Entrepreneur7 TIPS FROM NEW START-UPS
Danish
Graduates
can grow
Start-ups!- But can they start one?
+Boost your
Marketing 2.0
Editor In Chief: Flemming
Bahner
Journal of Economics and
Business Administration
Volume 2,
Roskilde University,
Spring Issue of 2013
Executive Editors:
Kirsten Dickow: 40578,
Jasmine Løgager: 45634,
& Agnieszka Beierholm
Madsen: 48627
Breaking News! UNEMPLOYED
GRADUATE
VS. SELF-EMPLOYED
GRADUATE
...............................
The
Guide to
Networking
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Abstract Danish Graduates can Grow Start-ups! – But can they start one?
Entrepreneurship is widely recognised as an important part of stimulating economic growth,
and following the economic downturn, which is pushing graduates into unemployment, high-
growth entrepreneurs are highly sought after. Therefore, this project will seek to answer the
problem formulation;
HOW CAN DANISH GRADUATES SUCCESSFULLY GROW THEIR START-UP COMPANIES?
Based on seven interviews with graduates, who have all started their own company, and a
critical examination of theoretical literature, four themes were identified: entrepreneurship,
organisational life cycle, marketing, and networking. The analysis uncovered that graduates
can use entrepreneurial spirit, marketing, and networking in growing the start-up company,
and need to overcome different challenges depending on the organisational life cycle stage.
Moreover, the discussion highlights how the educational system trains graduates to follow a
specific mindset, which inhibits the entrepreneurial process. The project concludes that the
graduates’ qualifications to grow a start-up company increases, as the company progresses.
Key Words: Graduates, Start-up Companies, Entrepreneurship, Organisational Life Cycle,
Networking
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List of Content 1. INTRODUCTION .......................................................................................................................................... 6 1.1 PROBLEM AREA ........................................................................................................................................................... 6 1.1.1 Problem Formulation ........................................................................................................................................ 9 1.1.2 Research Questions .......................................................................................................................................... 10
1.2 DEFINITIONS .............................................................................................................................................................. 10 1.3 DELIMITATION .......................................................................................................................................................... 10 1.4 STRUCTURE AND DESIGN ........................................................................................................................................ 11
2. CASE STUDY .............................................................................................................................................. 13 3. METHODOLOGY ....................................................................................................................................... 17 3.1 RESEARCH PHILOSOPHY .......................................................................................................................................... 17 3.2 APPROACH TO RESEARCH ....................................................................................................................................... 19 3.2.1 Abduction ............................................................................................................................................................. 19 3.2.2 Case Study ............................................................................................................................................................ 20
3.3 APPROACH TO DATA ................................................................................................................................................ 20 3.3.1 Semi-‐Structured Interviews ......................................................................................................................... 21
3.3.1.1 Selection of Interviewees ........................................................................................................................................................ 21 3.3.1.2 Interview Guides ......................................................................................................................................................................... 22 3.3.1.3 Execution of Interviews ........................................................................................................................................................... 22
3.4 APPROACH TO DATA ANALYSIS ............................................................................................................................. 24 3.4.1 Qualitative Data Analysis ............................................................................................................................. 24
3.5 LIMITATION ............................................................................................................................................................... 25 3.6 RELIABILITY AND VALIDITY ................................................................................................................................... 26
4. OPERATIONALISATION OF THEORY ................................................................................................ 28 4.1 THEORY OF ENTREPRENEURSHIP .......................................................................................................................... 28 4.1.1 The Entrepreneur ............................................................................................................................................. 28 4.1.2 The Entrepreneurial Spirit ........................................................................................................................... 29 4.1.3 The Entrepreneurial Motivation ................................................................................................................ 31
4.2 ANALYSIS OF ENTREPRENEURSHIP ....................................................................................................................... 31 4.2.1 Entrepreneurial Opportunities ................................................................................................................... 32 4.2.2 Entrepreneurial Success ................................................................................................................................ 33
4.2.2.1 Entrepreneurial Spirit .............................................................................................................................................................. 34 4.2.2.2 Entrepreneurial Motivation ................................................................................................................................................... 38
4.3 SUB CONCLUSION OF ENTREPRENEURSHIP ......................................................................................................... 40 4.4 THEORY OF ORGANISATIONAL LIFE CYCLE ......................................................................................................... 42 4.4.1 Characteristics of the Organisational Life Cycle ................................................................................. 42
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4.4.2 Early Stage Finance ......................................................................................................................................... 43 4.4.3 Critique of Organisational Life Cycle Theory ....................................................................................... 46 4.4.4 The Stages in the Organisational Life Cycle ......................................................................................... 47
4.4.4.1 The Courtship Stage ................................................................................................................................................................... 48 4.4.4.2 The Infancy Stage ........................................................................................................................................................................ 49 4.4.4.3 The Go-‐Go Stage .......................................................................................................................................................................... 51
4.5 ANALYSIS OF ORGANISATIONAL LIFE CYCLE ....................................................................................................... 53 4.5.1 Infancy Stage ...................................................................................................................................................... 55
4.5.1.1 Commitment ................................................................................................................................................................................. 55 4.5.1.2 Early Stage Financing ................................................................................................................................................................ 56 4.5.1.3 Product Orientation ................................................................................................................................................................... 59
4.5.2 Go-‐Go Stage ......................................................................................................................................................... 61 4.5.3 Sum Up of Development Phases ................................................................................................................. 66 4.5.4 Stagnation Stage .............................................................................................................................................. 67
4.6 SUB CONCLUSION OF ORGANISATIONAL LIFE CYCLE ......................................................................................... 70 4.7 MARKETING ............................................................................................................................................................... 72 4.8 THEORY OF SOCIAL NETWORK AND NETWORKING ........................................................................................... 78 4.8.1 Entrepreneurial Network Theory ............................................................................................................. 78 4.8.2 Social Capital and Network ......................................................................................................................... 78 4.8.3 Advantages and Disadvantages of Networking .................................................................................. 80
4.9 ANALYSIS OF SOCIAL NETWORK AND NETWORKING ......................................................................................... 80 4.9.1 Social Capital and Networks ....................................................................................................................... 81 4.9.2 ‘Strong’ and ‘Weak’ Ties ................................................................................................................................ 82
4.10 SUB-‐CONCLUSION OF SOCIAL NETWORK AND NETWORKING ....................................................................... 85 5. DISCUSSION .............................................................................................................................................. 87 6. CONCLUSION ............................................................................................................................................. 94 7. PERSPECTIVES ......................................................................................................................................... 97 8. BIBLIOGRAPHY ........................................................................................................................................ 99 8.1 ARTICLES .................................................................................................................................................................... 99 8.2 BOOKS ...................................................................................................................................................................... 101 8.3 JOURNALS ................................................................................................................................................................ 103 8.4 REPORTS .................................................................................................................................................................. 106 8.5 WEBSITES ............................................................................................................................................................... 106
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List of Figures and Tables FIGURE 1.4.1 STRUCTURE OF PROJECT .................................................................................................................. 12
FIGURE 3.1 OUTLINE OF THE METHODOLOGY .................................................................................................... 17 TABLE 3.3.1.3.1 EXECUTION OF INTERVIEWS ..................................................................................................... 24 FIGURE 4.2.2.2.1 VARIABLES AFFECTING THE ENTREPRENEURIAL PROCESS .......................................... 39 FIGURE 4.4.2.1 FIRM CONTINUUM AND SOURCES OF FINANCE .................................................................... 44 FIGURE 4.4.4.1 ADIZES’ ORGANISATIONAL LIFE CYCLE ................................................................................ 47 TABLE 4.4.4.1.1 MAIN CHARACTERISTICS OF THE COURTSHIP STAGE ...................................................... 49 TABLE 4.4.4.2.1 MAIN CHARACTERISTICS OF THE INFANCY STAGE ........................................................... 51 TABLE 4.4.4.3.1 MAIN CHARACTERISTICS OF THE GO-GO STAGE .............................................................. 53
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1. Introduction
Prior to the current financial crisis, Denmark experienced great optimism in the financial
market (Kureer, 2010). This was partly evidenced by the very low unemployment rate, which,
in the beginning of 2008, measured 1.9% (A11). However, in September 2008, the global
financial crisis hit the Danish market, and consequently the low unemployment rate nearly
doubled and rose to 3.7% in early 2009 (A1). Four years later, the unemployment rate has
now increased to 6.6% (Danmarksstatistik, 2013), and the upsetting development is now also
reflected in the unemployment of recent graduates2, which constitutes nearly 30%
(Akademikernes Centralorganisation, 2013). As the unemployment tightens, the ongoing
debate is now focused on how to enter a sustainable period of economic growth and ensuring
employment for the Danish graduates (Rytgaard, 2010). This is of high importance, as it
currently is a waste of resources for the Danish society that well educated young people enter
straight into unemployment after completing their studies (Støjbjerg in Rytgaard, 2010).
1.1 Problem Area
Denmark, along with the rest of Europe, has seen a rise in people obtaining a higher
education3 and the financial crisis along with the growing unemployment are the most evident
explanations for this trend. Other measures, such as the current educational policy, the
business community, and the students themselves are also implicating the situation (Albrecht,
2012). Niels Rosendahl Jensen, project coordinator for ‘Volunteers for European
Employment’4, explained the educational inflation in the following manner;
“Parents want their children to have a better education than what they achieved
themselves, and the business community demands employees with higher
education. Combined, it creates inflation, which means that the highly educated
1 Reference to the files in the appendices: the number A1 indicates, which appendix is referred to. 2 Recent graduates: those who graduated within the last year (Akademikernes Centralorganisation, 2013). 3 Within this project, a higher education is defined as being a two-year graduate program to be commenced after three years of undergraduate studies. By having completed this two-year graduate program, a student will receive a Master degree that can provide one with a job in line with one’s education (Encyclopedia, 2011). 4‘Volunteers for European Employment’ is a project, funded by the European Regional Development Fund, INTERREG IVC, which seeks to improve the quality of life of people across Europe by means of learning and sharing best practice experiences with voluntary work to improve European employment (VERSO, 2012).
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pushes out the employees, who were previously considered qualified”5 (cited in
Albrecht, 2012)
Even if an academic degree is highly sought after, holding such is no longer a guarantee
against unemployment, i.e. ever since the financial crisis unfolded; the unemployment rate,
amongst graduates, has increased in all EU countries (European Commission, 2011:13). At
the same time, a growing amount of graduates is beginning to take jobs below their
qualifications in order to gain presence on the Danish labour market, which means that they
are making it much more difficult for the people who do not have a higher education
(Flensburg & Madsen, 2012). As an incentive to try and reduce this development and
stimulate economic growth, the current Danish government, i.e. The Social Democrats, The
Socialist People’s Party and The Social-Liberal Party, has proposed a political reform, which
aims to reduce the fact that around every third graduate is left for unemployment. One of the
initiatives that the political reform focuses on is the ‘entrepreneur pilot-scheme’6, which has
the aim of helping more graduates in starting their own businesses (Damgaard, 2012).
Especially counselling and financing are highly prioritised according to the Social Democratic
Innovation Spokesman Trine Bramsen;
“We know that the desire to be an entrepreneur is there and it is great. What they
lack is especially advice. We will provide students that are budding entrepreneurs
with advice and financing, in connection with the start-up businesses, up to one
year after graduation, so that the company becomes profitable”7(cited in
Damgaard, 2012)
As shown in the quote, the desire to be an entrepreneur exists, yet an increased focus on
counselling and financing is now needed to increase the favourability of becoming one,
because when it comes to recognising entrepreneurship, Denmark is excellent, still the Danish
citizens prefer having a permanent job opposed to becoming entrepreneurs themselves
(European Commission, 2010:33). In fact, 83% of the Danish population finds
entrepreneurship to be a rather favourable profession (Ibid), in spite of that only 32% would
5 Free translation of: ”Forældre har ønsket, at deres børn skulle have en bedre uddannelse end dem selv, og erhvervslivet har efterspurgt medarbejdere med højere uddannelser. Til sammen skaber det en inflation, der betyder, at de højtuddannede skubber medarbejdere ud, som tidligere blev anset for kvalificerede.” 6 Free translation of: En iværksætterpilot-ordning. 7 Free translation of: ”Vi ved, at lysten til at blive selvstændig er der, og den er stor. Det, man mangler, er især rådgivning. Vi vil give studerende med en iværksætter i maven rådgivning og finansiering i op til et år i forbindelse med opstart af egen virksomhed efter endt uddannelse, sådan at virksomheden bliver rentabel.”
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prefer to be self-employed (European Commission, 2010:13), and only 9% has actually
engaged in entrepreneurial activities (European Commission, 2010:49). Some of the
arguments toward having an employee status in contrast to being self-employed include
having a regular, fixed income as well as working hours, and stability of employment
(European Commission, 2010:18). Furthermore, some of the fears involved in starting a
business consist of going bankrupt or losing one’s property, the uncertainty of income, and
the need to devote too much energy or time to it (European Commission, 2010:72). Thus,
Denmark can appreciate the beauty of entrepreneurship – but only from a distance.
The lack of entrepreneurship in Denmark is apparent; in 2012 a meagre 17,720 new
businesses were established, which is a 7% decrease compared to 2011, and also the lowest
number of start-ups since 2003 (Sandberg, 2013). The entrepreneurial spirit in Denmark is
declining, which is a worrying development; seeing that the jobs that many need to live off in
the future will largely come from new businesses (Møller, 2012). According to Michael Dahl,
professor in entrepreneurship at Aalborg University, the worrying development is the result of
too few entrepreneurs being able to borrow the initial capital to create a business (in Møller,
2012). This is a problem, when particularly access to finance is a prerequisite to provide good
seed- and growth conditions for entrepreneurs (Erhvervsstyrelsen, 2012:6).
Another challenge also includes the ambitions of the Danish entrepreneurs. As it is now, only
a small amount of entrepreneurs is actually able to provide jobs for more than just a few
employees, which does not create the needed growth in Denmark (Møller, 2012). Essentially,
start-up companies need to create value and job positions, because only in this way can new
businesses contribute to the dynamics, enhanced competitiveness, and higher productivity
(Erhvervsstyrelsen, 2012:35). Additionally, the latest figures show that the percentage of
high-growth entrepreneurs in Denmark is at a mere 0.3%, which is among the lowest in all
OECD countries; only the United States and France have lower proportions (Ibid).
The development of entrepreneurship has important benefits, both economically as well as
socially. Entrepreneurship is not only a driving force for job creation, competitiveness, and
growth; it also contributes to personal fulfilment and the accomplishment of social objectives.
Furthermore, a variety of factors play an important role in the decision to start a business, e.g.
the existence of an opportunity or a market, financial obstacles, or the need to acquire new
skills, among others. As a result, the Danish government has had an intense focus on how to
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increase the number of entrepreneurs. The government encourages a variety of entrepreneurial
initiatives throughout the country, as a way to unlock the growth potential of both start-ups
and individuals. Thus, among the political parties in Denmark, there is a clear consensus
regarding an increased level of entrepreneurship (Hansen, 2009 & Nielsen, 2012), as being
one of the catalysts in stimulating the overall economic growth and ensuring employment for
the numerous graduates that enter straight into unemployment. Even if current statistics are
showing that an increasing amount of the younger generation, below 30, has started their own
businesses in recent years (Bloch, 2012), there is still a large need for high-growth
entrepreneurs that can create value and jobs for the Danish society.
Outlined in the problem area is a section, which shows how the current Danish labour market
impacts the number of unemployed graduates in a negative manner. Additionally,
entrepreneurship has been recognised, as being an important part of stimulating the overall
economic growth, whilst ensuring employment for the unemployed graduates. However, in
order to provide jobs for these graduates, the start-ups need to reassess their growth
ambitions, as there currently is a very low proportion of high-growth entrepreneurs in
Denmark. Thus, within this project, the authors wish to investigate what it takes for Danish
graduates to successfully grow start-up companies for themselves, and thereby implicitly
contribute to the Danish society.
Even though, the authors acknowledge that this situation, which has been explained within the
problem area, is a phenomenon that is currently happening in most parts of Europe, the
authors will only be treating the Danish conditions within this project.
1.1.1 Problem Formulation
Within this project, the authors aim to investigate the entrepreneurial path that graduates
undertake after formally establishing their start-up companies. More specifically, the project
will look into the steps needed to successfully grow a company in terms of securing market
share, creating value for society, and personal fulfilment. Therefore, this project seeks to
answer;
HOW CAN DANISH GRADUATES SUCCESSFULLY GROW THEIR START-UP COMPANIES?
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1.1.2 Research Questions
In order to answer the problem formulation, the authors have created the following research
questions. The steps needed to grow a start-up company in terms of securing market share,
creating value for society, and personal fulfilment are considered, by the authors, to be
common steps required for all entrepreneurs. Thus, the first three research questions will not
distinguish between graduates and entrepreneurs. The following research question will then
discuss the advantages and disadvantages arising from the entrepreneurs having a higher
educational degree;
1) WHICH MOTIVATIONS AND PERSONAL ABILITIES ARE NEEDED TO GROW A START-UP
COMPANY?
2) WHICH CHALLENGES DO ENTREPRENEURS FACE IN THE DIFFERENT STAGES OF GROWING
THE START-UP COMPANY?
3) HOW DOES ENTREPRENEURS CREATE AND MANAGE THEIR NETWORKS TO GROW THEIR
START-UP COMPANY?
