Skip to main content

Advertisement

SpringerLink
Log in

Founders’ human capital and the performance of UK new technology based firms

  • Published:
Small Business Economics Aims and scope Submit manuscript

Abstract

This paper investigates the role of entrepreneurs’ general and specific human capital on the performance of UK new technology based firms using a resource based approach to the entrepreneurship theory. The effect of entrepreneurial human capital on the performance of NTBFs is investigated using data derived from a survey of 412 firms operating in both high-tech manufacturing and the services sectors. According to the resource based theory it is found that specific human capital is more important for the performance of NTBFs in relation to general. More specifically individual entrepreneurs or entrepreneurial teams with high levels of formal business education, commercial, managerial or same sector experience are found to have created better performing NTBFs. Finally it is found that the performance of a NTBF can improve through the combination of heterogeneous but complementary skills, including, for example, technical education and commercial experience or managerial technical and managerial commercial experience.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

Notes

  1. NTBFs can be created by both lone entrepreneurs but also by entrepreneurial founding teams (hereafter EFTs). Entrepreneurs and EFTs are defined in this paper as those individuals who own part of a firm’s equity and are responsible for making strategic decisions at the time of the founding (Ucbasaran et al. 2003).

  2. For example, education and experience and the level of investment that has been made on each one of these.

  3. Especially if it is measured in years of general experience which can be highly correlated with age.

  4. The latest study examining the performance of firms located in science parks in the UK was performed by Siegel et al. (2003) and is a review of the results of previous studies. In general, firms that were located in science parks were not found to perform better in a variety of performance measures.

  5. The latter was also compared with the Department of Trade and Industry (DTI) innovation report: ‘Competing in the global economy: The innovation challenge’ (December 2003).

  6. It was found that 76% of the sampled firms were involved in R&D activities in 2005 and that 34.6% of their expenditure was allocated to R&D activities. Moreover, 80.5% reported that they had introduced a new or significantly improved product in the market (67.1% of which were radically new to the market products) in the previous 3 years. Overall, 90% of them were either involved in R&D activities or had introduced an innovative product onto the market in the 3 years prior to 2005. The remaining companies stated that they will commence extensive R&D activities in the near future. It is believed that these results verify that sampled firms can overall be regarded as R&D-intensive companies.

  7. The author would like to thank the ONS for providing tables for each sector according to the size and age of the company.

  8. Given that 66% of UK companies have fewer than five employees and 81% have fewer than nine (ONS, 03/92), the sample was calibrated with higher weight to the larger companies in order to have a statistically representative sample of that class. The ‘other software and supply’ sector was also calibrated in order to reduce the category with 0–4 employees as it accounted for 76% of the companies in that sector. This step was performed as a large number of one-man band consultants operate in that sector, and it was not possible to identify them ex ante.

  9. Results are available from the author upon request.

  10. In order to test the robustness of the variable specifications, apart from the proportion of entrepreneurs in an EFT with technical, commercial, managerial and sector experience, dummy variables on whether each of the above types of specific experience existed in an EFT were also used. The results remained unchanged and are available upon request.

  11. In order to take into account that entrepreneurs can acquire general experience and related skills after foundation of the firm, general experience was also defined as the average number of years of general experience in an EFT up to the point of the survey rather than up to a firm’s incorporation date. Again, the results remained unchanged and are available upon request.

  12. It is acknowledged that changes in the initial EFT can occur as some team members might exit and others might enter the team (Ucbasaran et al. 2003). This possibility was taken into consideration as the survey asked for both the initial number of individuals that owned a stake of a firm’s equity and were responsible for making strategic decisions at its formation and the number of those individuals at the time of the survey as well as the characteristics of all members of the EFT. It was found that in 17.9% of the firms at least one member exited the EFT. In only 0.5% of the firms (2 firms) had one member entered an EFT. A dummy variable capturing the exit of team members was included as an extra control variable, and although it had the expected negative effect, it was not significant while all the other results remained unchanged. It was therefore not included in the models presented.

