability to identify and anticipate unmet customer needs (i.e. opportunities for
entrepreneurial profit) – can come up with and offer solutions in the form of emerging
ideas for new potential business ventures.
Even if a business idea forms the basis for a new potential business venture, it
should be acknowledged that this can be in a more or less developed state. A highly
developed business idea encompasses a representation of the whole business in terms
of its market niche, its production system and its organization (Klofsten, 2005;
Davidsson, 2006), thus basically describing a model of how the business is supposed to
work, what will be offered at the market, and how the business intends to make money. Generation of
However, before reaching this stage of development the entrepreneurial process often new business
starts with one or more diffuse ideas of how to meet customer needs, which
subsequently emerge and develop into a basic understanding of what the future ideas
business venture will offer. The generation of a new business idea can thus largely be
understood as a development process (Ardichvili et al., 2003) where the idea can be
elaborated and subsequently refined during its path of development. Eventually, if not 51
terminated due to a lack of motivation, interest or other resources in developing the
idea further, the process will generally result in a reasonably well-formed business idea
which the entrepreneur judges to have some possibility of success (Jones and Holt,
2008)[1].
This was based on earlier work by Stuart and Abetti (1990), McGee et al. (1995), and
Entrialgo (2002). Thereafter, we reviewed past entrepreneurship research that has
applied human capital theory, for guidance on how to measure the depth and breadth
of respondents’ industry and functional work experience. In this endeavor we found
that work experience often has been measured by numbers of years of professional
work experience (e.g. Evans and Leighton, 1989; Brüderl et al., 1992; Marvel and
Lumpkin, 2007). Following this advice, deep industry experience was measured as the
longest number of years the respondent has worked in a particular industry. Likewise,
deep functional work experience was measured as the longest number of years the
respondent has worked in a particular work function.
There was, however, less guidance in the literature on how to measure experience
across different industries and work functions. Some studies have measured
entrepreneurs’ number of prior full-time jobs, or number of employers the entrepreneur
had worked for (Gimeno-Gascon et al., 1997; Marvel and Lumpkin, 2007), but this
operationalization does not fit very well in entrepreneurial settings. Instead, experience
IJEBR across different industries was measured in this study as the total number of industries
18,1 that the entrepreneur has experience from. Likewise, experience across different work
functions was measured as the total number of different work functions that the
entrepreneur has experience from.
Exploration mindset. Appropriate scales for measuring the extent to which
entrepreneurs have a learning mindset that emphasizes exploration were not available.
58 Instead, we carefully examined existing literature on both exploration theory (e.g.
March, 1991) and entrepreneurial learning (e.g. Minniti and Bygrave, 2001; Politis,
2005) in order to tap the domain of this construct and start generating a pool of
potential items. From this work we developed five items on a five-point scale, aimed to
capture the extent to which entrepreneurs have an exploration mindset. To further
validate our self-generated scale, we employed an exploratory factor analysis, which
showed that all items loaded strongly on a single factor explaining 45.7 percent of the
variance and with an eigenvalue of 2.29. Cronbach’s alpha (a) for this construct was
0.69 and the item-to-total correlations were between r ¼ 0.55 and r ¼ 0.78. The five
items are presented together with the results from the factor analysis in the Appendix.
Control variables. We included three control variables in our research model that are
in line with arguments in human capital theory and research on experiential learning.
First, we include a measure of respondents’ formal educational experience, as this can
facilitate the integration and accumulation of new knowledge and thereby provide
entrepreneurs with improved information-processing skills, a higher capacity to access
and assess firm-specific information, and a larger opportunity set (Davidsson and
Honig, 2003). To measure this variable, we asked the respondents to indicate the total
number of years from which they have formal educational experience. In the sample, 12
percent of the entrepreneurs had compulsory school education (7 or 9 years) as their
highest educational level, 33.7 percent had education also from senior high school, and
50.8 percent experience from higher education (university studies).
In addition, we included a binary variable related to whether the entrepreneurs have
past experience from starting up another firm, which can be seen as a proxy for their
amount of specific human capital that can assist them in new entrepreneurial
undertakings (Davidsson and Honig, 2003; Ucbasaran et al., 2006; Politis, 2008). The
data show that the majority of the entrepreneurs in our sample (69 percent) have
multiple start-up experience, and thus can be labeled “habitual entrepreneurs”
(Westhead and Wright, 1998). The average number of start-ups per respondent
(including their current firm) is 2.5, with min ¼ 1, and max ¼ 15.
Finally, we included a binary variable related to whether the respondents currently
are operating their firms in a service industry. Industries in the service sector have
been the fastest-growing in the Swedish economy in the past decade, and this
industry-level growth can thus be expected to represent larger levels of opportunity
present in these industries (Shane, 2003). These industries were identified according to
the classification of service industries made by the Swedish Standard Industrial
Classification[3].