4) WHAT ARE THE ADVANTAGES AND DISADVANTAGES FOR DANISH GRADUATES IN
GROWING THEIR START-UP COMPANY?
1.2 Definitions Graduate: Within this project, a graduate is defined as a student that attends a higher
educational institution, which is a two-year graduate program to be commenced after three
years of undergraduate studies. Furthermore, a graduate is recognised as such up to no more
than two years after getting his/her Master degree.
Start-up Company: The authors recognise a start-up company as being a newly created
business with a scalable business model. Furthermore, these companies are in a phase of
development; moving from the idea phase to securing financing while initiating operations or
trading. The authors agree with the entrepreneur and venture capitalist Paul Graham’s
definition of a start-up, which reads: “The only essential thing is growth. Everything else we
associate with startups follows from growth” (Graham, 2012).
1.3 Delimitation The focal point of this project is Danish graduates, and how they successfully can grow their
start-up companies. With this in mind, the focus is on graduates, who have started their own
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company, and the project will therefore not call attention to graduates without a start-up.
Budget and time constraints prevent collection of data outside of the geographical proximity
of Copenhagen8, thus the Danish graduates have been delimited to this geographical location.
Therefore, the sample used in this project, cannot be considered a representative sample of
Danish graduates, however the chosen strategy allows for a more detailed mapping of the
selected graduates. Considering the above mentioned, this project is treated as a pilot project.
1.4 Structure and Design Within this section, an overview of the project’s content is provided in order to help better the
understanding of what to keep in mind while reading this project. The structure of the project
is in the form of an Introduction, Case Study, Methodology, Operationalisation of Theory,
Discussion, Conclusion, and lastly Perspectives.
This project takes its point of departure in the problem area identified in the Introduction,
which will steer the direction of this project, as the purpose of this project is to answer the
stated problem formulation. The Case Study chapter follows the Introduction, and the content
of the chapter will consist of several sections that each aim to describe the state of the seven
start-ups that the authors have chosen.
The methodological concerns for this project will be presented in the Methodology chapter;
this includes the ontological stance along with an account of how the empirical data, i.e. the
interviews, have been collected and processed.
The Operationalisation of Theory introduces the Theoretical Framework, which will provide
the reader with a theoretical understanding and portrays the various ‘working tools’ that
entrepreneurs may apply to successfully grow their start-ups. Furthermore, the challenges for
entrepreneurs are introduced. The aim is to provide a sufficient understanding of the
theoretical base intended for the investigation. Following the various theoretical frameworks
the Analysis will, guided by the problem formulation and the research questions, analyse the
empirical data in reference to the theory in order to gain a greater understanding of how
entrepreneurs can successfully grow their start-ups.
Following the analysis, the Discussion will critically evaluate the advantages and
disadvantages of holding an academic degree when growing a start-up company.
8 With the exception of one graduate from Aarhus, this is further described in the chapter on data collection.
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In the overall Conclusion the authors will summarise the findings from the analyses and
discussion to portray the reflections made in relation to the stated problem formulation.
Following the project, within the Perspectives chapter, the authors will reflect upon the
choices taken throughout the research and the effects they have had on the investigation.
Other choices that could have been implemented will be discussed along with how the
investigation could be carried out further.
Figure 1.4.1 Structure of Project
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2. Case Study The case study of Danish graduates growing their own start-up companies, based on the
outline presented in the problem area, consists of seven selected case units. Each of them will
be elaborated briefly.
Shabenaa (Limited Liability Company)
Back in 2010, Nana Rytter Nielsen and her business partner Kamilla Ellerbek Shailla founded
the company Shabenaa Ltd. Both founders hold a Master degree from Roskilde University in
Business Studies and Communication, which they finished in the summer of 201l. The idea
behind Shabenaa arose from the founders’ own nuisance with razor bumps and ingrown hairs
when shaving (A3, Nana 3:389). In March 2011, Shabenaa launched its first product,
ShaveSafe, a shaving cream that effectively removes razor bumps, prevents ingrown hairs,
and beard plague (ShaveSafe, 2013a). Later, in the summer of 2012, Shabenaa launched yet
another shaving cream for sensitive skin – and more products are in the pipeline (Ibid).
Currently, ShaveSafe is only distributed in Denmark through a variety of retailers; online and
in physical stores (ShaveSafe, 2013b).
Furthermore, Shabenaa has no investors; instead they have taken a bank loan to finance their
business venture (A3, Nana 25:30), similarly loans from the families have helped to establish
a limited liability company (A3, Nana 9:58).
Health Equipment Denmark (Limited Liability Company)
In 2003, Kristian Rye Veedfald and Mads Hemdorff Petersen founded Health Equipment
Denmark (HED), a company, which is committed to creating and propagating helpful
solutions with special focus on fixating medical lines (HED, 2010a). The business came into
being when Kristian’s father, a dialysis patient, made it clear that a safer fixation of
bloodlines was needed (HED, 2010b). That same summer Østjysk Innovation became HED’s
main investor with a 25% ownership of the company (A8, Mads 5:32; FFE-YE, n.d.). In
2005, HED achieved a third place in Venture Cup and in 2006, HEDclip was launched on the
9 Reference to the audio files in the appendices: the first number A3 indicates, which appendix is referred to; the two other numbers (3:38) refer to the time where the quote is taken from.
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Danish market and soon the international market followed with distribution in 20 countries
worldwide (HED, 2010b).
While running their business, Kristian and Mads commenced their Bachelor degrees, and five
years later, in 2011, Kristian finished his Master degree in Marketing from Aarhus Business
School, whereas Mads finished his Master degree in Corporate Communication from Aarhus
University in 2012.
Currently, both founders are involved in two other start-up companies whilst running HED
(Linkedin, 2013a).
EMP Group (Private Limited Company)
EMP Group originated from a Bachelor thesis, and was founded in 2008 by four students
from Copenhagen University: Dennis Kayser, Niels Frederiksen, Jens Duelund Pallesen, and
Danny Larsen. The founders developed a web-based platform, ‘Estimation & Management
Platform’ (EMP), which can estimate the costs of IT projects (Jørgensen, 2009).
In 2009, EMP Group came in second in the Venture Cup competition and won a monetary
prize of DKK 130,000 as well as free consultancy hours (A6, Niels 48:30).
Today, all of the founders have graduated with a Master degree in the Computer Science area
while simultaneously running the business. Two of the initial founders work full time with
EMP Group, while the others have taken jobs on the side in order to stay self-propelled (A6,
Dennis 9:50), this means that EMP Group currently has no investors.
MPSOFTWARE (Limited Liability Company)
MPSOFTWARE creates programs such as phpDesigner and htmlGate, which help people to
design websites (MPSOFTWARE, 2013). MPSOFTWARE began in 1998 as a hobby project,
when Michael Pham was only 15 years old (Ibid). The company was officially founded in
2007, when Michael attended Copenhagen Business School (CBS) and it had an annual
turnover of DKK 1,000,000 (A7, Michael 13:11). Additionally, MPSOFTWARE won a third
place in the Venture Cup final in 2008 and a monetary prize of DKK 75,000, which was used
to further develop the product (CBS, 2008).
Michael later graduated with a Master degree in Business Administration and Computer
Science from CBS, and today he runs the company on the side while working full time in
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Symantec, an American software company (A7, Michael 43:45). Michael has run
MPSOFTWARE on his own since 1998 and is now very much interested in a partnership to
grow the business to its true potential (Ibid).
IconFinder (Limited Liability Company)
IconFinder is the first search engine focused on icons, and was founded by Martin LeBlanc
Eigtved in 2007 (IconFinder, 2013). In 2011, IconFinder won the Venture Cup ‘Start Up
Competition’ and Steffen Thilsted joined the company as a co-founder (A4, Martin 3:37).
Martin and Steffen have both graduated from CBS, and Martin hold a Master degree in
Business Administration and Computer Science, while Steffen graduated in Economics and
Marketing.
In 2012, Vækstfonden became an investor with a 20% ownership and invested DKK
9,000,000 (A4, Martin 8:10; 29:45). Shortly after the first investment from Vækstfonden, an
American investor also got on board, and Nick Bruun, a self-taught developer, joined the
team and became the third co-founder of IconFinder (Casper, 2012 & Bruun, 2012).
Company X (Limited Liability Company) & Company Y (Private Limited
Company)
In 2009, Daniel Nielsen established Company Y after selling his first start-up company (X)
(Linkedin, 2013b). Company X was established in 2001 along with three of Daniel’s friends
and focused on online marketing; it was later sold to Company Z in 2007 (Ibid). Daniel has a
Masters degree from CBS (Ibid).
Company Y was launched in 2010, and more than 100,000 Danish customers have signed up
to become members of the web-shop (Ibid). Another web-shop was launched in 2011, which
has been established as the leading web shop in Denmark within its field (Ibid). Daniel’s
holding company owns the majority of the shares, whereas the last of the shares belongs to
two other partners (A5a, Daniel 12:45).
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Art District (Limited Liability Company)
In 2011, Louise Fredbo-Nielsen and Tina Moe cofounded Art District; a company that is
committed to ensure that talented Danish artists can sell their art and make a living from it.
Artdistrict.dk is the online platform from which they market and sell selected artists’ creations
(Art District, 2013a).
Louise graduated from CBS in 2010 with a Master degree in International Business and
Politics (Linkedin, 2013c), whereas her experienced business partner Tina has a PhD in
chemical engineering (Art District, 2013b). Louise is the main driver behind Art District (A2,
Louise 3:50), however she just made the decision to scale down on the time she spends on the
company (A2, Louise 3:25), as she currently is involved in a variety of projects.
Furthermore, both Louise and Tina have agreed not to take any investors on, as it has been
their desire all along to be self-financed (A2, Louise 24:06).
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3. Methodology This chapter will present the methodological considerations for gathering the empirical
material. First, the research philosophy will be presented, where it addresses how the authors
understand the acquisition of knowledge and how it is treated in the analysis. Subsequently,
the authors will explain how these views affect the final conclusions. Finally, the reliability
and validity with regard to the methodological choices will be assessed. Figure 3.1 illustrates
the outline of the chapter.
Figure 3.1 Outline of the Methodology
Research Philosophy
↓
Approach to Research
↓
Approach to Data
↓
Interviews
↓
Limitation/Reliability & Validity
3.1 Research Philosophy The authors address their ontological stance towards the premises of critical realism, which is
based on primarily three reasons; these will be explained shortly. First, the problem
formulation is rooted in the context that is observable, namely the worrying development that
has taken place on the Danish labour market and the need for high-growth entrepreneurs (see
section 1.1). Secondly, the authors agree with the basic idea of critical realism, which centres
on the notion that this situation can be explained by some deeper and hidden mechanisms.
Thirdly, the authors believe – in line with critical realism – that there is a reality independent
of immediate empirical insights and knowledge surrounding it (Delanty, 2005:145). As a final
note, the choice of critical realism is related to the ability of being critical to the world and the
surrounding knowledge. Thus, a basic element of critical realism is the underlying philosophy
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that scientific work must be critical to the existing in order to contribute to an even better
society (Ibid:146).
According to Roy Bhaskar, critical realism is about the “(…) concern with discovering
generative mechanisms within an objectively existing social reality” (cited in Tan, 2010).
Further, critical realism sees that there are different layers of reality, which can be divided
into: the ‘real’, the ‘actual’, and the ‘empirical’. The ‘real’ level consists of hidden
mechanisms and structures, the ‘actual’ level consists of events produced by the hidden
mechanisms, and the ‘empirical’ level consists of observable events (Tan, 2010).
Within the project’s framework, the authors identify the current need for high-growth
entrepreneurs in Denmark, as being within the empirical level, and therefore it is the
underlying mechanisms that positively can affect the relations of this that the authors wish to
highlight. Thus, the main task of this project is an attempt to uncover some of the underlying
structures and mechanisms that can help to explain what it takes to successfully grow a start-
up company in Denmark.
As critical realism accepts the notion of hermeneutics (Delanty, 2005:146), it is within this
perspective that the authors base their findings and interpretation of knowledge. It is
important to emphasise that this choice should not be seen as a fixated outlook on
methodology, but as a choice of relevance in relation to the project’s purpose of investigation.
The decision to base the project within a critical realist and hermeneutic horizon of
understanding influences the analytical deductions and conclusions. As the analysis and
conclusion will be based on qualitative data, collected via interviews, the data will be
subjectively interpreted thereby resulting in a more hermeneutic approach. The project applies
Lars Fuglsang & Poul Bitsch Olsen’s (2009) definition of hermeneutics, as quoted below;
“(...) understanding and interpretation come before explanation, and social
phenomena and actors examined carry and contribute with their own opinions,
and therefore they must be interpreted and construed in the scientific practice”10
(2009:309)
10 Free translation of: ”(…) forståelse og fortolkning kommer før forklaring, samt at de sociale fænomener og aktører, der studeres, er bærere af betydnings- og meningssammenhæng, og at det derfor er disse, som skal fortolkes og udlægges i en videnskabelig praksis.”
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This means that the authors do not consider themselves as an objective analytical tool and will
provide a certain amount of subjectivism when analysing the empirical data.
Hermeneutics work according to the assumption that the reality is fundamentally directed by
human conceptions and actions, and meaning is formed through an interpretation of human
expressions and behavioural patterns (Vestergaard et al., 2010:165). A hermeneutic approach
means a circular and constant interpretive approach, where the interpreters are constantly
challenged and updated in their acquisition of knowledge, and it is this methodological
understanding that represents the phenomenon known as the hermeneutic circle (Fuglsang &
Olsen, 2009:312).
As a result of the methodological choices, the concluding findings should not be seen as final
truths, as they will represent the authors’ own interpretation of the empirical data (Ibid:331).
Still, the aim with this project is to contribute to a deeper and potentially more nuanced
understanding of the stated research area.
3.2 Approach to Research In the following section, the approach towards the research will be accounted for. The chosen
strategy of abduction, as well as the reasons for conducting a case study, will be elaborated.
3.2.1 Abduction
This project undertakes the abductive research strategy, which “(…) constantly varies
between empirical and theoretical work in an ongoing process in which they inform one
another in a quest for empirically based and theoretically informed analytic knowledge”
(Halkier, 2001:44). The abductive strategy is chosen, as the authors, on the one hand, are
theoretically informed before entering into the field, and on the other hand are open to learn
something new from the empirical evidence. During an investigation, one can, as a researcher;
experience that one’s own knowledge and ideas are changing the closer one gets to the root of
the research problem. It means that one may have to extend, revise, or maybe even discard
some of the concepts and ideas one has worked on so far. By doing so, one truly allows
oneself to learn something new from the empirical evidence (Ibid); this approach also fits well
with the choice to work with the hermeneutic circle.
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3.2.2 Case Study
As briefly mentioned, this project applies a case study, as it is an empirical inquiry that
“investigates a contemporary phenomenon within its real life context especially when the
boundaries between phenomenon and contexts are not clearly evident” (Yin, 2003:13). The
real life context of this project was outlined in the problem area (see section 1.1), and thus the
case has its focus on Danish graduates growing their start-up companies. For the purpose of
investigating the case, seven case units have been selected, which were introduced in chapter
2.
The case study is a research strategy where the researcher must enter the field and be in touch
with the reality that is present here and now, and, according to Jennifer Rowley, by examining
the context, the researcher will gain a deeper and more detailed insight into the phenomenon
and its surrounding context (2001:17). Thus, this case study will provide an understanding of
how Danish graduates can successfully grow their start-up companies.
For the purpose of this study, a single case study is applied, as the seven case units contribute
to enlighten the same phenomenon. Thus, an embedded case study design (Yin, 2003:45) is
selected. The dangers of using an embedded design can be that the project will lose overall
focus, as too much focus can be given to the sub-units, however to prevent this, the
Discussion in chapter 5, will elevate the analysis to a more general level.
The case study will be based on the narratives, obtained from the interviews (see section 3.3),
and seeks to find causal relations that combined demonstrate a more broad view of the case.
So, instead of observing, the interviews allow for a more detailed approach in order to obtain
closeness to the field and get an understanding of the reasons that underlie the behaviour of
the Danish graduates and subsequently the characteristics of the start-up companies.
3.3 Approach to Data In the following section, the methodical considerations, concerning the individual interviews
will be outlined, as well as the execution. Please note that the collected empirical material was
conducted in Danish or English, as to avoid any language barriers with the interviewees.
Therefore, interviewees were allowed to choose between these two languages, so the
interview would be conducted in the language they felt most comfortable with.
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Alongside conducting semi-structured interviews, secondary data analysis will be utilised,
such as the inclusion of various theoretical papers, to help corroborate the findings in the
analysis.
3.3.1 Semi-‐Structured Interviews
A semi-structured interview technique is applied within this project. This is a deliberate
choice, based on the authors preceding knowledge about the studied phenomenon, i.e. the
authors are theoretically as well as practically informed prior to the research, which will, to
some extent, guide the gathering of information. This will be further elaborated within the
section of Interview Guides. A semi-structured interview allows the interviewers to be
receptive to new emergent perspectives and information that may come forth in the interview
setting, which is in keeping with the project’s research philosophy. Hence, the authors assume
that through the method of semi-structured interviews they will be able to uncover the hidden
mechanisms present in the ‘real’ level. This means that the interview process is kept flexible,
and the interviewers are able to pick up on significant issues touched upon by the
interviewees (Bryman, 2008:473). Thus, a semi-structured interview technique offers rich
detailed information about the studied phenomenon that goes beyond the prepared interview
guide.