  13. This was actually the case in 13% of the EFTs in relation to 5% of lone entrepreneurs where technical and business education coexisted, in 16% of the EFTs in relation to 4% of lone entrepreneurs where technical education and commercial experience coexisted and, finally, managerial technical and managerial commercial experience existed only in 8% of the EFTs.

References

  • Agarwal, R. (1998). Small firm survival and technological activity. Small Business Economics, 11, 215–224.

    Article  Google Scholar 

  • Almus, M. (2002). What characterizes a fast-growing firm? Applied Economics, 34, 1497–1508.

    Article  Google Scholar 

  • Almus, M., & Nerlinger, E. (1999). Growth of new technology-based firms: Which factors matter? Small Business Economics, 13, 141–154.

    Article  Google Scholar 

  • Aspelund, A., Berg-Utby, T., & Skjevdal, R. (2005). Initial resources’ influence on new venture survival: A longitudinal study of new technology-based firms. Technovation, 25, 1337–1347.

    Article  Google Scholar 

  • Astebro, T., & Thompson, P. (2007). Entrepreneurs: Jacks of all trades or hobos? Working paper. Toronto: University of Toronto.

  • Autio, E., Kanevra, R., Kaila, M.M., & Kauranen, I. (1989). New technology-based firms in Finland. SITRA Publication Series B 101. Helsinki: SITRA.

  • Avermaete, T., Viaene, J., & Morgan, E. J. (2004). Determinants of product and process innovation in small food manufacturing firms. Trends in Food Science & Technology, 15, 474–483.

    Article  Google Scholar 

  • Barney, J. (1991). Firm resources and sustainable competitive advantage. Journal of Management, 17, 99–120.

    Article  Google Scholar 

  • Bates, T. (1985). Entrepreneur human capital endowments and minority business variability. The Journal of Human Resources, 20, 540–554.

    Article  Google Scholar 

  • Bates, T. (1990). Entrepreneur human capital inputs and small business longevity. Review of Economics and Statistics, 72, 551–559.

    Article  Google Scholar 

  • Baum, J. A., Calabrese, T., & Silverman, B. S. (2000). Don’t go it alone: Alliance network composition and startup’s performance in Canadian biotechnology. Strategic Management Journal, 21, 267–294.

    Article  Google Scholar 

  • Becker, G. S. (1964). Human capital. Chicago: University of Chicago Press.

    Google Scholar 

  • Berry, M. (1996). Technical entrepreneurship, strategic awareness and corporate transformation in small high-tech firms. Technovation, 16, 487–522.

    Article  Google Scholar 

  • Bloom, N., & Van Reenen J. (2006). Measuring and explaining management practices across firms and countries. AIM Seminar. London: AIM.

  • Boeker, W., & Karichalil, R. (2002). Entrepreneurial transitions: Factors influencing founder departure. Academy of Management Journal, 45, 818–826.

    Article  Google Scholar 

  • Bosma, N., Van Praag, M., Thurik, R., & De Wit, G. (2004). The value of human and social capital investments for the business performance of startups. Small Business Economics, 23, 227–236.

    Article  Google Scholar 

  • Bruderl, J., & Preisendorfer, P. (2000). Fast-growing businesses. International Journal of Sociology, 30, 45–70.

    Google Scholar 

  • Bruderl, J., Preisendorfer, P., & Zielger, R. (1992). Survival chances of newly founded business organizations. American Sociological Review, 57, 227–242.

    Article  Google Scholar 

  • Caldeira, M. M., & Ward, J. M. (2003). Using resource-based theory to interpret the successful adoption and the use of information systems and technology in manufacturing small and medium-sized enterprises. European Journal of Information Systems, 12, 127–141.

    Article  Google Scholar 

  • Casson, M. (2004) The future of the UK railway system. International Business Review, 13, 181–214.

    Google Scholar 

  • Casson, M. (2005). Entrepreneurship and the theory of the firm. Journal of Economic Behavior & Organization, 58, 327–348.

    Article  Google Scholar 

  • Choi, Y. R., & Shepherd, D. A. (2004). Entrepreneurs’ decisions to exploit opportunities. Journal of Management, 30, 377–395.