Table I.
IJEBR
correlations
Descriptive statistics and
Variables
1 2 3 4 5 6 7 8 9 Means SD
Control
1 Higher educational experience 0.15 * 0.14 * 0.12 þ 0.13 *
Habitual entrepreneurship experience 0.17 * * 0.10 0.08 0.08
Service industry 20.03 20.02 20.02 20.03
Independent
2 Deep industry work experience – 20.16 * 20.12 þ 20.16 *
Deep functional work experience – 0.04 0.01 0.04
Cross industry work experience – 0.08 0.03 20.02
Cross functional work experience – 0.19 * * 0.13 * 0.14 *
Moderator
3 Exploration mindset – – 0.24 * * 0.25 * *
Interactions
4. Exploration £ deep industry work experience – – – 20.11
Exploration £ deep functional work experience – – – 0.13 þ
Exploration £ cross industry work experience – – – 0.12 þ
Exploration £ cross functional work experience – – – 20.07
– – – 0.08
R2 0.05 0.12 0.17 0.19
Adj R 2 0.04 0.10 0.14 0.16
D Adj R 2 – 0.06 * 0.04 * 0.02 *
F (sign) 4.7 * * 5.0 * * 6.5 * * 5.1 * *
Notes: The table reports b (partial standardized coefficients), R 2, adjusted R 2, and significance levels Table II.
+p , 0.10, *p , 0.05, and * *p , 0.01 Regression analysis
IJEBR Models with independent effects. The control variables were first entered in an initial
18,1 model which is reported as “control” in Table II. As can be seen in the table, the model
is significant but does not explain a large share of the variance in the dependent
variable. Next, we enter the independent variables related to depth and breadth in
industry and functional work experience. The results are reported as step 2 in the
“independent” columns in Table II. The resulting model has a significant contribution
62 compared to the initial model, with an adj. R 2-change of 0.06, p , 0.01. Within this
model we can see that deeper experience from a particular industry is negatively
associated with a higher number of new business ideas, at p , 0.05. Although
significant, it is contrary to what we expected, and H1 is thus not supported.
Furthermore, we cannot find any significant association between either deeper
experience from a particular work function or experience across different industries
and a higher number of new business ideas in the model. Neither H2 nor H3 is thus
supported. However, experience across different work functions is associated with a
higher number of new business ideas, at p , 0.01. Thus, we find support for H4 in our
model.
Thereafter, we introduce the exploration mindset variable to examine its
independent effect. The results are reported as step 3 in the “moderator” column in
Table II. The results indicate that the number of reported new business ideas is
significantly higher for individuals who have a higher exploration mindset, with an
adj. R 2-change in the model of 0.04, p , 0.01. In sum, these findings suggest that a
learning mindset which emphasizes exploration has a strong and direct influence on
the generation of new business ideas, regardless of entrepreneurs’ previous amount of
work experience. Thus, we find support for H5 in our model.
The full model including interaction effects. The full model including interaction
effects is reported as step 4 in the “interaction” column in Table II, and it includes both
independent and moderating variables. In short, an interaction effect exists if the
interaction term gives a contribution over and above the independent effects model
(Aiken and West, 1991; Cohen and Cohen, 1983). As can be seen in Table II, the
addition of the new interaction variables increases adj. R 2 from 0.14 to 0.16[6] and the
increase is statistically significant at p , 0.01, which suggests an interaction effect. A
closer look reveals that the interaction effect has a weak but significant positive
association between deeper experience from both a particular work function, as well as
experience across different industries, and a higher number of new business ideas, at
p , 0.10. These findings partly support the overall assumption emphasized in H6 that
a learning mindset which favors exploration moderates the association between work
experience and the number of reported new business ideas. Thus, accepting a 10
percent level of significance, the findings suggest that H6b and H6c are supported
while we find no support for H6a and H6d.
To further examine the nature of the observed interaction effects, we followed the
procedures outlined by Aiken and West (1991) by calculating the high and low points
for each of the variables (plus and minus one standard deviation from their mean) and
then crossing these levels to graph the interaction. The results are shown in Figure 1.
The interaction effects of exploration mindset and depth of functional work
experience on the number of business ideas is graphed in Figure 1 with two lines. The
first line represents individuals with a high exploration mindset, and the second line
represents individuals with a low exploration mindset. As can be seen, the extent to
Generation of
new business
ideas
63
Figure 1.
Interaction of exploration
mindset and depth in
functional work
experience on the number
of business ideas
Figure 2.