In the following sections, the actual procedure of how the empirical data was gathered will be
presented.
3.3.1.1 Selection of Interviewees
Seven interviews are conducted for this study; all with Danish graduates who have founded
start-up companies. The purpose of the interviews is to observe, understand, and examine the
growth of different start-ups among graduates and, more specifically, understand the process
of how new business ideas can turn into successfully thriving and profitable businesses.
The seven companies are selected via two criteria: (1) at least one of the founders had to be a
graduate when starting up the company (see how the authors defined ‘graduate’ in section 1.2
on Definitions), or has studied simultaneously while running the business, and (2) the start-up
company has had to be established on the market for no less than five years, with the
exception of companies that have managed to create strong brand awareness within a shorter
time period.
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3.3.1.2 Interview Guides
Interview guides (see A2-8) are developed to ensure that topics of the interview are related to
the research area, still keeping in mind that the interviewees have leeway to come with inputs
not mentioned in the interview guide (Bryman, 2008:438). Though the authors wish to stay
open towards the field, and not led their theoretical knowledge guide the interviews, there is a
need for some focus, otherwise, according to Mark Saunders et al. (2007:321), the work will
“(...) lack a sense of direction and purpose”.
The questions in the interview guides consist of open and probing questions, and they are
phrased clearly to avoid misunderstandings. If the questions are too specific, the interviews
will be limited to the theoretical knowledge already known by the interviewers. Thus, the
questions are kept open to allow the interviewees to come forth with new inputs, and more
extensive and explanatory answers (Bryman, 2008:442). The use of open questions will
furthermore reduce the interviewer bias, as the focus is on the interviewees and their
responses. The use of probing questions (Saunders et al., 2007:315) is applied to seek a
deeper explanation of an answer, or for the interviewees to extend further on their responses;
this may lead the interview into areas not previously considered.
The interview guides are treated as a basis for the interview, but dependent on the
conversation and discussion occurring, during the interview; it may not necessarily be used in
its full capacity. As mentioned earlier, some of the interviews are conducted in Danish and
some in English, and therefore the interview guides are prepared in both languages.
3.3.1.3 Execution of Interviews
In the following, the execution of the interviews will be described. In total 12 companies were
contacted, and seven replied back that they wished to participate in the project (see chapter 2).
As a result, the interviewees’ statements can be considered reliable, as they were never forced
to partake in the interview.
For the interviews, the same template of the interview guide was used, varying only on
company specific questions. Moreover, the interviewees were informed of the interview
agenda from the beginning. All of the interviews were recorded, with the permission of the
interviewees, and the audio recordings are available on a CD at the end of the project.
During the interviews, one person was the moderator of the interview guide, and ensured that
the questions were phrased clearly to avoid misunderstandings, while the others took notes.
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The notes are important, as they can serve as a ‘back up’ in case of problems with the audio
recording (Saunders et al., 2007:326). In the interview with Daniel, parts of the audio
recording failed, and as a result the notes from that interview are attached in the appendices,
to serve as a replacement of the audio recording. Additionally, the note takers supplemented
with questions, in case the interviewer had missed a needed question.
All of the interviews were conducted separately from each other, and six of them were
conducted face-to-face. With the seventh company, HED, the interview was conducted over
the phone, due to a considerable distance, as the company is located in Aarhus. A limitation
of executing an interview over the phone is that one loses the opportunity to witness non-
verbal behaviour of the interviewee. This could have limited the interpretation of how far to
pursue a particular line of questioning during the interview (Ibid:342).
The interviews conducted face-to-face took place in either the interviewees’ offices or cafés
familiar to them. As the time and place of the interviews were selected by the interviewees,
meaning the interview took place according to their schedule; it created a more comfortable
atmosphere and, as a consequence, made the interviewees more open towards the questions
(Ibid:321). Prior to the interview, all interviewees were given the opportunity to remain
anonymous, and it was also made clear that they were within their right not to answer a
question they felt uncomfortable with. As mentioned previously, they were informed of the
research agenda, as this, according to Saunders et al. (Ibid:323), establishes credibility of the
interviewers. All interviewees were given a small gift bag as a token of appreciation for their
time in a busy schedule. The following table depicts the execution of the interviews;
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Table 3.3.1.3.1 Execution of Interviews
Company Date & Time Place Interviewee Participants Interview Guide Language
EMP Group 03-04-13,
10:00 – 11:30 Café Dennis Kayser &
Niels Frederiksen 1 day prior English
Company Y 03-04-13, 17:15 – 18:30
Meeting Room Daniel Nielsen 1 day prior English
HED 03-04-13,
20:00 –21:00 Over Phone Mads Petersen 1 day prior English
MP SOFTWARE
04-04-13, 8:00 – 9:30
Meeting Room Michael Pham 1 day prior Danish
IconFinder 05-04-13, 9.00 –10:00
Meeting Room
Martin LeBlanc Eigtved 1 day prior Danish
Shabenaa 05-04-13, 13:00 –14:00 Cafeteria Nana Rytter Nielsen 2 days prior English
Art District 05-04-13,
15:00 – 16:00 Café Louise Fredbo-
Nielsen 1 week prior English
3.4 Approach to Data Analysis Within this section, it will be shown how the authors treated the approach to the collected
qualitative data.
3.4.1 Qualitative Data Analysis
Due to time constraint, the interviews are not transcribed in full length, as this is extremely
time consuming, instead those sections from each audio recording, that are relevant to the
research, are transcribed, which is also known as data sampling (Saunders et al., 2007:475).
When using this approach, the authors will carefully listen to the entire audio recording twice,
in order to comprehend as much as possible. Furthermore, as some of the interviews will be
carried out in Danish, ‘free translation’ will be utilised when quoting in the analysis. In
continuation hereof, the authors will carefully evaluate the translation from Danish to English
as not to reduce and avoid any lost meaning.
The data will be approached with a combination of an open, axial and selective-coding
process (Bryman, 2008:543). Adapting such an approach will allow the authors to acquire
new emergent perspectives, which otherwise may not be recognised. The first stage consists
of listening to the entire audio recording taking into consideration, and without making any
notes, the overall assumptions that will be portrayed. This will then be followed up, within the
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second stage, by re-listening to the audio file, while making notes and indicating relevant
aspects. The third and last stage will consist of going through the observed codes, ensuring
that elements that will provide new perspectives are not left out.
The codes that will be processed from these three stages will then be organised into themes
that are consistent with the theoretical concepts (entrepreneurship, investors, networking etc.).
By dividing the codes into various themes, it allows the authors to elaborate the theoretical
framework into the contextual framework of the investigation.
Following the coding of the data, themes not covered extensively in the interviews with the
entrepreneurs, were the subjects of sales growth and profits, therefore a follow up e-mail was
sent to all of the entrepreneurs (see A9).
3.5 Limitation During the investigation, the authors encountered some difficulties in gathering the necessary
information needed. These difficulties will be accounted for shortly.
As mentioned earlier, 12 entrepreneurs were invited to participate in the study, where only
seven replied back. The seven start-ups are seemingly similar in terms of growth, employees,
and overall success. What would have aided the analysis, and consequently the conclusion,
would be the inclusion of a more successful entrepreneur, meaning a company with a more
stable position on the market, a profitable growth, and a group of employees. This would have
illustrated how a start-up company can overcome the obstacles related to starting and growing
a company. However, as can be expected, these companies are more time-stressed and
therefore do not have time to participate in studies, which the authors experienced firsthand.
Additionally, a graduate who has experience with a failed start-up would have further aided
the analysis, as it could have shed light on some of the obstacles that could be considered
‘deal breakers’. This, especially, could have aided in answering research question number
two, as it revolves around the challenges of being an entrepreneur. Though the authors
searched for ‘failed’ entrepreneurs, no interviews with such were conducted. The reason for
this could be the entrepreneurs’ reluctance with advertising or speaking about their failed
ventures (Hamrouni & Akkari, 2012:194).
A further limitation, which prevailed during the analysis, derives from the bottom-up
approach to the collection of data. Not enough questions were asked concerning the
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entrepreneurs’ financial situation, which limited the analysis in section 4.5.2. However, the
subject of finance is sensitive, and in order for the authors to get this type of sensitive
information, a more trustful relationship needs to be established between the authors and the
entrepreneurs.
A further limitation of the project is the use of only one data collection method, though this,
to some extent, is a delimitation, the authors would have liked to conduct a focus group with
the seven entrepreneurs, as this could have reduced the interviewer bias. Focus groups often
bring out the participants’ spontaneous reactions and lets one observe the group dynamics
revolving the theme presented. It shows how individuals may utilise the stream of
argumentation, forwarded within the group, and also enables to challenge or build upon the
already made argument (Marshall, 1999:115). Unfortunately, due to time constraints, and
considering the entrepreneurs’ busy schedule, the focus group could not be arranged.
Lastly, a limitation of the data collection is visible in the unequal representation of males and
females as well as the fact that not all industries are represented in the study. Thus, the sample
collected for the study cannot be considered a true representation of the Danish society.
However, seeing that this is a qualitative study, the aim is not to create universal truths, but
rather to contribute to a deeper and potentially more nuanced understanding of the
phenomenon.
3.6 Reliability and Validity When applying a qualitative method of collecting empirical data, difficulties arise concerning
reliability and validity. Therefore this chapter will provide insight into, which precautions that
have been taken in the course of the project’s development.
While approaching the field’s empirical data with the ideal to acquire it with openness, the
authors neither discard nor neglect that obtaining such is complex, as going into the field
being fully objective, is hardly achievable. The ambition has been to go into the interviews
openly, and try not to be biased, which will be elaborated below.
Reliability is concerned with the repeatability of the study (Bryman, 2008:31), more
specifically other researchers should be able to repeat the study and get the same results.
However, several factors minimise this plausibility. The data has been collected through semi-
structured interviews, and accordingly the value of using this method is “(...) derived from the
flexibility that you may use to explore the complexity of the topic” (Saunders et al., 2007:319).
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By ensuring this flexibility in the data collection, the authors, according to Steinar Kvale &
Sven Brinkmann (2009:245), allow for creative innovations and variability, meaning the
authors allow the interviewees to follow their own line of thoughts. This will guide the
research in a direction, which may not have been intended; nevertheless it allows one to stay
in line with the open approach to the field.
Moreover, the role of the researcher is important to consider, both during the data collection
and in the coding process. To ensure validity, or more specifically conformability, concerned
with objectivity in qualitative research (Bryman, 2008:379), the researchers must act in good
faith, meaning not to allow personal values or preferences influence the course of the project.
The authors have attempted to reduce the risk of interviewer bias by e.g. asking open
questions during interviews. Furthermore, the authors have stayed open towards the field, an
approach, which has been applied during the analysing of the data, as they have entered the
process with an open mind, i.e. the authors have reduced their presupposed mind-set through
the coding process.
To further ensure validity, one must, according to Alan Bryman (2008:377), execute research
according to ‘good practice’. To ensure this, the process of data collection and coding, has
been carefully described in the on-going chapter. In the same sense the chapter has
established the preconditions for a replication. Lastly, please keep in mind that due to the
chosen research philosophy, the goal is to present justifiable perceptions.
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4. Operationalisation of Theory This chapter will consist of three separate sections, all of which will follow the sequence of
theory, analysis, and sub conclusion. The theory will provide a theoretical understanding
needed to answer the research questions. Guided by the theoretical framework established, the
analysis will examine the empirical evidence to gain a greater understanding of how
entrepreneurs successfully grow their start-ups. The sections will be finalised with a sub
conclusion. Each section will be guided by one of the research questions, where the first
section on entrepreneurship will seek to answer the first research question. The second section
will deal with the organisational life cycle, and thus seeks to answer the second research
question. Finally, the last section, on social networking, aims to answer the third research
question. The research questions read as follows;
1. WHICH MOTIVATIONS AND PERSONAL ABILITIES ARE NEEDED TO GROW A START-UP
COMPANY?
2. WHICH CHALLENGES DO ENTREPRENEURS FACE IN THE DIFFERENT STAGES OF GROWING
THE START-UP COMPANY?
3. HOW DOES ENTREPRENEURS CREATE AND MANAGE THEIR NETWORKS TO GROW THEIR
START-UP COMPANY?
4.1 Theory of Entrepreneurship It is commonly known that there is a high mortality rate among start-up companies in
Denmark (Erhvervs- og Byggestyrelsen, 2011), which could also explain the small number of
start-ups in the country. Within this chapter, common denominators of entrepreneurship will
be identified in order to get a clearer picture of what it takes to achieve entrepreneurial
success.
4.1.1 The Entrepreneur
There is a large collection of literature concerning the entrepreneurial personality, which
focuses on the entrepreneur from a more psychological perspective. In the attempt to describe
the entrepreneur’s successful properties, several researchers found that the entrepreneur, from
a psychological standpoint, was best described in negative terms. Thus, the literature is full of
data describing the entrepreneur in general negative terms such as calculative, a strong need
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for control, opposition to authority figures, short-term thinking, and unstructured (Mintzberg
et al., 2009:137).
In contrast, the cognitive school describes the entrepreneur in more positive terms; this school
attaches the entrepreneur confidence and a positive attitude (Ibid:139). The entrepreneur is
characterised by properties that allow for some lead to analytic and rational approaches, and
as a consequence the entrepreneur is much more accustomed to change. The entrepreneur is
able to act quickly to opportunities and information that otherwise would be lost in the time
consuming, analytical, and rational considerations (Ibid). Furthermore, studies have shown
that entrepreneurs are relatively skilled in identifying entrepreneurial opportunities compared
to larger, well-established firms (see Ireland et al., 2003). In continuation of this, the
entrepreneur is also described as an individual with a positive outlook, i.e. the entrepreneur
perceives more strengths than weaknesses, more opportunities than threats, and finally
perceives the potential for personal improvement as greater than stagnation and deterioration
(Mintzberg et al., 2009:139).
Whichever way you choose to describe the entrepreneur’s personality, it will be coloured by
one’s theoretical outlook, e.g. what the psychological school views as a palette of negative
characteristics, will, from another point of view, be considered positive attributes. As a final
remark, the cognitive school teaches an important lesson, which is, that as an entrepreneur, it
is important to be positive and innovative to the encountering conditions. Therefore, it will be
more beneficial to draw on and articulate positive entrepreneurial qualities rather than
focusing on the negative. As a result, these positive qualities will be elaborated in the
following section.
4.1.2 The Entrepreneurial Spirit
Even though, there is little agreement among researchers, as to the nature of entrepreneurs
(Swedberg, 2000:33), various studies have shown that entrepreneurs are likely to possess a
particular set of qualities, which will be explained in the following.
HIGH WORK ETHIC: Having a commercially viable business idea is an important prerequisite
for success, but it is equally important to possess determination, as “(…) running your own
business really is a 24/7 activity” (Burns, 2007:105). As Paul Burns puts forth, being an
entrepreneur requires that one is able to sustain long working hours and put in a lot of hard
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work, and in order to motivate oneself, to put in all of that hard work, an entrepreneur needs
to be committed and enthusiastic about the work he does (Ibid).
ABILITY TO BOUNCE BACK: Entrepreneurs face a great deal of adversity, which can be very
discouraging, and as a result they need to develop a ‘thick skin’ (Ibid). ‘No’ is often said to be
the most common word in business (Ibid), which is extremely dispiriting, and even more so,
if you are self-employed. Thus, persistency is an important quality to have to be able to
bounce back from a constant ‘no’.
ABILITY TO NETWORK: An entrepreneur needs to have the desire and the willingness to
establish contacts, and this should be reflected in those he communicates with. Engaging in
various networks can e.g. open doors to parts of the industry that otherwise would not be
accessible, (this will be further examined in section 4.9).
ABILITY TO INNOVATE: Entrepreneurs do not sit around and wait until “(…) the Muse kisses
them and gives them a bright idea” they are proactive and opportunity seeking (Drucker,
1985:34), and change provides the opportunity for the new and the different (Ibid:35). Thus,
entrepreneurs are receptive to innovation and are willing to perceive change as an opportunity
rather than a threat.
TOLERANCE OF RISK AND UNCERTAINTY: Every strategic change involves a new experience,
a step into the unknown, and the taking of some kind of risk. Hence, an entrepreneur should
be willing to take a risk, which, at worst, can put strain on economic aspects and personal
relationships. If one longs for certainty, routine, and clear job specifications, one should not
be self-employed (Burns, 2007:105).
In line with this, Rita G. McGrath and Ian C. MacMillan (2000) view the entrepreneurial
mindset as a way of thinking about business that focuses on, and captures the benefits of,
uncertainty, as there are opportunities in uncertainty; “(...) even under the cloak of
uncertainty, the entrepreneurially minded can identify and exploit new opportunities because
they have cognitive abilities that allow them to impart meaning to ambiguous and fragmented
situations” (cited in Ireland et al., 2003:968). Thus, uncertainty can be used to your benefit, if
you develop and employ an entrepreneurial mindset.
In the following section, the main motivations of an entrepreneur will be outlined, i.e. the
primary reasons for starting a business.
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4.1.3 The Entrepreneurial Motivation
Popular theories of entrepreneurship feature the role of risk taking, managerial ability, wealth,
preferences for control, flexibility, and other job attributes that come with being one’s own
boss, as the primary motivations for entrepreneurship. In line with this, Joseph Schumpeter
presents three motivational factors of an entrepreneur;
1. ‘The dream and the will to found a private kingdom’
2. ‘The will to conquer’
3. ‘The joy of creating’ (in Swedberg, 2000:16).