    Article  Google Scholar 

  • Chuang, T., Nakatani, K., Chen, J. C. H., & Huang, I. (2007a). Examining the impact of organizational and owner’s characteristics on the extent of e-commerce adoption in SMEs. International Journal of Business and Systems Research, 1, 61–80.

    Article  Google Scholar 

  • Chuang, T., Rutherford, M. W., & Binshan, L. (2007b). Owner/Manager characteristics, organizational characteristics and IT adoption in small and medium enterprises. International Journal of Management and Enterprise Development, 4, 619–634.

    Article  Google Scholar 

  • Colombo, M. G., & Delmastro, M. (2001). Technology-based entrepreneurs: Does internet make a difference. Small Business Economics, 13, 177–190.

    Article  Google Scholar 

  • Colombo, M. G., & Delmastro, M. (2002). How effective are technology incubators? Evidence from Italy. Research Policy, 31, 1103–1122.

    Article  Google Scholar 

  • Colombo, M. G., Delmastro, M., & Grilli, L. (2004). Entrepreneurs’ human capital and the start-up size of new technology based firms. International Journal of Industrial Organization, 22, 1183–1211.

    Article  Google Scholar 

  • Colombo, M. G., & Grilli, L. (2005). Founders’ human capital and the growth of new technology based firms: a competence-based view. Research Policy, 34, 795–816.

    Article  Google Scholar 

  • Cooper, A. C. (1985). The role of incubator organizations in the founding of growth oriented firms. Journal of Business Venturing, 1, 75–86.

    Article  Google Scholar 

  • Delapierre, M., Madeuf, B., & Savoy, A. (1998). NTBFs-the French case. Research Policy, 26, 989–1003.

    Article  Google Scholar 

  • Department of Trade and Industry. (2003). Innovation Report. London: DTI.

  • Donckels, R. (1989). Tech versus common starters, comparison by means of 32 case studies. Brussels: Small Business Research Institute.

    Google Scholar 

  • Edwards, T., Battisti, G., & Neely, A. (2004). Value creation and the UK economy: A review of strategic options. International Journal of Management Review, 3(4), 191–213.

    Article  Google Scholar 

  • Eisenhardt, K. M., & Schoonhoven, C. B. (1990). Organizational growth: linking founding team, strategy, environment and growth among U.S. semiconductor ventures, 1978–1988. Administrative Science Quarterly, 35, 504–529.

    Article  Google Scholar 

  • Ensley, M. D., Carland, J. C., & Carland, J. W. (2000). Investigating the existence of the lead entrepreneur. Journal of Small Business Management, 38, 59–77.

    Google Scholar 

  • Evans, D., & Westhead, P. (1996). The high technology small firm sector in the UK. International Journal of Entrepreneurial Behaviour and Research, 2, 15–35.

    Article  Google Scholar 

  • Feeser, H. R., & Willard, G. E. (1990). Founding strategy and performance: a comparison of high and low growth high tech firms. Strategic Management Journal, 11, 87–98.

    Article  Google Scholar 

  • Ferguson, R., & Olofsson, C. (2004). Science Parks and the development of NTBFs-location. Survival and Growth. Journal of Technology Transfer, 29, 5–17.

    Article  Google Scholar 

  • Galbraith, J. R. (1982). Designing the innovating organization. Organizational Dynamics, 10, 5–25.

    Article  Google Scholar 

  • Ghiselli, E. E. (1974). Some perspectives for industrial psychology. American Psychologist, 29, 80–87.

    Article  Google Scholar 

  • Gimeno, J., Folta, T., Cooper, A., & Woo, C. (1997). Survival of the fittest? Entrepreneurial human capital and the persistence of underperforming firms. Administrative Science Quarterly, 42, 750–783.

    Article  Google Scholar 

  • Haber, S., & Reichel, A. (2005) Identifying performance measures of small ventures—the case of the tourism industry. Journal of Small Business Management, 43, 257–286

    Google Scholar 

  • Haber, S., & Reichel, A. (2007). The cumulative nature of the entrepreneurial process: The contribution of human capital, planning and environment resources to small venture performance. Journal of Business Venturing, 22, 119–145.

    Article  Google Scholar 

  • Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. Academy of Management Review, 9, 193–206.