Interaction of exploration
mindset and breadth in
industry work experience
on the number of business
ideas
IJEBR we can see that the extent to which respondents have an exploration mindset has an
18,1 interaction effect on the amount of breadth in industry work experience within the
context of the number of reported business ideas. Simply stated, individuals with
higher experience across different industries report a higher number of new business
ideas if they also have a higher exploration mindset.
Industry level work Negative direct effect irrespective Positive effect if entrepreneur
experience of learning mindset employs a learning mindset that Table III.
favors exploration The intersection of career
Firm level business Positive effect if entrepreneur Positive direct effect irrespective of path and type of work
function experience employs a learning mindset that learning mindset experience: effects on
favors exploration business idea generation
IJEBR Implications for practice
18,1 When it comes to practical implications our findings speak in favor of developing and
nurturing an explorative learning mindset for the successful pursuit of an
entrepreneurial career. This recommendation relates both to entrepreneurs who
self-manage their own careers as well as to course organizers who want to support the
development of an entrepreneurial mindset among students in the curriculum. Our
68 findings also suggest that movements across different functional work areas have
great potential as sources of ideas for new products and markets. Individuals who aim
for an entrepreneurial career should consequently aim for a “generalist” career path by
favoring more project-oriented work situations, rather than trying to become experts in
a particular industry or functional work area. The knowledge gained from such
experiences may in turn favor the generation of new business ideas. This
recommendation relates both to individuals who start up their own firms and to
managers working with corporate entrepreneurship and innovation.
Concluding remarks
To conclude, the aim of this study was to develop an integrated framework to examine
how entrepreneurs’ work experience is associated with the generation of new business
ideas. On the aggregate our findings seemingly contribute to a greater understanding
of how work experience and individual learning preferences interact in the process of
generating new business ideas. Based on these contributions, we believe that our study
provides an important step in research that seeks to understand how variations in
work experience and individual learning preferences influence performance outcomes
in the early stages of the entrepreneurial process.
Notes
1. At this point we want to emphasize that we do not mean that a developed business idea
means that the idea will be fully viable and lead to a profitable and successful start-up.
Business ideas are primarily cognitive outcomes created in the minds of prospective
entrepreneurs, and they may therefore not necessarily correctly reflect external conditions,
such as customer demand or the availability and cost of needed resources. For an extended
discussion of this issue, see for example Davidsson (2006, p. 233).
2. We are aware that human capital theory acknowledges the value of both depth and breadth
in work experience for the development of human capital (Becker, 1964). However, this
original conjecture is related to increases in wage earnings and may thus not be directly
applicable to studies of entrepreneurial discovery.
3. These include hotel and catering trade, transportation, storage and communication,
financing, real estate and rental service, consulting and other business services, public
administration and defense, compulsory social insurance, education, health and medical
service, veterinary and other social and personal services.
4. The rule-of-thumb says that a value between 1 and 3 is acceptable (Field, 2005).
5. A Type I error is to incorrectly reject the null hypothesis of no effect, while a Type II error is
to falsely not reject the null hypothesis.
6. The adj. R 2 value in the final statistical model suggests that we can explain 16 percent of the
variance in our dependent variable. This can be seen as satisfactory since we are focusing on
a focused set of variables that relate to human capital reasoning and theory and research on
entrepreneurial learning, rather than an all-encompassing framework that seeks to
incorporate all possible influences on entrepreneurs’ ability to generate new business ideas.
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Appendix
Industries according to the Swedish Standard Industrial Classification (SNI2002)
.
Agriculture, hunting and forestry.
.
Fishing.
.
Winning of mineral.
.
Manufacturing.
.
Electricity, gas, heating- and water supply.
.
Construction.
.
Wholesale- and retail trade.
.
Hotel- and catering trade.
. Transportation, storage and communication.
.
Financing.
.
Real estate- and rental service, consulting and other business services.
.
Public administration and defense, compulsory social insurance.
.
Education.
.
Health and medical service, veterinary.
.
Other social and personal services.
IJEBR
Items * Exploration * *
18,1
I prefer to use experimentation as a learning technique 0.72
To learn things it is important that I try to think in new ways 0.69
I prefer to explore new fields rather than repeating old ones 0.77
I prefer to use experimentation as a learning technique 0.56
74 I very much like to be in fields where I have not been before 0.79
I associate learning with search for new information 0.53
Eigenvalue 2.29
Percentage of variance explained 45.7
Table AI. Cronbach’s alpha 0.69
Factor analysis of items
employed in the Notes: *Items follow a five-point scale (1=very low emphasis vs 5=very high emphasis); * *Absolute
exploration variable loadings of 0.50 or higher are significant
Corresponding author
Jonas Gabrielsson can be contacted at: [email protected]