In modern language, the three motivational factors can be translated into the desire for power
and independence, the will to succeed, and the satisfaction of getting things done. These
motivational factors are also known as pull factors. The decision to start up a company can be
triggered by various factors, and these triggers can take the shape of ‘pull’ or ‘push’ factors
(Burns, 2007:99). Pull factors are positive motivational factors (Ibid:100), as those just
presented above, whereas push factors are negative motivational factors that push
entrepreneurs into self-employment (Ibid:99). Examples of push factors can be
unemployment, disagreement with the boss, or simply not feeling comfortable in an
organisation (Ibid). The theory suggests that pull factors are preferred over strong push
factors, as strong push factors “(…) indicate a higher probability that the business will have a
short life span” (Ibid:100). However, it is common that the start-up decision usually is a
combination of both ‘push and pull’ factors (Ibid). An example of this could be an employee
in an organisation, who has wanted to start a company for a longer period of time, but never
had the guts to go ahead with it. The employee gets fired, and sees it as the perfect
opportunity and timing to take the plunge and start up the company.
The theoretical framework has outlined the entrepreneurial spirit and motivation, and these
will now be applied within the analysis.
4.2 Analysis of Entrepreneurship Many theories surrounding entrepreneurship agree that entrepreneurs are likely to identify
more strengths than weaknesses and perceive more opportunities than threats. This is a central
element of entrepreneurship, as possessing the ability to identify unexploited opportunities
becomes crucial in relation to successfully growing a start-up company. An entrepreneur’s
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opportunity seeking behaviour, spirit and motivational drive will be analysed in the following
chapter, and it will be demonstrated how these can contribute to growing a start-up.
4.2.1 Entrepreneurial Opportunities
Entrepreneurship is an activity that involves the discovery, evaluation, and exploitation of
opportunities to create value through innovation (Churchill in Antoncic & Hisrich, 2003:8).
The authors find this definition of entrepreneurship compelling, as it clearly suggests that the
entrepreneurial process is anchored to the concept of opportunities. Subsequently, if
opportunities have such an integral role in entrepreneurship, then where do they come from
and what are their characteristics? Scott Shane describes an entrepreneurial opportunity as;
“(…) a situation in which a person can create a new means-end framework for recombining
resources that the entrepreneur believes will yield a profit” (2003:16). In the interviews with
the entrepreneurs, it quickly became apparent that all of them started their companies as a
result of eyeing an opportunity. The prerequisite for this type of entrepreneurship is alertness
on the individual’s part, and in the case of Daniel, he explained how a paradigm shift within
marketing represented a new and unexploited opportunity to found Company X;
“(…) around that time in 2001 (…) there was a paradigm shift, so instead of we
[companies] are marketing us to the consumers, the consumers are now
searching for the offers that they would like to have (…) and that just made the
last small piece of the puzzle for what we wanted to do (A5a, Daniel 8:10)
Furthermore, Niels from EMP Group elaborated on how their Bachelor thesis made them
aware of a business opportunity;
“(…) during the whole process, we found out that there is (…) a hole in the
market, so to speak, because if a big company like Nordea can have such an
unstructured and lack of estimating IT projects, then maybe more companies have
the same problem (…)” (A6, Niels 5:25)
Personal experiences and advocating novel solutions to particular problems may also drive
innovation and hence create an entrepreneurial opportunity. Within the empirical data, this
was shown when Shabenaa, IconFinder, and HED expressed that their core products all are
the result of a problem that lacked an innovative solution;
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“(…) we both had a problem with shaving razor bumps and ingrown hair, and the
product was helping both of us (…) so we knew that it worked and we knew that a
lot of women and men have this problem, which we could help (…)” (A3, Nana
3:35)
“(...) [IconFinder] actually started because I worked as a freelance web designer
(...) and I used icons a lot (...) during the course of my work, I thought, why don’t
I just build a database where I can find these icons much easier (...) back then it
was the first search engine for icons, so it received a lot of attention (...)”11 (A4,
Martin 0:06)
“(…) [HED] was mainly built on his [Kristian] father’s idea, because his father
was a dialysis patient, and what he lacked during his (…) treatment was a good
fixation of bloodlines, so what we did (…) was to create a product, which could
fixate the bloodlines (…)” (A8, Mads 4:42)
The existence and exploitation of entrepreneurial opportunities are pivotal when it comes to
entrepreneurship and successfully growing a start-up. However, in order to really exploit
these opportunities, and yield a profit, a growth phase has to occur. In the following section,
the authors will present some common denominators that, in reference to the theoretical
framework and empirical data, are needed to achieve entrepreneurial success.
4.2.2 Entrepreneurial Success
This section will outline the entrepreneurial spirit as well as the motivation behind a start-up,
as these have been illustrated, within the theory, to contribute positively in growing a start-up.
11 Free translation of: “(…) den [virksomheden] startede egentlig fordi jeg arbejdede som freelance web designer (…) og der brugte jeg ikoner rigtig meget (…) så tænkte jeg i løbet af mit arbejde, hvorfor bygger jeg ikke bare sådan en database, hvor jeg kan finde de her ikoner meget nemmere (…), der var det den første søgemaskine til ikoner, så det fik ret meget opmærksomhed (…)”
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4.2.2.1 Entrepreneurial Spirit
HIGH WORK ETHIC
The theory, previously outlined, focused on the entrepreneur’s ability to sustain long working
hours as well as putting in a lot of hard work, as preconditions to become successful.
Likewise, many of the entrepreneurs, who were involved in the study, expressed the same
attitude to being an entrepreneur;
“(...) I think, many who try to start their own business do not know what it
actually takes, sometimes the hard work can be extremely tedious and manual
(...), but there’s just no way around it, if you want it to succeed (...)”12 (A4,
Martin 16:00)
A high work ethic also requires that the entrepreneur holds a strong persona, as the many
hours spent on the business can result in a weakened enjoyment of life. However, if one is
able to endure the ‘hard times’, the entrepreneur will be better prepared for the upturn, as
expressed below;
“(...) I worked 70 hours with my own company, I had to focus on just one area,
because otherwise I would’ve had a break down (...)”13 (A7, Michael 34:04)
“Because we were willing to do that [work for three years without earning any
money], then we were prepared for the upturn (…)” (A5a, Daniel 29:30)
A high work ethic can be considered to be an intrinsic part of a person, but often it cannot be
achieved if the person has no inner desire to accomplish it. Thus, the entrepreneur needs a
sense of purpose, why Burns argues that commitment and enthusiasm, about the work one
does, are essential (Burns, 2007:105), which Michael also emphasises;
“(...) to build a piece of software and watch others get pleasure from it, it was far
more rewarding for me and a way to become self-fulfilled (…)”14 (A7, Michael
30:12)
12 Free translation of: “(…) jeg tror der er mange, som prøver at starte egen virksomhed som ikke ved, hvad der skal til, altså nogle gange skal der rigtig meget arbejde til, som kan være ekstremt kedeligt og manuelt (…), men der er bare ikke nogen vej udenom, hvis man vil have det til at fungere (…)” 13 Free translation of: “(…) der arbejdede jeg 70 timer med min egen virksomhed, der blev jeg nødt til at fokusere på et område, for ellers knækkede jeg sgu (…)” 14 Free translation of: “(…) at bygge et stykke software og se andre få glæder af det, det synes jeg var langt mere givende for mig og en måde at selvrealisere sig selv på (…)”
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ABILITY TO BOUNCE BACK
Another quality that is of high importance, according to the theoretical framework as well as
the empirical evidence, is the ability to bounce back. Getting entrepreneurial success does not
happen over night, and the entrepreneur will most likely encounter difficulties, which can be
hard to overcome, therefore self-confidence is an important asset to possess when building a
business.
EMP Group encountered multiple rejections when they first started out, as illustrated in the
quote below;
“(…) enterprise sales were just so hard, so incredibly hard, and calling and
calling companies, ‘looks good call me when you have more customers’ and if
everybody says that then how are you going to get your first customer?” (A6,
Dennis 28:06)
As a result of the continuous hardship, EMP Group almost decided to close the business (A6,
Niels 28:39). However, in the end, determination made them pull through, which can be said
to exemplify true entrepreneurial spirit.
Similarly, Martin from IconFinder expressed how attracting investors was a difficult task. In
total, 60 confrontations, with the same investor, were needed before the investment of DKK
9,000,000 came through (A4, Martin 5:17). Furthermore, Martin made it clear that being self-
employed can have its highs and lows;
“(…) at times, it [being self-employed] definitely has been uncomfortable, and if
you look at how your mood is during such a month or week,(…) it's a
rollercoaster, one day you think that it’s the worst, and the next day you believe
that we’re going to take over the world, and it’s really tough mentally. Somehow,
I think that you shouldn’t open the champagne bottles when you get the first
investment, and also you shouldn’t get completely depressed, when things go bad,
you just have to try and keep a positive mind, but also not have too large
fluctuations, because if you celebrate something in advance, that can backfire
(…)”15 (A4, Martin 38:47)
15 Free translation of: (…) til tider har det været decideret ubehageligt og hvis man kigger på hvordan ens humør er i løbet af sådan en måned eller uge (…), det er en roller coaster, den ene dag der tror man, at der går det helt galt og så den næste dag, der tror man, at der overtager vi verden, og det er virkelig psykisk hårdt, et eller andet
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When asked why they never gave up on their vision, despite adversity, Louise replied that a
strong proof of concept early in the process (A2, Louise 19:28) helped to verify that the
business had potential. Additionally, according to Nana, having an upbeat personality that
continues to move forward, even when things get tough, is also a necessity. It will ensure that
the entrepreneur does not ‘break’ due to obstacles and problems, but is able to move beyond
these when faced with them (A3, Nana 13:52).
ABILITY TO NETWORK
Networking is an essential skill for most business people, but especially for entrepreneurs
(Burt, 2000). Additionally, extroverts compared to introverts are more likely to exploit
opportunities, as they are better to assemble resources (Shane, 2003:97). Within the empirical
research, it was universally acknowledged within the study that having an outgoing
personality is key, for instance this was highlighted both by Nana from Shabenaa and Mads
from HED;
“(…) I think (…) more than anything it is my personality, that I’m not afraid to
just call people, ask them questions, go to them and say ‘Hi I’m Nana’ (…)” (A3,
Nana 14:50)
“(...) it’s more how we’ve been able to create a network (…) that is to do with
personality, if you’re not outgoing, if you’re not willing to pick up the phone and
call people, and stand in front of a lot of people and say ‘okay, do you like this
product, how can we do business?’ you have to have that in you” (A8, Mads
34:50)
The network, you gain as an entrepreneur, can be extremely helpful, and according to Louise,
entrepreneurs are really good in sharing their network and helping each other out (A2, Louise
11:36). Howard E. Aldrich & Phillip H. Kim further support this finding, as they claim that
entrepreneurs are excellent in promoting their existing networks to fellow entrepreneurs
(2007:149). Networking and its entrepreneurial advantages will be further explored in section
4.8 and 4.9.
sted så tror jeg, at man ikke skal åbne champagne flaskerne når man får investeringen og lade være med at gå fuldstændig i depression, når tingene går dårligt, man skal ligesom prøve at være sådan lidt positive-mind, men også lade være med at have for store udsving, fordi hvis man ligesom fejrer noget på forhånd, så kan det give bagslag (…)”
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ABILITY TO INNOVATE
The authors view the concept of innovativeness, as the propensity to represent a proactive
willingness to change and venture beyond the current state, thereby pursuing new
opportunities (Lumpkin & Dess, 1996:142). This can be seen in the empirical evidence when
the entrepreneurs state that they have a desire to create something new and furthermore find
the process appealing;
“(…) I wanted to be creative within business and computing, so it made sense that
I started a company, but it’s about creating something new, I think that's really
fun and it’s also (…) making many decisions where there is no right answer
(…)”16 (A4, Martin 17:06)
“(...) I always ponder on some new ideas, what to start, and I’ve been in dialogue
with friends on how we could start something new, (…) so I have the drive in me,
the gene in me, to say ‘how do we create something’ (...)”17 (A7, Michael 34:43)
Moreover, innovativeness is related to how one views and feels about change. According to
Peter Drucker, entrepreneurs see change as the norm and as healthy, because change is
ultimately inevitable (1985:35). Consequently, entrepreneurs seek change and embrace it as
opportunities;
“(…) I have only been looking forward, and seeing not what the risks would be
but where the opportunities lie, I would always search those instead of thinking
about the risk, not that I am blind and completely stupid about there not being any
risks, but that is how I choose to see it” (A8, Mads 47:30)
Within this quote, Mads clearly illustrates the fine line that exists between opportunities and
risks. Additionally, he argues that you are able to decide on your own whether or not you
want to perceive change as a risk or an opportunity. However, in reference to the theory,
entrepreneurs are likely to view change as an opportunity, why Mads’ attitude toward change
can be said to demonstrate true entrepreneurial spirit. The subject surrounding risk will be
elaborated in more detail within the next section. 16 Free translation of: “(…) jeg har ønsket at være kreativ indenfor forretning og datalogi, så giver det mening at man gerne vil starte et firma, men det der med at lave noget nyt, det synes jeg er rigtig sjovt, og (…) man tager rigtig mange beslutninger, hvor der ikke er en facit liste (…)” 17 Free translation of: “(…) jeg grubler da altid over nogle nye ideer hvad man kan starte på, og har været i dialog med venner, hvordan vi kunne starte noget nyt op, (…) så jeg har det drive i mig, det gen i mig til at sige, ‘hvordan skaber vi noget’ (…)”
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TOLERANCE OF RISK AND UNCERTAINTY
The entrepreneur as a concept has become widespread in models relating to risk, thus
suggesting that the two concepts are closely interrelated somehow. Within this study, this
connection is also seen, and what is common to all of the entrepreneurs is their attitude
toward risk – or rather the lack of risk involved, when starting a business;
“It’s not that risky to start your own company, when you’re young, when you
don’t have a family, mortgage (…)” (A2, Louise 34:30)
The point to be emphasised in Louise’s quote – and all the entrepreneurs share this belief – is
that starting a business is not risky as long as you do not have any regular bills to cover.
Consequently, the general attitude toward entrepreneurship and risk is perceived to be
positive, and the majority never experienced strain on economic aspects or personal
relationships, which the theory otherwise implied (see section 4.1.2). Additionally, the
tolerance of uncertainty is also easier managed if the entrepreneurs have low monthly
expenditures, as Dennis mentions (A6, Dennis 1:10:11).
Finally, Martin also points out that the generational shift has had an impact on how
entrepreneurship is viewed in today’s society. He argues that it is now much easier – hence
less risky – to start a business compared to our parents’ generation (A4, Martin 37:06). This
assumption is based on his own experience with the use of various tools that are available and
free of charge for entrepreneurs (A4, Martin 37:16).
4.2.2.2 Entrepreneurial Motivation
The survival and success rate of a start-up can, to some extent, also be predetermined by the
underlying motivations to create the start-up in the first place; here the authors are referring to
the aforementioned ‘push and pull’ factors (Burns, 2007:100).
The majority of the entrepreneurs stated that their entrepreneurial activities are the result of
being pulled into it. Thus, the entrepreneurs experienced positive motivational factors when
deciding to embark on their business ventures. Some of these motivations include the desire
to create18 (A7, Michael 29:45 & A4, Martin 16:45 & A2, Louise 28:46), the preference for
flexibility and freedom19 (A7, Michael 51:55; 59:58), and the drive to see the vision
18 Equivalent to Schumpeter’s ‘the joy of creating’ 19 Equivalent to Schumpeter’s ‘the dream and the will to found a private kingdom’
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implemented to life20 (A2, Louise 9:53). Gifford Pinchot also highlights this latter
motivational factor, arguing that entrepreneurs are the “dreamers who do” (Pinchot, 1987).
As discussed earlier, in section 4.2.1, an entrepreneur goes through the process of discovering
opportunities and then exploiting those opportunities. This is illustrated in Pinchot’s saying,
as it implies that a true entrepreneur needs to have the ability of actually going through with
the course of action, opposed to just staying put. Accordingly, during this course of action, the
aforementioned entrepreneurial spirit and motivation are of significance, as these ‘variables’,
in reference to the theory and empirical evidence, have a positive effect on the initial phase of
starting the company as well as successfully growing it. This is shown in figure 4.2.2.2.1
below.
Figure 4.2.2.2.1 Variables Affecting the Entrepreneurial Process
Source: (Authors’ Creation)
As a final note to this chapter, Pinchot insists “I would rather have a class A entrepreneur
with a class B idea than a class A idea with a class B entrepreneur” (Pinchot, 1987). With
this statement, Pinchot claims that the skill-set of the entrepreneur will always be favoured
over the business idea. This outlook is also shared by some of the entrepreneurs (A7, Michael
55:03), Mads from HED elaborates on this;
“I believe to this day that we actually are the main reason as to why we’ve
reached this point (…) it comes down to Kristian and I, we are the people, we are
the instrument that have helped this company grow (…) because we got the skills
to do it, and that has been our biggest instrument and our biggest asset” (A8,
Mads 32:14)
20 Equivalent to Schumpeter’s ‘the will to conquer’
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4.3 Sub Conclusion of Entrepreneurship The theoretical chapter and analysis have sought to answer the first research question, which
reads;
WHICH MOTIVATIONS AND PERSONAL ABILITIES ARE NEEDED TO GROW A START-UP COMPANY?