    Google Scholar 

  • Harada, N. (2003). Who succeeds as an entrepreneur? An analysis of the post-entry performance of new firms in Japan. Japan and the World Economy, 15, 211–222.

    Article  Google Scholar 

  • Hills, G. E., & Shrader, R. C. (1998). Successful entrepreneurs’ insights into opportunity recognition. Frontiers of Entrepreneurship Research, Babson College. MA: Wellesley.

    Google Scholar 

  • Hindle, K., & Yencken, J. (2004). Public research commercialization, entrepreneurship and new technology based firms: an integrated model. Technovation, 24, 793–803.

    Article  Google Scholar 

  • Hyytinen, A., & Ilmakunnas, P. (2007). Entrepreneurial aspirations: Another form of job search? Small Business Economics, 29, 63–80.

    Article  Google Scholar 

  • Jo, H., & Lee, J. (1996). The relationship between an entrepreneur’s background and performance in a new venture. Technovation, 16, 161–171.

    Article  Google Scholar 

  • Kakati, M. (2003). Success criteria in high-tech new ventures. Technovation, 23, 247–257.

    Article  Google Scholar 

  • Koellinger, P. (2008). Why are some entrepreneurs more innovative than others? Small Business Economics, 31, 21–37.

    Article  Google Scholar 

  • Kor, Y. Y., & Mahoney, J. T. (2000). Penrose’s resource-based approach: The process and product of research creativity. Journal of Management Studies, 37, 109–139.

    Google Scholar 

  • Lazear, E. P. (2004). Balanced skills and entrepreneurship. American Economic Review, 94, 208–211.

    Article  Google Scholar 

  • Lazear, E. P. (2005). Entrepreneurship. Journal of Labour Economics, 23, 649–680.

    Article  Google Scholar 

  • Lee, C., Lee, K., & Pennings, J. M. (2001). Internal capabilities, external networks and performance: A study on technology-based ventures. Strategic Management Journal, 22, 615–640.

    Article  Google Scholar 

  • Licht, G., Nerlinger, E., & Berger, G. (1995). Germany: NTBF Literature Review. Mannheim: ZEW.

  • Lofsten, H., & Lindelof, P. (2005). R&D networks and product innovation patterns—academic and non-academic new technology-based firms on Science Parks. Technovation, 25, 1025–1037.

    Article  Google Scholar 

  • Lynskey, M. J. (2004). Determinants of innovative activity in Japanese technology-based start-up firms. International Small Business Journal, 22, 159–196.

    Article  Google Scholar 

  • Marino, K. E., & De Noble, A. F. (1997). Growth and early returns in technology-based manufacturing ventures. Journal of High Technology Management Research, 8, 225–242.

    Article  Google Scholar 

  • Marvel, M. R., & Lumpkin, G. T. (2007). Technology entrepreneurs human capital and its effects on innovation radicalness. Entrepreneurship Theory and Practice, 31, 807–828.

    Article  Google Scholar 

  • McGee, J. E., & Dowling, M. J. (1994). Using R&D co-operative arrangements to leverage managerial experience: A study of technology intensive new ventures. Journal of Business Venturing, 9, 33–48.

    Article  Google Scholar 

  • McGee, J. E., Dowling, M. J., & Megginson, W. L. (1995). Cooperative strategy and new venture performance—the role of business strategy and management experience. Strategic Management Journal, 16, 565–580.

    Article  Google Scholar 

  • Narver, J. C., Slater, S. F., & MacLachlan, D. L. (2004). Responsive and proactive market orientation and new-product success. Journal of Product Innovation Management, 21, 334–347.

    Article  Google Scholar 

  • Newbert, S. L., Kirchhoff, B. A., & Walsh, S. T. (2007). Defining the relationship among founding resources, strategies, and performance in technology-intensive new ventures: Evidence from the semiconductor silicon industry. Journal of Small Business Management, 45, 238–266.

    Article  Google Scholar 

  • Oakey, R. P. (1991). Innovation and the management of marketing in high technology small firms. Journal of Marketing Management, 7, 343–356.