First off, the theoretical chapter introduces the concepts of entrepreneurial spirit and
motivation, and demonstrates the importance of possessing these qualities in relation to
starting and growing a start-up company.
Additionally, in reference to the theory, the analysis has shown that the entrepreneurs’ ability
to discover and exploit opportunities, along with their vigilance, resulted in the actual
founding of the companies. After the official establishment of the company, qualities such as
having a high work ethic, ability to bounce back, network, and innovate, as well as a tolerance
of risk and uncertainty are important to have in order to move forward with the company.
High work ethic is, by the entrepreneurs, considered to be a precondition for success, as one
will have to put in a lot of hours in the initial phase, and usually for a small or no pay check at
all. The ability to bounce back is another important aspect, highlighted by the entrepreneurs,
as many will experience several naysayers, why it is important to have a strong personality
that is able to move beyond the hardship. Networking is also key when growing a start-up,
which requires that the entrepreneurs are willing to engage in such. The analysis demonstrates
that, in the case of networking, having an outgoing and extroverted personality is ideal,
opposed to being quiet and introverted. Innovativeness is viewed as entrepreneurs’
enthusiasm to change and creating something new. The ability to perceive change as an
opportunity, rather than a risk, is what characterises a true entrepreneur, according to the
theory and empirical evidence. Lastly, a tolerance of risk and uncertainty is needed as an
entrepreneur, if entrepreneurs do not accept this, they might just as well not start their own
business.
Furthermore, the underlying motivation, concerning the start-up, was outlined within the
theory, and the importance of distinguishing between positive motivational factors (pull
factors) and negative motivational factors (push factors). Strong push factors tend to lead to a
shorter life span, why pull factors typically are considered to be a more sustainable argument
for starting a company. In all of the cases, the entrepreneurs experienced pull factors when
deciding to found the companies.
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The entrepreneurs’ opportunity seeking behaviour, spirit, and motivational drive are important
assets that can be of importance when growing a start-up company. Thus, the authors confirm
the theoretical concepts surrounding the entrepreneurial spirit and motivation as contributing
positively to the initial phase of founding the start-ups as well as in growing them.
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4.4 Theory of Organisational Life Cycle In the literature, the difference between the entrepreneurial organisation and the more
bureaucratic organisation is well distinguished. However, at one point in time, the
bureaucratic organisation was an entrepreneurial one. The organisation can be viewed over
the long run, through the organisation’s life cycle, where each stage in the life cycle has its
own unique characteristics (Gupta & Chin, 1994:269). The importance of identifying the
organisation’s stage in the life cycle is explained by Yash P. Gupta & David C. W. Chin;
“Since organizations are in a continuing process of adaptation, and organizations
exhibit a unique set of characteristics in each developmental stage; having the
ability to recognize an organization’s particular stage of development would help
the formulation of its strategies, identification of risk and opportunities and
management of organizational change” (1994:270)
As there are different challenges at the different stages of the organisational life cycle (OLC),
it is important to be able to identify, in which stage the organisation is, to be able to tackle
such challenges. Thus, the present chapter will outline the OLC theory, with a specific focus
on the more ‘entrepreneurial’ stages of the life cycle.
4.4.1 Characteristics of the Organisational Life Cycle
The OLC has been described as the historical evolution of an organisation, as the theory
depicts the development of the organisation from a small entrepreneurial organisation to
become a more mature, large, and complex organisation (Miller & Friesen, 1984:1161). The
different stages, which the organisation goes through, have their own unique characteristics,
and to “(...) provide meaningful explanations for the patterns of relationship observed”
(Gupta & Chin, 1994:277), the different stages, of the organisation, need to be identified.
The OLC is defined as a “Unique configuration of variables related to organizational context,
strategy, and structure” (Hanks cited in Lester et al., 2008:38). There are many different
theories and models of the OLC, but many are rather vague and not well defined (Hamrouni
& Akkari, 2012:191). However, what they can all, more or less, agree on is that the “(...)
organizations are at some point born (...), have the opportunity to grow and develop (...), and
later die or renew themselves” (Lester et al., 2008:38).
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At the different stages of the OLC, different structures, strategies and activities are present,
and as such different reasons for organisational success is present. Previous studies have
shown that an organisation is more prone to failure in the first stages of the life cycle, more
specifically within the first four years (Hamrouni & Akkari, 2012:192). For instance, for an
entrepreneurial company it can be a challenge to gain financial resources, where for a large
company it can be a challenge to successfully manage the financial resources (Ibid).
Depending on which stage, in the OLC, the company is located; there are different challenges
for survival. The reason as to why it is important for companies to know their location is to
manage the company successfully. For new companies, the challenges, besides gaining
financial resources, include lack of experience, conflicts with defining roles, and difficulties
in establishing customer relationships (Ibid). For larger companies it is often the lack of
flexibility that causes trouble.
Other authors (Gupta & Chin, 1992:278) claim that the different stages require different types
of managers. The reasoning derives from the idea that a good entrepreneur may be successful
in a smaller company, but not always successful at managing a large, bureaucratic company.
They distinguish between two kinds of entrepreneurs, the craftsman entrepreneur and the
opportunistic entrepreneur – only the latter is able to take the company to the next level. The
craftsman entrepreneur is narrowly educated and is not comfortable in social settings, whereas
the opportunistic entrepreneur often has a more wide educational background, is comfortable
in social situations, and has a more futuristic mindset (Ibid). Therefore, if an entrepreneurial
company strives towards greater success, then a consideration of managers must be included,
according to Gupta & Chin.
4.4.2 Early Stage Finance
Getting financial grounds, in the early stages of the company, can be somewhat of a challenge
for the entrepreneurs. The difficulties in acquiring finance can limit the company in growing,
surviving, and the prospects of value creation (Atherton, 2012:28). Moreover, as the company
moves from one cycle to another, i.e. growing, more financing is needed to sustain the
growth, or the company will be severely restrained (Oliver, 2011). Figure 4.4.2.121 below
21 Note, not all of the financing options will be covered in this chapter, as the focus is on the first stages of the organisational life cycle.
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attempts to illustrate, which sources of finance are important at the different stages of the
company.
Figure 4.4.2.1 Firm Continuum and Sources of Finance
Source: (Berger & Udell, 1998:623)
Allen N. Berger & Gregory F. Udell define initial insider finance, as the funds provided by
the founders, the family, or friends during the start up period (1998:622). Young companies
often rely on personal investments, as the company does not yet have any value to its name.
Furthermore, by using personal funds, the entrepreneur is able to demonstrate his skills
(Haislip, 2011:89) and commitment to the company, this can become an advantage for the
entrepreneur in terms of acquiring bank loans and attracting investors, as Andrew Atherton
explains;
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“(...) the use of own funds in a start-up is a “signal” of commitment to and
confidence in the new venture. Money invested by the founder in the new venture
provides external funders with a degree of reassurance that the starter is
committed to, and confident about, the prospects of, the business (...) [this] helps
to convince funders that the new venture is a viable prospect for financing, in part
because the risk is shared with the founder who is committing their own capital”
(2012:39)
Atherton found in his study that the entrepreneurs, who had invested their own money, were
able to acquire a bank loan later on (2012:40); their personal investment, so to say, secured
them the loan. This is corroborated by Berger & Udell, who argue that a bank loan is based on
“(...) having sufficient equity” (1998:627) from e.g. investors or personal funds.
One problem that new companies often face is that they do not have a sufficient trading
history. Meaning, new companies often do not generate a profit, which could be re-invested
back into the company. The re-investment of the profit is a preferred financing option
amongst the founders; however, it is often not an option (Atherton, 2012:42). The new
organisations also have to cover various establishment costs and thus some entrepreneurs turn
to alternative means of financing, e.g. bootstrap financing. This is defined as funding from
non-formal sources, e.g. “(...) personal loans applied to the venture; credit card debt;
delaying payments; minimising accounts receivable; sharing resources” (Ibid:31). By
utilising bootstrap financing, the entrepreneur is able to secure “(...) resources at little or no
costs” (Ibid).
Another alternative financing method, which entrepreneurs can try to obtain, is grants. In this
definition, the authors also include considerations to the Danish welfare system, as students in
Denmark receive a small grant, SU, while being allowed to start a company simultaneously
(SU, 2013). Also the privately funded unemployment benefit, dagpenge, supports
entrepreneurs for a time period of maximum 78 weeks22 (Ivækst, 2012). Other than the
Danish welfare system, grants are defined as “non-repayable provisions of, typically public,
finance to new venture that does not result in an equity stake or other claims over the
business and its profits” (Atherton, 2012:37). Atherton found in his study that grants were not
merely reserved for those start-ups having difficulties in acquiring finances, but for a wide
22 Part-time only.
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spectrum of companies (Ibid). In Denmark, graduates have the opportunity to enter into start-
up competitions, where the finalists receive a money prize (Venture Cup, 2013), i.e. a grant.
Depicted in figure 4.4.2.1, a company uses more than one kind of financing, especially new
companies acquire ‘bundles’ of different financial means (Atherton, 2012:36). One type of
financing, not yet covered, is investments from angel investors23 or venture capitalists24.
Though there is a difference between an angel and a venture capitalist, they will, for the sake
of simplicity, be treated as one and the same in this study. For example the Danish state
investment fund, Vækstfonden (n.d.), shares the characteristics of both an angel and a venture
capitalist.
An entrepreneur can demonstrate commitment to the company by investing personal money,
but often more is required to sustain the company in the forthcoming life cycles. Therefore,
entrepreneurs must attract investors, and for this a due diligence report or a formal business
plan is required; “This is a detailed disclosure of company and market information that is
required for the investor to make go/no-go decisions on proceedings” (Oliver, 2011 & Berger
& Udell, 1998:622-23).
Another thing, that investors also consider, is the people behind the start-up, Alexander
Haislip explains that they “also want to see some sort of proof that the team is robust”
(2011:89), why signalling commitment can be important for the entrepreneur.
4.4.3 Critique of Organisational Life Cycle Theory
The environment, in which the firm operates, can have an immense effect on the way the
business is run, as not all industries have the same complications. Robert K. Kazanjian
critiques the OLC theory, explaining that;
“(…) there is no life cycle or phased sequence applicable to all organizations and
that the recurrent cycles and patterns in organizations that can be observed are
all products of specific environments” (1988:261) 23 An angel investor is a very necessary component in the business finance environment, as they provide financial backing for small entrepreneurs in the start-up stage. They invest in entrepreneurs or start-ups, which are considered too risky for bank loans or by venture capitalists. Often it is a single person, and the focus is more on helping the business succeed rather than reaping a large profit (Oliver, 2011 & Investopedia, 2013a). 24 A venture capitalist typically invests in start-ups, or small businesses, with the potential for long-term growth. Venture capital often consists of a group of investors, e.g. investment banks and financial institutions. “Venture capital would typically come later [than angel finance], after the product has been successfully market-tested, to finance full-scale marketing and production” (Berger & Udell, 1998:623 & Investopedia, 2013b).
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Amel D. Hamrouni & Imen Akkari also touch on this subject, as they introduce the theory of
organisational ecology in their study, seeing as “organizations are widely open to their
environment and must achieve an appropriate relationship with this environment, if they want
to survive” (2012:190). Conflicting, is the resource-based view of the firm, claiming that
pivotal for the organisations’ survival is the control over resources, regardless of the
environment. Both theories present valid arguments, however they do not consider the
different stages of the company, and what Hamrouni & Akkari found in their study, was that
companies in the first stages failed due to lack of resources and experience, where older
companies failed due to financial mismanagement (2012:197).
4.4.4 The Stages in the Organisational Life Cycle
Over the years, many scholars and professionals, in the organisational development and life
cycle field, have studied highly effective and successful, yet mature, organisations to find the
common characteristics in the different stages at various points in their evolution. The two
models, which are widely accepted, within the business community, are Robert E. Quinn &
Kim Cameron’s four-stage model and Danny Miller & Peter H. Friesen’s five-stage model
(Lester et al., 2008:38). Both models are developed from a literature review of previous
models, including Ichak Adizes’ ten-stage model from 1979.
The four or five stage models may be beneficiary for many companies to use, however, seeing
as this project focuses on start-up companies a more specified description is needed.
Especially as;
“Each stage of the organizational development process exhibits certain unique
characteristics” (Gupta & Chin, 1994:269)
The authors are focusing on the ‘entrepreneurial’ stages occurring in the beginning of the
development phase. Further, Adizes’ model has served as an inspiration for the two most
acknowledged models25. Therefore, it is the model that will best elaborate on the company’s
growth throughout the development stages, and is thus considered to be the most accurate
model to use for this project. The model is presented in figure 4.4.4.1 below.
Figure 4.4.4.1 Adizes’ Organisational Life Cycle
25 Quinn & Cameron and Miller & Friesen
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Source: (Based on Adizes, n.d.)
4.4.4.1 The Courtship Stage
Courtship is the first stage of an organisation's development. At this stage, the company is not
yet born; it exists as an idea. The focus of Courtship is on dreams and possibilities in the
future (Adizes, 2004:21).
The founder is at the stage of building his enthusiasm and commitment to his dream. The
higher the risk, the deeper the commitment needed. The founders and the investors build
commitment to undertake risk and bring the organisation to life (Ibid:23). At this stage the
good idea is not enough, what is more important is a committed leader, who can bring the
idea, the market, and the money together (Ibid:24).
Within the Courtship stage, the founder will experience fear, uncertainty, and doubt (Ibid:28).
The goal should be to add value and satisfy market needs – rather than only focusing on
making profit (Ibid:24). To overcome the difficulties of starting a business the founder can
use incubators26 to nurture the innovation and further develop the company (Ibid:29-30).
Kazanjian defines the first stage of the OLC as the Conception and Development Stage that
can be seen as a ‘bridge’ between Adizes’ Courtship and Infancy stage. There is a clear
relation between Adizes and Kazanjian’s first stage, namely arguing that there is a stage
before the actual birth of the company;
26 Within this project, the authors view incubators as being programs aimed at helping entrepreneurial companies via e.g. networking and guidance. Examples of incubators include Venture Cup, Væksthuset, Katapult etc.
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“Before their formal creation, as signified by incorporation or by gaining a major
source of financial backing that goes beyond initial seed grants, virtually all
ventures go through a period during which the primary focus of the entrepreneur
(…) is on the invention and development of a product or technology” (Kazanjian,
1988:262)
Further the Conception and Development Stage emphasises the importance of a product
prototype as well as lack of structure;
“Structures and formalities are nonexistent during this stage, with almost all
activity focused on the technical issues as defined and directed by the founding
entrepreneur(s) (...) Major problems of organizations at this point include
construction of a product prototype (...) and selling the product and business idea
to financial backers” (Ibid:263)
This part is in clear reference to what Adizes describes in the second phase namely the
Infancy stage. The take away from Adizes’ Courtship stage is a list of the main characteristics
from this stage, see table below.
Table 4.4.4.1.1 Main Characteristics of the Courtship Stage
Main Characteristics
Excitement, possibly unwarranted
Details thought through
Fear, uncertainty, and doubts
Focus on changing the world and making money
Commitment to the risk Source: (Adizes, 2004:31)
4.4.4.2 The Infancy Stage
This stage requires constant work and dedication, especially from the founder. According to
Adizes the Infancy stage begins when financial risk has been undertaken and the founder is
fully dedicated to the company, and decides to leave current pay job, and commit to the
customers via a stable ‘lead time’ for the product (Ibid:31).
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Adizes argues that the infant organisation is product- not sale-orientated. Sales are useful for
cash generation purposes, but the real value, to the infant organisation, is the market's
validation of its new product or service. This stage focuses on completing the development of
the innovative and new products or services, where the product has to be tested in the
marketplace (Ibid:33-34). The product of the infant company needs to sell, otherwise this will
lead to cash starvation, lack of continued interest from financial backers, and the emotional
collapse of the founder (Ibid:35). Miller & Friesen called this stage the Birth Stage, describing
it as;
“(…) the period, in which a new firm is attempting to become a viable entity (...)
The prime distinguishing features of the firms in this phase are that they are
young, dominated by their owners, and have a simple and informal structures”
(Miller & Friesen, 1984:1162)
The lack of strong procedures and structure, as well as dominance by the owner, is also
pointed out by Adizes and will be discussed later.
In addition, Quinn & Cameron named this stage The Entrepreneurial Stage: where they stress
the focus on flexibility, readiness, resource acquisition, and development of external support
(Quinn & Cameron, 1983:43), and for the organisation to be successful they need to meet
these criteria on the market (Ibid:43-44).
The main characteristics for infant organisations, according to Adizes, are being action-
oriented and opportunity-driven. Moreover, the ideas are changing into real action; however,
the performance in this stage is inconsistent.
Seeing that infant organisations lack strong systems and policies, conflicts or problems can
escalate into a crisis in a short notice. Adizes argues that in order to survive, infant
organisations need two things: consistent infusion of working capital and unconditional
commitment (Ibid:37). The commitment of the founder and the employees is constantly
questioned. It is important to highlight that employees are often attracted to infant
organisations, not for financial benefits, as their commitment to the company often extends
beyond the company’s ability to pay them (Ibid:36-37; 40). Most founders, in this stage, have
an autocratic leadership style, meaning that they are not able to delegate and spread the work
effort of critical tasks (Ibid:44). An explanation for this one-person show is the constant fight
for survival, and this is the only way founders can control many outcomes (Ibid:46).
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The company will transform from the Infancy stage to the Go-Go stage, when its cash flow
and activities get stable, meaning that the company has a positive cash flow, growing
customer base, developing brand loyalty, and no crises on the production side (Ibid:47). The
take away from Adizes’ Infancy stage is a list of the main characteristics that appear during
this stage.
Table 4.4.4.2.1 Main Characteristics of the Infancy Stage
Main Characteristics
Customers experience problems with the product
or service
Few procedures, rules, policies, or
systems
Questioning investors Negative cash flow
Commitment not threatened by risk Sustained commitment
Lack of managerial depth 1-person show. No delegation
Initial product or service concept fails and is
replaced by another
Work life puts stress on family and home
life
Founder and others make mistakes Benevolent dictatorship
Management by crisis Founder's commitment tested Source: (Adizes, 2004:47-48)
4.4.4.3 The Go-‐Go Stage
An organisation moves to this stage when it has had its first taste of success. In the Go-Go
stage a company has a successful product or service, good cash flow, and growing sales. What
is even more exciting is that the company has moved on from a constant struggle, and thus
survived the infancy phase, to become a well prospering business (Ibid:52). In some cases, a
continued success can quickly transform the founder’s confidence into arrogance, with a
capital A (Ibid).
Driven by their initial success, Go-Go's feel that they can succeed in almost anything that
comes their way, and everything is seen as an opportunity (Ibid:53). The self-confidence is a
major asset of the Go-Go stage, and the founder starts to be engaged in many diversified
businesses; however, the lack of knowledge about the businesses they enter can get them into
trouble. They make decisions and commitments they should never have made (Ibid:53-54).
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The Go-Go company is sales driven, but not marketing-oriented, and has an insatiable hunger
for growth. Every opportunity discovered in the marketplace must be pursued. This sales
orientation is addictive (Ibid:54-55) and, according to Adizes, “The organization is
opportunity-driven rather than opportunity-driving” (Ibid:55). In other words, an
organisation reacts rather than proacts to opportunities. The Go-Go rushes to close new deals,
as more means better, and this mindset causes that the business is unprofitable despite
increased sales (Ibid). By focusing only on sales orientation and having uncontrolled growth,
it can threaten the development of the company, while too early focus on profitability can
inhibit the long-term potential of the company (Ibid:56).
Yong-Sik Hwang & Seung Park corroborate Adizes’ statement that sales is considered to be
the ‘king’ of the stage. They describe their Commercialisation stage as being “(…) focused on
emphasizing sales, and gaining consumer acceptance in the market (…)” (Hwang & Park,
2007:429).
Additionally Miller & Friesen, in their definition of The Growth Phase, stress similar
characteristics after having gained product-market success; “The emphasis is upon achieving
rapid sales growth and amassing resources in an attempt to realize advantages accruing to
larger scale (…)” (Miller & Friesen, 1984:1162).
The company is organised around people and projects. People share responsibilities and tasks
are assigned based on the employees’ availability rather than their competence. Moreover,
there is not really any organisational structure or chart (Adizes, 2004:62). Management is
often ineffective, and as a result of their personal involvement, the founders have little time to
manage (Ibid:57).
When a major crisis happens and things go wrong, no one takes responsibility. The team
blames it on unclear communication and lack of authority. This frustrates the Go-Go leader
and he feels let down and betrayed by the team, as nobody warned him about the danger
(Ibid:59). The paradox of the situation is that the founder causes the chaos due to his single-
mindedness, which was mentioned earlier.
A love/hate relationship exists between the company and the founder (Ibid:70). When crises
appear, a Go-Go company loses more money in a week than it made in the previous year
(Ibid:65), and the typical reaction to such catastrophes is to implement control and get
organised. The company creates rules and policies, however the founder is the first to violate
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them (Ibid:65-66). In continuation of the love/hate relationship, the entrepreneurial leader is
often a bit paranoid due to his loss of authority via delegation of work tasks. Even if there is a
capable replacement, the founder may fear that a new leader will hijack the company and steal
the founder’s dream (Ibid:70). The main take aways from Adizes’ Go-Go stage is listed
below.
Table 4.4.4.3.1 Main Characteristics of the Go-Go Stage
Main Characteristics
Self-confidence and eagerness Everything is a priority?
Sales drive the ship Sales more important than profits
Some sales accepted that we cannot deliver Unclear communication
Unannounced, unruly and unproductive meetings Founder indispensable
Insufficient cost controls, ad hoc budgeting Leadership is frustrated
Ineffective management from key leaders Confusion in roles and responsibilities
No consistent human resources management Employees are frustrated
Company subject to criticism Infrastructure is a house of cards
Hope for miracles A major crisis occurs Source: (Adizes, 2004:73)
4.5 Analysis of Organisational Life Cycle In this chapter, the challenges the entrepreneurs are facing, at the different stages of the life
cycle, will be analysed. It is important to note that the analysis will identify the challenges
occurring for each entrepreneur, as opposed to comparing the entrepreneurs with each other.
This is because each start-up and entrepreneur have their own unique characteristics, and is
influenced by the environment and industry they are operating in. Furthermore, the authors
would like to stress that the OLC theory (see section 4.4) has not been widely tested in
practice. Meaning that most of the theory on OLC is based on“(...) statistic assessments of
mature organizations” (Cameron & Whetten, 1981:527). As Robert H. Miles explains;
“We know almost nothing about either the evolution of structures and processes
or the patterns of learning and decision-making that occur as organizations
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attempt to move from creation to maturity” (cited in Cameron & Whetten,
1981:527)
Also, Adizes’ theory is based mainly on the history of mature American organisations
(Adizes, 2004:XVIII). A further difficulty encountered with the theory is the development
from one stage to another. Not all organisations follow the same progression; some can be in
the Go-Go stage for years, while for others, it can be a matter of months.
This has posed a challenge for the authors, to place the seven start-ups in their appropriate life
cycle stage, seeing that neither of them can be considered a ‘mature’ organisation. Therefore,
based on the empirical evidence, the authors have placed the companies in the stage, where
the most common denominators are similar, i.e. where the characteristics of the stage match
the qualities of the entrepreneurial start-up. This grouping of the entrepreneurs is not definite,
as the authors take into consideration that some of the characteristics occurring in one stage
are likely for a start-up to experience even when placed in a different stage.
None of the start-ups seemed to fit in the Courtship stage, seeing that they are all formally
established and have a product on the market. Nevertheless, the Courtship stage is important,
as it serves as the foundation for the start-up. Four start-ups are deemed appropriate for the
Infancy stage; Shabenaa, Art District, EMP Group, and Company Y. The challenges for these
companies will be analysed in the following section (see section 4.5.1). IconFinder, HED, and
Company X share more characteristics with the Go-Go stage, analysed in section 4.5.2.
Lastly, the start-up, MPSOFTWARE, is considered to be the ‘black swan’ of the study, based
on his unique situation. This will be analysed further in section 4.5.4.
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4.5.1 Infancy Stage
The following will embark on an analysis of the Infancy stage.
4.5.1.1 Commitment
“An unequivocal commitment to their vision” (McMorrow, 2013), this is what the finalists of
the ‘entrepreneurs of the year’ award all have in common, accordingly, to be a successful
entrepreneur you need to have unwavering commitment to your start-up (Ibid). Although not
all entrepreneurs need to win an award to be considered successful, it is vital for their success
that they are committed to the start-up in the Infancy stage. Nana had this experience when
she entered the Venture Cup competition; “(…) even though you don’t get [to participate in]
Venture Cup it is not an indication that you don’t have a good idea and [that] it isn’t possible
for you to start up” (A3, Nana 20:45). She demonstrates her commitment to the idea, even if
others do not share her viewpoint.
Three of the characteristics in this stage, as established in the theory, are sustained
commitment, commitment not threatened by risk and founders’ commitment tested. Adizes
explains that the entrepreneurs “(...) cannot let their dream die” (Adizes, 1999:40); otherwise
the start-up would die along with the dream. Nana expresses this kind of unwavering
commitment to her dream;
“(…) the company is driven by our personality, that we really wanna do this and
that we believe in the product. And you have to do that if you want to start your
own company because many people are gonna say that it’s never gonna work”
(A3, Nana 3:15)
Commitment can also be expressed in a more exaggerated manner, as Adizes explains that
entrepreneurs sometimes view their start-up as the “(…) ticket to immortality” (Ibid:40),
meaning they wish to leave a legacy behind, as the late Steve Jobs did. Louise reveals her
commitment to Art District through her creative side: “I just (…) love the possibility of
creating little miracles every day, everything can happen and all types of people and projects
can come your way” (A2, Louise 28:46). She also quit her stable job to fully commit to the
start-up (A2, Louise 33:58). Daniel made a similar choice, when he quit his job at Company
X, after it had been sold, so he could engage himself in his new start-up, Company Y (A5a,
Daniel 12:45). Experts disagree on the matter of quitting your job too early, however one
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group claims that you cannot start a successful business if you have a foot in both doors; you
need to be committed from the beginning (Klein, 2012).
Entrepreneurship is easily associated with hard work (see section 4.1.2), but with hard work
and the risk of starting your own business, the doubts can start creeping up. Like Nana
explains in the quote above, many people are going to be critical towards the idea, and
naysayers are common in this environment. What is important is that the entrepreneurs stay
faithful to their commitment. EMP group clearly demonstrates their commitment during hard
times;
“We were very close to [shutting down], there was basically nothing going on in
the company for months (…) [the] company was kind of closed down” (A6, Niels
27:40)
“The problem with the enterprise model is that you do the sale, it takes a long
time, months and months, just to get the first meeting, and then you have to go
through all these people making decisions, and in the last second you spend
numerous hours on this and they just say ‘nah, I’m not interested’ (…)” (A6,
Dennis 21:55)
However, even though they almost closed, they still had a sense of commitment to the
company, they identified their problems, and changed the product to become a more self-
service model, and today they are happy that they did not close, as they believe they are on
the verge of explosive growth (A6, Niels 1:16:18).
Louise also expressed moments of doubt, as she was “(…) staring at the ceiling for a month
every night [thinking] ‘what the FUCK am I doing’ – so scary” (A2, Louise 19:05), she
continues to explain “(…) of course there are doubts, speculations and worries” (A2, Louise
40:02). But she did not give up on her dream, as she got reassurance and proof of concept
from both customers and artists (A2, Louise 19:28). Also Nana saw a proof of concept early
on, which made her promptly reply “No!” when asked if she had had any doubts (A3, Nana
33:43).
4.5.1.2 Early Stage Financing
Financing in the early stages is somewhat of an endless circle, as the entrepreneurs need cash,
this cash is acquired from sales, which is predetermined on resources. Thus, in order for sales
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to grow the need for resources becomes greater, and vice versa (Adizes, 1999:42 & Oliver,
2011). In the beginning of the start-up, personal resources can prove to be more than just a
cash advantage. As the theory highlighted, when an entrepreneur invests personal funds it
sends a signal of commitment and dedication to the start-up.
Art District is founded by Louise’s partner, who invested the starting capital (A2, Louise
24:06), and Company Y is partly founded by the money Daniel gained from the sale of
Company X (A5a, Daniel 12:45). Nana explains, in another interview, that her partner
borrowed money from the family, and Nana took a bank loan with her parents’ house as
security (Start op, 2012:49). Later in the process Nana was able to get a bank loan to further
grow her company; however she described this as being “pretty lucky” (A3, Nana 25:30).
Securing more finances, than just the initial start-up capital, can prove to be a challenge as
well. As a means to secure finances, the entrepreneur can engage in bootstrapping (Atherton,
2012:31). EMP Group utilises bootstrapping extensively, and they explain both the upsides
and downsides to bootstrapping;
“We are having consultancy jobs on the side, it has been very important for
bootstrapping, because it gives a lot of cash quickly and you’re not really tied into
anything. For every hour we sell, we can pay three internal hours” (A6, Dennis
36:51)
“(...) since we are bootstrapping it takes a lot longer to get to where we want to
be at” (A6, Dennis 12:35)
“(...) it’s harder [Dennis: it takes longer], it’s more painful (...)” (A6, Niels &
Dennis 34:14)
They are happy that they decided to do bootstrapping because they now can reap the benefits
of not having any investors to share the company with, or any interest to pay off. Further,
Niels explains that they will stop bootstrapping when they have enough customers and
income to pay everyone to work fulltime in the company (A6, Niels 37:57). Daniel also
explains how they used bootstrapping in the very early stages of Company X27 by offering
side-products (A5a, Daniel 25:57) and acquiring personal bank loans (A5a, Daniel 31:43).
27 Company X is considered by the authors to be in the Go-Go stage, however before they were in the Go-Go stage they utilised bootstrapping within the Infancy stage.
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Bootstrapping can therefore be considered as an important tool for entrepreneurs to gain
access to finances, when not being eligible for investments or loans (Atherton, 2012:38).
For Art District it is all about cutting costs, which helps release the pressure of the forecasted
growth rate (A2, Louise 5:28). An example of how they keep costs low is by hiring interns
and having volunteers (A6, Louise 2:12), who generally have a lower, or no, pay rate. Daniel
also keeps his costs low at Company Y by having interns; he argues that in return they get a
high level of responsibility that they would not otherwise get in a big firm (A5c, Daniel). This
statement is contrary to what the theory stresses, that leaders in this stage cannot delegate
work and practice autocratic leadership. Again this comes back to the limitations of the OLC,
namely it being based on larger corporations.
Another type of financing, which can be acquired by entrepreneurs, is grants. As EMP Group
placed 2nd in Venture Cup in 2009 they won a money prize, however Dennis explained that;
“(…) a 130,000 [DKK] really doesn’t go a long way, it sounds like a lot of money, but it’s
really not” (A6, Dennis 56:08). They used the money to buy IT equipment infrastructure.
IconFinder won a similar money prize from Venture Cup in 2011; he, as well, expressed the
same lack of enthusiasm regarding the prize (A4, Martin 6:52). Daniel was also close to
receiving a grant of 750,000 DKK to go to Company X, even though they had the pre-
approval, the grant was eventually subtracted due to a new government (A5a, Daniel 29:52).
Another type of grant utilised by the entrepreneurs is the student support in Denmark, SU,
especially Daniel would not have been able to carry on working in Company X without it. He
explains that he prolonged his studies in order to stay eligible for SU (A5b, Daniel 12:46).
Nana received unemployment benefits, i.e. dagpenge, after she had finished her degree (Start
op, 2012:47), something, which allowed her to work on the company without the pressure of
expected sales growth. Her pay from Shabenaa continues to be at the level of unemployment
benefits (A3, Nana 29:10), a strategy that Louise also has chosen. In the beginning she was
paid at SU levels, however to cut costs and stress, she decided not to receive a pay check
anymore (A2, Louise 5:28; 33:14). What is important to note in this connection is that
entrepreneurs often do not start up a business for the money, but for the realisation of the
dream (Burns, 2007:98-99), thus the low pay is a way to cut costs in the beginning.
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Investors are a third kind of financing, entrepreneurs can attempt to gain, however difficulties
often arise in the early stages of the start-up. Both EMP Group and Shabenaa had considered
attracting investors, but eventually decided against it, even when offered;
“(...) in the beginning investors want a lot of shares for very little money” (A3,
Nana 25:30)
“(...) a lot of investors came after [an article in Børsen], and wanted to buy the
company and give us a lot of money, but it wasn’t right. Not because we didn’t
want to give it up, but just because we didn’t want to give it up for nothing” (A3,
Nana 36:06)
“I don’t think we would have ever taken it, because usually they get 30 or 40% of
the company” (A6, Dennis 31:27)
“We had an offer, but that was a small amount of money, and they still wanted a
big cut of the company” (A6, Dennis 33:50)
According to Adizes, it may have been beneficial for the two start-ups to reject the investment
offers, as he argues that you lose the commitment to the start-up, if a too big share of the
company is ‘given away’ (1999:43). From the beginning, Art District decided against the use
of investors, as they wanted to “(...) do it on their own, we wanna decide (...)” (A2, Louise
24:06). To return to EMP Group, their current focus is to get more customers, and as they
argue, “(...) money won’t really help that” (A6, Niels 1:16:03), and Nana is more interested in
gaining a partner who can aid in distribution (A3, Nana 10:20; 11:18).