    Article  Google Scholar 

  • Oakey, R. P. (2003). Technical entrepreneurship in high technology small firms: Some observations on the implications for management. Technovation, 23, 679–688.

    Article  Google Scholar 

  • Oakey, R. P., & Mukhtar, S. M. (1999). United Kingdom high technology small firms in theory and practice: a review of recent trends. International Journal of Small Business, 17, 48–64.

    Article  Google Scholar 

  • Oakey, R. P., Rothwell, R., & Cooper, S. (1998). The management of innovation in high technology small firms. London: Pinter.

    Google Scholar 

  • Office of National Statistics (ONS). (2002). Research and development in the UK. London: ONS.

  • Office of National Statistics (ONS). (2003). Press release (unique reference number 03/92). London: ONS.

  • Olofsson, C., & Stymne, B. (1995). The contribution of new technology-based firms to the Swedish economy: A literature survey. Stockholm and Göteborg: IMIT Report, 97, 88.

    Google Scholar 

  • Parger, T. (1995). Austria: NTBF literature review. Vienna: IFG.

    Google Scholar 

  • Park, J. S. (2005). Opportunity recognition and product innovation in entrepreneurial high-tech start-ups: A new perspective and supporting case study. Technovation, 25, 739–752.

    Article  Google Scholar 

  • Porter, M.E., & Ketels C. (2003). UK Competitiveness: Moving to the next stage. DTI Economics Paper N.3. London: DTI

  • Preisendörfer, P., & Voss, T. (1990). Organizational mortality of small firms: The effects of entrepreneurial age and human capital. Organizational Studies, 11, 107–129.

    Article  Google Scholar 

  • Reynolds, P. D. (1993). High performance entrepreneurship: What makes it different? Frontiers of Entrepreneurship 1993. Center for Entrepreneurial Studies Babson College: Babson Park

    Google Scholar 

  • Roberts, E. B. (1991). The technological base of the new enterprise. Research Policy, 20, 283–298.

    Article  Google Scholar 

  • Roper, S. (1998). Entrepreneurial characteristics, strategic choice and small business performance. Small Business Economics, 11, 11–24.

    Article  Google Scholar 

  • Roure, J., & Keeley, R. (1990). Predictors of success in new technology based ventures. Journal of Business Venturing, 5, 201–220.

    Article  Google Scholar 

  • Schneider, C., & Veugelers, R. (2010). On young highly innovative companies: why they matter and how (not) to policy support them. Industrial and Corporate Change, 19, 969–1007

    Google Scholar 

  • Segal Quince and Partners. (1985). The Cambridge phenomenon: The growth of high technology industry in a University Town. Cambridge: Segal Quince & Partners.

    Google Scholar 

  • Shane, S. (2000). Prior knowledge and the discovery of entrepreneurial opportunities. Organization Science, 11, 448–469.

    Article  Google Scholar 

  • Shearman, C., & Burrell, G. (1998). New technology-based firms and the emergence of new industries: Some employment implications. New Technology Work and Employment, 3, 87–99.

    Article  Google Scholar 

  • Shephard, D. A., Douglas, E. J., & Shanley, M. (2000). New venture survival: ignorance, external shocks, and risk reduction strategies. Journal of Business Venturing, 15, 393–410.

    Article  Google Scholar 

  • Siegel, D. S., Westhead, P., & Wright, M. (2003). Science parks and the performance of new technology-based firms: A review of recent U.K. evidence and an agenda for future research. Small Business Economics, 20, 177–184.

    Article  Google Scholar 

  • Silva, O. (2007). The Jack-of-all-trades entrepreneur: Innate talent or acquired skill? Economics Letters, 97, 118–223.

    Article  Google Scholar 

  • Squicciarini, M. (2009). Science Parks: Seedbeds of innovation? A duration analysis of firms patenting activity. Small Business Economics, 32, 169–190.

    Article  Google Scholar 

  • Storey, D. J. (2004). Exploring the link, among small firms, between management training and firm performance: A comparison between the UK and other OECD countries. International Journal of Human Management, 15, 112–130.

    Article  Google Scholar 

  • Storey, D. J., & Tether, B. S. (1998). Public policy measures to support new technology-based firms in the European Union. Research Policy, 26, 037–1057.