4.5.1.3 Product Orientation
In the Infancy stage the start-up is mainly focused on validating the product on the market,
and one of Adizes’ stage characteristics, in this relation, is ‘Initial product or service concept
fails and is replaced by another’. This problem occurred for EMP Group, as they, in the
beginning, focused on selling their product to larger companies; they then discovered the
difficulties in this and decided to change the format to focus on smaller companies. As they
explain;
“(...) before it was a concept of doing enterprise sales (...) it is very hard, because
big corporations only do business with big corporations (...) it takes years and
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years to do one sale. So, we kinda wanted to switch to a more self-service model”
(A6, Dennis 19:30)
“(...) [when doing enterprise sales] one person is fulltime managing that
customer, and we wanna get out of that, because that is not really a scalable
business model” (A6, Dennis 21:55)
“We wanted to make something that was easy to sign up for, so that small
companies could go in, and just [Dennis: use it without assistance] and for a
small fee use it, instead of relying on this big enterprise sale” (A6, Niels &
Dennis 20:07)
Therefore, EMP Group is remodelling their products’ platform and webpage etc. to create this
self-service model (A6, Dennis 18:49). However, until they have a more stable customer base
and validation of their new product, they cannot enter the Go-Go stage. They do explain that
customer recommendations and testing the product on the market are their priorities (A6,
Niels 1:00:24), and their fast response time and flexibility are their greatest assets, making
them fairly successful in the Infancy stage. Nana is experiencing somewhat of a similar
problem with her product;
“(...) we want to make a newer version of ShaveSafe, and that is because
ShaveSafe is a biocide (...) which is a classification of the product (...) that is quite
hard to get in other countries (...) mainly very expensive. But if you can make it a
cosmetic product then it is free to bring to the market” (A3, Nana 7:59)
Nana also highlights other difficulties, she has experienced in her growing phase, such as
having a terrible accountant, and she needed a great deal of help when applying for a patent
(A3, Nana 23:48; 26:12). She now hopes to make a deal with a bigger distribution company,
as among other things they “(...) know everything about regulations [and] laws” (A3, Nana
7:11). Louise also explains that as an entrepreneur you have to learn how to do everything
yourself, such as VAT regulations and creating a web shop (A2, Louise 4:24; 15:18). The
same situation is occurring in EMP Group, when Dennis explains you have to be flexible in
your work tasks (A6, Dennis 15:42). This indicates, that in this early stage of growing, no
structure has emerged yet.
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4.5.2 Go-‐Go Stage
As can be read in the theory chapter, the organisation transforms from the Infancy stage to the
Go-Go, when it manages to establish a successful product or service, rapidly growing sales,
and strong cash flow (see section 4.4.4.3.). This stage is driven by sales, and not profit.
IconFinder is the first search engine focused on icons, and was established in 2007. The
authors perceive IconFinder to be a company located in the advanced part of the Go–Go
stage. The company has its marketplace online and has been strongly recognised on the global
market with almost 2.5 million visits per month and a download of 100 millions icons
(Bryant, 2013). As stated by Martin, IconFinder has a rapidly growing sale, where the focus is
on growth and not on profit (A9, IconFinder).
HED, with its innovative product, has successfully managed to enter the market in twenty
different countries all over the world (see chapter 2), and furthermore sign a contract with one
of the largest companies within the dialysis field (A8, Mads 08:25). Additionally, Mads states
that HED has a relatively slow growth, however they did have an increase in sales of 55%
compared to 2011 (A9, HED). Furthermore, Mads stresses that the industry, in which HED
operates (dialysis clinics and hospitals), was significantly affected by the economic crisis (A8,
Mads 38:50), and that is why the growth of HED is stable considering the industry. At this
stage, HED has its focus on growth rather than on profit (A9, HED).
Furthermore, Company X, after seven-eight years of prospering on the market (A5a, Daniel
22:47), was experiencing a very fast growth and was considered amongst the fastest growing
IT companies in Denmark (A5a, Daniel 21:15; 22:21), just before the sale to Company Z in
2007. The focal point of Company X was growth and sales, which is currently the strategy of
HED and IconFinder.
Both HED and IconFinder found investors – Østjysk Innovation and Vækstfonden – who
made it possible for them to keep a positive cash flow and keep the centre of attention on the
companies’ growth process and selling the product on the global market (A4, Martin 08:10;
29:45; 30:17 & A8, Mads 05:20; 14:43). When Company X transitioned to the Go-Go stage,
it became profitable and had its focus on reaching more customers (A5a, Daniel 21:12;
31:43). The investors’ trust in IconFinder and HED can be explained by research done by
Bengt Johannisson & Mette Mønsted, on the Scandinavian market, which shows that male
entrepreneurs are more recognised than females. Meaning that males have greater access to
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institutional support (e.g. Vækstfonden and Katapult) (1997:116). Further, the right
connections can be necessary for securing funding, as seen in the case with HED, but it is not
sufficient in order to succeed as an entrepreneur. Thus, the authors presume that gaining the
necessary funding does not secure sustainable growth, unless the founders have the ability to
successfully develop their business ideas.
According to Adizes, the company in the Go-Go stage moves quickly and is powered by its
initial success. The founders start to feel that they can succeed in almost anything and start to
get involved in diversified businesses, without having the needed knowledge. The company
rushes to close new deals, and therefore the business may become unprofitable despite
growing sales. HED does to some degree correspond to the description of the Go-Go
characteristics. They are very confident in relation to how the company is developing and
planning its expansion;
“ (…) we had the biggest turnover last year (…) [we] grew 55% compared to
2011, and this year it is going to grow something like 15 maybe 14% (…) we
signed the deal with the Swedish company Gambro, which meant that we could
expand to further markets, then we also signed a deal with a Japanese company
who are now distributing in Australia [and] New Zealand (...) they represent a
huge potential, (...) [it is] the greatest success that we could’ve ever hoped for.
(…) so our goal is to span the globe with this product. There’s no doubt that we
want to be on all continents, (…) so we are growing (…)” (A8, Mads 19:31)
“(…) we want to just start a small business empire, in the sense that we really
want to be making a lot of business, not in terms of HED but also with
Hemdorff/Veedfald and just joining really (...) good companies that have the
possibility to grow” (A8, Mads 52:27)
IconFinder also expresses this confidence inspired by their initial success, and describes their
future ambitions;
“We want to challenge the already established players, such as Google, by
focusing on a niche where Google’s approach is too broad and therefore cannot
compete effectively. The market for graphical computer icons is experiencing
significant growth – especially due to the increase in touch screens that use icons
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both in the programmes and as a form of logo - such as Apple’s App Store”28
(Kanberg, 2012)
“I have a feeling that in 10 years, there is someone who has bought us (...)”29
(A4, Martin 31:23)
The theory emphasises that the company, by continued success, can transform founder’s
confidence into arrogance quickly if not prevented. However, neither Mads nor Martin, by
being confident in what they do and how they direct their companies, show an arrogance that
could lead them to a crisis situation caused by hasty decisions or not thought through
investments. On the contrary, both of them demonstrate a very well understanding of the
industry, in which they operate, and are of the belief that ‘Rome was not built in a day’ and
know from experience that it takes time to develop a business (A4, Martin 30:17 & A8, Mads
23:15). Moreover, neither of them is currently involved in businesses outside their scope.
Mads, together with Kristian, is involved in two more start-up companies:
Hemdorff/Veedfald; a consultancy company with focus on helping other start-ups, and
ABseal, a company where both of them were headhunted for CEO positions, to develop a new
medical device (A8, Mads 09:00). The skills and knowledge to run and lead these new start-
ups were acquired during the process of running HED (A8, Mads 17:17).
Taking into account everything stated above, it is clear to notice the correlation between the
theory, surrounding the Go-Go stage, which stresses the focus on sale, and what is occurring
in practice. HED and IconFinder have their main focus on growth, and what will
automatically follow is an increase in sales. Neither of them have been fanatically
concentrated on increasing sales, meaning they have not been pushing the product to the
market, which is contrary to what Adizes predicts in the Go-Go stage.
According to the theory, the Go-Go organisation is very much opportunity-driven, rather than
opportunity-driving, and this causes the business to be unprofitable. Although, the authors
were never introduced to any of the yearly financial results, from any of the companies, the
general impression, from the interviews and press articles, is that the growth strategy is not
28 Free translation of: “Vi vil udfordre de etablerede spillere som Google ved at fokusere på en niche, hvor Google er for bred og derfor ikke kan konkurrere effektivt. Markedet for grafiske computer ikoner er i kraftig vækst ‒ særligt på grund af det øgede antal touchscreens, der benytter ikoner både inde i programmerne og som en form for logo i fx Apples App Store.” 29 Free translation of: ”Jeg har på fornemmelsen at om 10 år, så er der nogen, der har købt os (…)”
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based on chaotic and uncontrolled actions. Both HED and IconFinder are realistic in their
outlook on their companies’ future development, as they see both the risks and opportunities.
What is more, it is them who drive the opportunity, not vice versa. For instance, Mads
describes his attitude towards risk by choosing to perceive it as an opportunity;
“(…) I didn’t feel that there is a risk [of failure]; it is much more an opportunity
(...) that is sort of my general idea about it, an opportunity rather than a risk”
(A8, Mads 46:56)
Martin shares a similar attitude, as he describes how an unexploited business opportunity was
seen as a chance;
“(…) there are not really that many who have been serious about icons yet, and I
think that we have been the first to really take a chance on it”30 (A4, Martin
10:40)
Normal characteristics in the Go-Go stage are unclear communication and unclear
responsibilities, which can spiral out of control if a crisis occurs. However, these normal
characteristics are counter argued by the empirical evidence, especially when looking into
IconFinder’s organisational structure. Martin and his partner Steffen have clear
responsibilities when it comes to managing the company, as well as Nick, who is employed as
a designer (A4, Martin 25:54). It is lucid that everybody have their own tasks and take
responsibility for their own actions;
“(…) we also have a risk of being sued if we make some mistakes, so both Nick,
Steffen and I are not employed as regular employees but as managers, meaning,
we take responsibility for the things we do, we have a board, in principle, but it is
me who gets fired first because I am the CEO, so if Steffen does not do his job
30 Free translation of: ”(…) der er ikke rigtig så mange, der har været seriøse omkring ikoner endnu, og der tror jeg at vi har været de første, der ligesom har satset på det.”
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properly, I should take action, if I won’t, the board will fire me for not firing
Steffen, (…)”31 (A4, Martin 26:33)
Also, Mads and Kristian seem to have control on all three start-ups, and now they are taking
two interns under their ‘wings’, who will help them in assisting in the daily operations of their
companies (A8, Mads 17:17).
The decision to sell Company X, in the moment of significant growth, was taken due to:
premature profit orientation, unclear communication, ineffective management, frustrations
and feeling of betrayal by the team. Even though, no major crisis struck the company, the lack
of communication and the different focuses of the four founders made them take the decision
to sell the very promising business. Daniel was one of the four founders, who were most
involved in the company (A5a, Daniel 25:00), as two of the four partners became inactive
within the first six years of running the business. Back in 2002, the founders created a
shareholders’ agreement, in the case of a situation, where one of the partners decides to leave
the company. The agreement stated that the three active members would make final decisions,
in regards to the company, and decide wages of the active members. The agreement did not
take into account a situation, where two shareholders would become passive;
“(…) now we had a situation that two shareholders were active and two
shareholders were outside, and those two outside would like to sell the company
(…) and those two inside, me and another guy, we would like to stay (…) ‘why
should I work for you [passive shareholders], when you don’t do anything?’”
(A5a, Daniel 20:51)
This situation obviously caused most of the problems, and as a consequence it led to the sale
of Company X, in its most favourable position (A5a, Daniel 18:50).
To some extent, the case of Company X shows that the management was ineffective, as only
two out of the four founders were actively involved. This can be the result of the founders’
personal involvement in other activities, and consequently having no time or desire to manage
31 Free translation of: ”(…) så har vi også en risiko for at blive sagsøgt, hvis vi laver nogle fejl, altså både Nick, Steffen og mig vi er ansat som direktører og ikke som ansatte dvs. at vi skal stå til ansvar for de ting vi gør, vi har en bestyrelse i princippet og så er det jo mig, der bliver fyret først, fordi jeg sidder på CEO så dvs. hvis Steffen ikke laver sit arbejde ordentligt, og jeg burde have grebet ind så fyrer boardet mig, hvis jeg ikke har fyret Steffen, (…)”
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the company. This case exemplifies the paradox mentioned earlier in the Go-Go stage, that
the founder himself causes the chaos (i.e. the two inactive members), when the company’s
situation on the market is otherwise healthy. As Daniel admitted, he would have bought the
shares from the other co-founders, if he had had the money (A5a, Daniel 23:54).
Daniel followed Company X to its new owner, Company Z, and continued to work with
Company X for another one and a half years (Linkedin, 2013b). All along, it was a known
agreement that the intention, with the switchover, was to eventually buy back his share of the
company with the promised stay-on bonus, yet, when the time came, this arrangement was
denied (A5c, Daniel).
The theory states that within the Go-Go stage, the founder may turn a bit paranoid, and is
terrified of a new leader hijacking the company and thereby stealing the founder’s dream. The
authors argue that Daniel’s behaviour is fairly in keeping with the theory, as it is clear that
Daniel only decided to come and work at Company Z, because he was promised that he
would be able to buy back ‘his baby’.
Furthermore, as a result of joining a new and already established organisation (Company Z),
Daniel had to comply with new company rules and policies, something he was not used to.
According to the theory, a complex company structure can lead to a love/hate relationship
between the company and its founder. Daniel most likely experienced a love/hate relationship
due to his loss of influence and authority. This combined with the rejection to buy back his
part of the company ultimately led to his termination and loss of the promised stay-on bonus.
Within a short time period, Daniel started his new company, Company Y.
4.5.3 Sum Up of Development Phases
The analysis of the Infancy and Go-Go stage has shed light on another weak point of the
theory; the theory covers the changes in the organisation, but neglects to take into account the
product life cycle. Using IconFinder and HED as examples: they are in the same
organisational stage, however their products, and subsequently industry, are very different. It
can take several years in the medical industry to get a product approved, where it only takes a
couple of minutes for Martin to upload another icon to his website. It would therefore be
easier for IconFinder to grow into another stage, where HED are experiencing larger barriers
that could strand them in the Go-Go stage for years.
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The OLC theories are developed at a time where companies were following the traditional
manufacturing strategies, but since then the IT development has created new types of
businesses not selling tangible products. Even current research papers on OLC are using the
models from the original papers, which could help to explain why the authors find it difficult
to place MPSOFTWARE in a stage, as the stages do not take IT companies into account.
4.5.4 Stagnation Stage
It was mentioned in the introduction that MPSOFTWARE is considered, in this study, to be a
‘black swan’, as the company does not match, with its characteristics, to any of the five stages
within the development phase presented in Adizes’ model. The company has progressed to a
stage beyond the other entrepreneurs. Despite this, the authors have managed to find some
similarities with one of the stages in Adizes’ model, namely the Stable stage. This stage is the
first step into the aging process, and is dubbed by the authors the Stagnation stage (cf. the title
of this section).
One of the symptoms occurring, as a company is entering the Stagnation phase, is that they
start to lose their energy and thus begin to age (Adizes, 1999:115). The forthcoming quote
from Michael indicates that running MPSOFTWARE is not as exciting, as it was previously;
“(...) [I run the company] one hour a day, it can also be zero, it depends on my
mood (...) it is not the classical 70-80 hours, I did this in the beginning (...)”32
(A7, Michael 28:10)
When an organisation first begins to age, the signs will not show up on its financial reports.
As Michael said “(...) last year I made the best result ever, by virtually not doing anything”33
(A7, Michael 20:45).
Later, Adizes explains that very often companies, in the Stable stage, are cash rich and have
strong financial statements (1999:115). He elaborates further by saying that an organisation,
which wants to grow, will consume more cash than is actually available. However, when a
company is in the advance aging stage it has more money in the bank, than it can use, and no
32 Free translation of: “(...) en time om dagen, det kan også være nul, det kommer lidt an på, hvad jeg har lyst til (…) det er ikke de der klassiske 70-80 timer, det brugte jeg i starten.” 33 Free translation of: “ (...) sidste år lavede jeg det bedste resultat nogensinde, ved stort set ikke at røre ved min organisation.”
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plan on how to use them (Ibid:123). Michael explains that during his studies MPSOFTWARE
was cash rich;
“(…) it has always been a sole proprietorship for many years, so it was running
fine alongside my studies, that is I had a turnover of about 1 million [DKK], so
that is okay SU money”34 (A7, Michael 13:11)
When an organisation starts to age, the first problems appear in the attitudes, outlook, and
behaviours of the leaders, as “Aging starts in the mind with changes in attitude and goals”
(Adizes, 1999:116). It is lucid that Michael’s attitude, towards starting up a company and
growing it, has changed over the years;
“(...) one thing's for sure, I’m not going to start up alone again (...) been there
done that, it’s not worth it, there are so many other prevailing factors. ‘But there
is money in it’ - fine, but that is not what I need, I need other things; the social
values (…)”35 (A7, Michael 35:10)
“(...) it [the company] has always been sort of side-tracked, it does not mean that
I’ve not focused on it, because I have been 100% focused on it, but there’s
something missing in terms of being self-employed, some partnership or someone
to spar with”36 (A7, Michael 19:49)
According to Charles Gow, the aging starts within a company culture; “When things stop
growing, they begin to die” (cited in Adizes, 1999:119). Michael is experiencing something
similar;
“(...) I was more frustrated as to ‘why does it not grow more after 5 to 6 years’, I
still make the same 60 to 100,000 [DKK] a month, which is a nice income to have
34 Free translation of: “Men det har været en enkeltmandsvirksomhed i rigtig mange år, og det kørte jo fint ved siden af studiet, altså jeg omsatte jo vel for 1 million om året cirka, så det er ok SU penge.” 35 Free translation of: “(…) for en ting er sikker, jeg ville ikke starte op alene, det gider jeg ikke, been there done that, det er ikke det værd, så er der så mange andre faktorer, der gør sig gældende, jamen der er jo penge i det, det er fint, men det er ikke det jeg har behov for, jeg har brug for nogle andre ting, de blødere værdier.” 36 Free translation of: “(…) så har det altid kørt på et sidespor, og det har ikke betydet, at jeg ikke har været fokuseret på det, for jeg har været 100% fokuseret på det, men der mangle den og et i forhold til at være selvstændig, noget partnerskab, nogen at sparre med.”