    Google Scholar 

  • Stuart, R. W., & Abetti, P. A. (1990). Impact of entrepreneurial and management experience on early performance. Journal of Business Venturing, 5, 151–162.

    Article  Google Scholar 

  • Stuart, T. E., Hoang, H., & Hybels, R. C. (1999). Interorganizational endowments and the performance of new ventures. Administrative Science Quarterly, 44, 315–349.

    Article  Google Scholar 

  • Tanriverdi, H., & Venkatraman, N. (2005). Knowledge relatedness and the performance of multibusiness firms. Strategic Management Journal, 26, 97–119.

    Article  Google Scholar 

  • Teece, D. J., & Pisano, G. (1994). The dynamic capabilities of firms: An introduction. Industrial and Corporate Change, 3, 537–556.

    Article  Google Scholar 

  • Tether, B. S. (1997). Growth Diversity amongst innovative and technology-based new and small firms: An interpretation. New Technology, Work and Employment, 12, 91–107.

    Article  Google Scholar 

  • Tether, B., & Storey, D. (1998). Smaller firms and Europe’s high technology sectors: A framework for analysis and some statistical evidence. Research Policy, 26, 947–971.

    Article  Google Scholar 

  • Ucbasaran, D., Lockett, A., Wright, M., & Westhead, P. (2003). Entrepreneurial founder teams: Factors associated with member entry and exit. Entrepreneurship Theory and Practice, 28, 107–128.

    Article  Google Scholar 

  • Ucbasaran, D., Westhead, P., & Wright, M. (2008). Opportunity identification and pursuit: Does an entrepreneurs human capital matter? Small Business Economics, 30, 153–173.

    Article  Google Scholar 

  • Van de Ven, H., Hudson, R., & Schroeder, D. (1984). Designing new business start-ups: Entrepreneurial, organizational and ecological considerations. Journal of Management, 10, 87–107.

    Google Scholar 

  • Venkataraman, S., Van de Ven, A. H., Buckeye, J., & Hudson, R. (1990). Starting up in a turbulent environment—a process model of failure among firms with high customer dependence. Journal of Business Venturing, 5, 277–295.

    Article  Google Scholar 

  • Wagner, J. (2003). Testing Lazear’s jack-of-all-trades view of entrepreneurship with German micro-data. Applied Economics Letters, 10, 687–689.

    Article  Google Scholar 

  • Wagner, J. (2006). Are nascent entrepreneurs ‘Jacks-of-all-trades?’. A test of Lazear’s theory of entrepreneurship with German data, 38, 2415–2419.

    Google Scholar 

  • Wang, Y., Lo, H., & Yang, Y. (2004). The constituents of core competencies and firm performance: Evidence from high-technology firms in china. Journal of Engineering Technology and Management, 21, 249–280.

    Article  Google Scholar 

  • West, G. P., & Noel, T. W. (2009). The impact of knowledge resources on new venture performance. Journal of Small Business Management, 47, 1–22.

    Article  Google Scholar 

  • Westhead, P., & Storey, D. J. (1994). An assessment of firms located on and off science parks in the United Kingdom. London: HMSO.

    Google Scholar 

  • Wiklund, J., Patzel, H., & Shepherd, D. A. (2009). Building an integrative model of small business growth. Small Business Economics, 32, 351–374.

    Article  Google Scholar 

  • Wilbon, A. D. (1999). An empirical investigation of technology strategy in computer software initial public offering firms. Journal of Engineering Technology and Management, 16, 147–169.

    Article  Google Scholar 

  • Zhuang, Y., & Lederer, A. L. (2006). A resource based view of electronic commerce. Information & Management, 42, 251–261.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Aston University, Birmingham, UK

    Panagiotis Ganotakis

Authors
  1. Panagiotis Ganotakis
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Panagiotis Ganotakis.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Ganotakis, P. Founders’ human capital and the performance of UK new technology based firms. Small Bus Econ 39, 495–515 (2012). https://doi.org/10.1007/s11187-010-9309-0

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11187-010-9309-0

Keywords

JEL Classifications

Search

Navigation