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(...) so financially speaking I’m not complaining, but it has just been too static”37
(A7, Michael 48:50)
Adizes explains, when there is success within a company, for a longer period of time, people
become satisfied, and they are content to depend on the momentum created in the past. The
position in the marketplace gives a sense of security and the company starts to avoid taking a
risk, as the risk is perceived as being too high. All this develop an attitude within the
company; “If it ain’t broken, don’t fix it” (Adizes, 1999:119).
Michael expresses his worries and reservations towards risks, and clearly avoids taking a risk,
in order to move forward from the Stagnation stage, where he is trapped;
“(...) I miss some partnership, to dare to take the next steps (...) you build up this
comfort zone, which is difficult to get out of, this has restrained me”38 (A7,
Michael 38:18)
Michael’s full time job (‘on the side’) for a large American corporation, Symantec, gives him
an even greater ‘safety blanket’ and keeps him in this Stagnation stage;
“(...) I am paid quite well in this business, Symantec, this is also creating this
extra comfort zone, and it obviously means that my focus is not always on my own
company”39 (A7, Michael 40:15)
Another aspect visible within MPSOFTWARE is the lack of urgency, which is also one of
the characteristics in the Stable stage; “Managers (…) spend increasing amount of time in the
office, reducing the time they spend in the marketplace or on the firing line” (Adizes, 2004),
meaning that things, around the company, start to be less important than it used to be. In the
case of MPSOFTWARE the increasing amount of time in the office can be interpreted as his
full time job in Symantec, and the reduced time spent in the marketplace is basically his
company as well as the products he develops and sells;
37 Free translation of: “jeg var mere frustreret over, hvorfor vækster det ikke mere for altså 5-6 år efter, så laver jeg stadig det samme altså 60 og 100 tusind om måneden, det er jo en fin indtægt at have (…) så økonomisk der klager jeg jo heller ikke på hvordan tingene ser ud, men det har bare været alt for statisk.” 38 Free translation of: “(…) som sagt jeg savner noget partnerskab til at turde tage de næste skridt (...) men du har fået opbygget en vis comfort zone, som du ikke kan bevæge dig ud af, så det har hæmmet mig.” 39 Free translation of: “(...) også er jeg (…) rimelig godt betalt i den her forretning Symantec, det er jo også med til at skabe den ekstra comfort zone og det gør jo, at mit fokus ikke altid er på min egen virksomhed.”
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“(...) in the past I made (…) software releases and product releases about every
other month. Today I make it every six month, you know when I find a weekend,
where I can sit down and code a little bit”40 (A7, Michael 40:47)
“(...) my product is a mature product, so I feel comfortable enough with only
developing it once in awhile, and not everyday as I did before”41 (A7, Michael
41:08)
4.6 Sub Conclusion of Organisational Life Cycle The theoretical chapter and the subsequent analysis have endeavoured to answer the second
research question, which reads;
WHICH CHALLENGES DO ENTREPRENEURS FACE IN THE DIFFERENT STAGES OF GROWING THE
START-UP COMPANY?
The theoretical chapter illustrates that entrepreneurs face different challenges; depending on
which stages of the OLC they are situated in, especially as the different stages have their own
sets of characteristics.
In the Courtship stage the idea is formalised, and in the Infancy stage the challenges start to
accumulate. The theory identifies challenges such as resource acquisition, developing and
testing the product, flexibility, and founders’ commitment. The analysis shows that acquiring
resources can be a challenge for the entrepreneurs, as they attempt to gain financial resources
through grants, investments, bootstrapping, and personal funds. All of the entrepreneurs claim
that the lack of resources is keeping them from growing. The development of the product can
also put a damper on the growth, as two of the entrepreneurs discovered that the product
needed to be adjusted to sustain growth. Commitment cannot be identified as a challenge, as it
is needed to endure all other challenges. However, if the entrepreneurs lack commitment, it is
questionable, if they will grow at all.
The challenges and concerns, identified in the theoretical chapter, for the Go-Go stage, are
those of an overly confident founder, sales-over-profit orientation, unclear communication,
and unclear responsibilities. However, what the analysis shows is that the companies do not
40 Free translation of: “(…) før i tiden, der lavede jeg jo (…) software releases, produkt releases hver anden måned cirka, i dag der laver jeg det hver halve år, når jeg lige finder en weekend hvor jeg kan sidde ned og kode lidt.” 41 Free translation of: “(...) mit produkt er jo også et modent produkt, og derfor har jeg det ok i maven jeg udvikler kun på det i ny og næ, og ikke hver dag som jeg gjorde førhen.”
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share these characteristics, as they have clear communication and responsibilities.
Furthermore, the focus on sale, as opposed to focusing on profit, does not pose a challenge for
them, as they have a modest approach to their success, as well as financial backers. A
challenge, which prevailed, is in the case of Company X, as miss-communication and
different priorities of the four founders resulted in the forced sale of the company. This
indicates that, in this stage, the problems derive from the founder, as the theory identified.
The Stable phase identifies the passiveness, as the biggest challenge, which the analysis also
alludes to. Nevertheless, the theory falls short in some areas; especially it neglects to take into
account that every company develops at its own pace, have its own characteristics, and that
companies operate in different industries and environments. As the OLC theories do not take
into account the technological development, and how it affects business structures, it poses a
struggle for adequately analysing the challenges of start-up companies.
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4.7 Marketing Seeing that the authors apply an abductive research strategy, which “(…) constantly varies
between empirical and theoretical work in an ongoing process (…)” (Halkier, 2001:44), the
authors have chosen to extend the current investigation by including the marketing tools that
may be of help when growing a start-up. This choice is based on ‘emergent perspectives’ that
was recognised during the empirical research, as the entrepreneurs commonly use similar
marketing tools to facilitate growth in their start-ups. Therefore, this will be taken up within
this chapter, as the marketing subject was not covered within the OLC theories.
The term entrepreneurial marketing describes the marketing activities of smaller enterprises,
and it has an emphasis on adjusting the traditional marketing models to those appropriate to
smaller enterprises, as attempts in the past have failed to adapt and apply traditional
marketing models to small enterprises (Jones & Rowley, 2011:26).
It is known that often entrepreneurs have no marketing-money due to limited resources, which
was also mentioned within the investigation by e.g. Art District and Shabenaa (A2, Louise
21:35 & A3, Nana 6:60). Consequently, entrepreneurs tend to have different approaches to
marketing; these will be highlighted shortly.
Entrepreneurs regard word of mouth (WOM) as one of the most important ways of
transmitting marketing messages, and David Stokes & Wendy Lomax define WOM as “all
interpersonal communication regarding products or services where the receiver regards the
communicator as impartial” (Stokes & Lomax, 2002:350). The success of WOM is explained
by the trustworthiness of the recommender (Alpert & Roberts, 2010:199), which is closely
connected to the impartiality of the recommender. The investigation shows that WOM is
widely used by the entrepreneurs, as a way to spread their business message;
“(…) people are sharing, I’ve had many customers saying that ‘I just have to tell
my friends’, because they had a good experience, and that means the world (…)”
(A2, Louise 23:13)
“We didn’t have any marketing money (…) so it was a lot of word of mouth (…)”
(A3, Nana 6:40)
In relation to EMP Group, the WOM approach is especially relevant, as the commodity that
they are selling can be defined as a service, and according to Stokes & Lomax services are
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more dependent on referrals, as it is extra difficult for customers to assess the quality of a
service (2002:35). Thus, it can be said that EMP Group are heavily reliant on the WOM
marketing method, seeing that the quality of their commodity cannot be explained in detail
through traditional media outlets;
“Everybody want (…) something they can relate to, ‘can I call up this guy, and
ask him how they are using the product?’ ‘What are the benefits for other people
who have used the product’, (...) [Dennis: (…) so you need to say, ‘okay we did it
for this company, it saved them x amount of percent, or money, or time or
whatever (…)]” (A6, Niels & Dennis 1:03:52)
Furthermore, EMP Group’s website also incorporates WOM aspects, as they include
customers’ testimonials (FORECAST.IT, 2013). These testimonials are more reliable than
traditional marketing (Stokes & Lomax, 2002:35), and therefore it is highly beneficial for
them to include them on their website. ShaveSafe also features customers’ reviews, written as
well as in short videos, on their website (ShaveSafe, 2013c). This is important for a product
like ShaveSafe, as customers may not trust the product by just seeing it on the website.
Digital marketing in the shape of e.g. social media, online reviews, blogs, company websites,
among others, is a powerful marketing tool, as it can lead to driving sales, profitability, and
loyalty (Edelman et al., 2012:2). The many advantages of digital marketing is gradually
recognised by more and more entrepreneurs (McKinsey, 2011), and as many of the online
marketing tools are free of charge, they automatically attract entrepreneurs with limited
resources. In the subsequent sections, the authors will demonstrate how the entrepreneurs,
included in the study, use various social media sites to their advantage.
Firstly, the entrepreneurs make sure to have a strong Internet presence by joining not one but
several social media sites;
“(…) a lot of traffic is coming from Facebook, Pinterest as well (…) we’re trying
out Instagram, and trying to see how it can be valuable for our business, Twitter
of course, Linkedin. So, we are there, but mainly Facebook (…)” (A2, Louise
23:35)
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Secondly, the entrepreneurs use these sites, as a way to “(…) get a really good dialogue [with
customers] (…)”42 (A4, Martin 24:20), and thereby manage their relationship with customers.
This is in keeping with the theory surrounding entrepreneurial marketing, as many
entrepreneurs view customer orientation as the “pillar of marketing” (Jones & Rowley,
2011:28).
Thirdly, social media also allows the entrepreneurs to involve existing and future customers in
product development, by including them to have influence on the process, as co-creators;
“(…) I spent a lot of time on it [social media], making sure that the user got a
sense of ownership in the development of the product, I had some small
development cycles, (...) and then the user could see that the functionality that
[the user] had requested, it was also being implemented (…), and it gives a sense
of ownership, a feeling that you have a part in this, and that it’s not just a big
corporation, who completely ignores these requests”43 (A7, Michael 23:04)
In addition to giving the customers a sense of ownership, social media is also used to generate
a ‘buzz’ around or before the actual launch date of a new product and/or feature, as was
expressed by Martin (A4, Martin 23:53).
The marketing advantage of start-ups is strongly linked to the close relationship existing
between the entrepreneur and his customers. This is in contrast to larger corporations, where it
is much more difficult to maintain the same close relationship to customers (Jones & Rowley,
2011:28). Consequently, the direct interchanges and the building of personal relationships are
a preferred marketing method amongst entrepreneurs (Stokes, 2000:51) compared to e.g.
impersonal marketing through mass promotions. Therefore, they seek conversational
relationships in which they listen and respond to customers’ inquiries (cf. the abovementioned
quote). Martin elaborates on this;
“(...) we do think a lot about how we can compete with Google, and we do that by
being a little more personal (...), they have thousands of employees, so they
cannot explain that here is the team, because there are so many people (…) what
42 Free translation of: “(…) på den måde kan man få en rigtig god dialog [med kunderne] (…)” 43 Free translation of: “(…) der brugte jeg rigtig meget tid på at sørge for, at brugeren får et ejerskab i udviklingen af produktet, så dengang havde jeg nogle små udviklings cyklusser, (...) og så kunne brugeren se, at den funktionalitet, som jeg [brugeren] har requestet, den var også implementeret (…), og det giver et ejerskab, det giver en følelse af, at man har del i det her, og at det ikke bare er en kæmpe stor virksomhed, som er fuldstændig ligeglad med de her requests.”
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we can do is that we’re a team of four people, so we can show pictures of people
who sit and work and have fun doing it, so if you’re a user, you can compare big
evil Google to little funny IconFinder, and in one way or another we get (…) fans
on a more personal level, we’re really trying to work on this, that is to get the
users to know who we are”44 (A4, Martin 24:35)
It is not only IconFinder that find it important to be personal with their customers; Art District
is also practising this approach, as they believe that the story behind the products, they sell, is
important;
“(…) we focus and differentiate [ourselves] by writing these articles about the
artists and products (…) so really, the stories are important to us, we really want
to show people that there is a (…) story, heart, and feelings [involved] (…)” (A2,
Louise 31:23)
In the same way that EMP Group have customer testimonials on their website, Art District
has something similar on their web shop. On the web shop45 Art District is promoting their
artists by uploading written descriptions and short aesthetic videos, where each artist is
portrayed (A2, Louise 31:31); the portrayals have the aim of giving the customers a personal
attachment to the artists as well as the products.
By creating pages on e.g. Twitter, Facebook, or Linkedin, entrepreneurs can use the high page
ranks and relevance of social media to increase the traffic around their own websites, and
thereby increase their own company’s page rank on e.g. Google (A7, Michael 24:22; 25:30 &
A6, Dennis 1:13:34 & A4, Martin 23:17). However, in order for this to happen, the social
media sites need to engage with the company’s own website. This means that it is necessary
to have all the important settings when creating the website, which can be a technical, but
definitely worthwhile process, as the visibility of the brand is improved immensely. While,
social media sites have its advantages, it is still important to consider if it is meaningful to the
company to join these sites, as Nana explains;
44 Free translation of: “(…) og så tænker vi meget over, hvordan kan vi konkurrere med Google, og det gør vi jo så ved at være lidt mere personlige (…), de har jo flere tusind ansatte, så de kan ikke forklare, at her er teamet, fordi der er så mange mennesker (…) det som vi så kan gøre, det er, at vi er et team på fire mennesker, så vi kan vise billeder af folk, der sidder og arbejder og har det sjovt, så hvis man sidder som en bruger, så kan man se store onde Google, og lille sjove IconFinder, så på en eller anden måde får vi (…) fans på et mere personligt plan, det prøver vi virkelig at arbejde bevidst med, at folk skal lære os at kende og vide hvem vi er.” 45 http://www.artdistrict.dk
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“(…) and then we also have a Facebook page (…) but [we’re] not [using it] so
much (…) we (…) found out that people (…) won’t commercialise their shaving
problems, so it’s not like ‘yeah, just bought this new cool product’ they wouldn’t
write about that on the social media, so it has been a little difficult to share it
(…)” (A3, Nana 37:50)
Instead of focusing on social media, Nana uses Public Relations in other ways. She explains
how she, in the very beginning of starting Shabenaa, went to the different magazines asking
them to “(…) please just try the product, if you wanna write about it it’s cool” (A3, Nana
34:13) as well as sending out free samples to beauty blogs (ShaveSafe, 2013c). Subsequently,
most of the magazines and blogs wrote positively about the product, which she says, “(…)
also proved that we actually have something here” (A3, Nana 34:45). In relation to this,
findings show that a high proportion of people find information posted on blogs as more
trustworthy information, opposed to traditional mainstream media (Naveed, 2012:908), which
is why blog-posts are really influential. However, in the case of Nana, it can be argued that
because the magazines are impartial in their recommendations, this can be viewed as trusted
information, even though magazines are considered mainstream media. Additionally, Art
District applied Public Relations in other ways than social media by e.g. appearing in blogs
(A2, Louise 21:15).
In addition to appearing in various magazines and blogs, some of the entrepreneurs also got
free publicity by doing interviews in the television, which can be said to be more of a
coincidence than a planned strategy – marketing wise. However, the free publicity did
contribute to an increased awareness (A2, Louise 7:10 & A4, Martin 34:44 & A5b, Daniel
7:53).
The chapter has outlined various marketing tools, which entrepreneurs may use to facilitate
growth in their start-ups. All of the aforementioned aspects have focused on a ‘one-to-many’
approach, meaning that entrepreneurs are able to reach many customers using only one
channel, e.g. Facebook. This helps to create a pull-effect from customers opposed to “(…) just
pushing all this crap (…)” (A2, Louise 23:06). What is meant from this, is that customers can
seek knowledge and information at their own request, as it is readily available online. Thus,
all of the abovementioned help to create an increased awareness and getting the word ‘out
there’, at a low cost, which is highly needed when bringing something new to the market.
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The authors want to point out that certain industries may require other ways to market their
products, than the ones presented in this chapter. For instance, HED, which operates in the
medical industry, does not apply the ‘one-to-many’ method, such as word of mouth, social
media, or blogs to promote their product. They rely on ‘one-to-one’, meaning that they brand
themselves in person at e.g. medical conferences or by trying to get meetings with distributors
(A8, Mads 49:35; 50:37).
As a closing argument, presence on the Internet is vital, as means of advertising and
marketing. Even though, social media may not be right for all entrepreneurs, having a website
should at least be a requisite, in order to successfully operate in today’s marketplace.
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4.8 Theory of Social Network and Networking The crucial element in establishing a business is the relationship between entrepreneurs and
those who provide the resources (Johannisson in Greve & Salaff, 2003:1). Networks help
entrepreneurs to acquire human, financial, and social capital, which they need to achieve their
goals (Hansen in Greve & Salaff, 2003:5). Though they hold some of these resources
themselves, in order to engage in business activities, they often complement their resources
by accessing their contacts in their network (Klyver et al., 2008:332).
To understand the entrepreneurial network, the following chapter will embark on a portrayal
on the importance of social networks and networking.
4.8.1 Entrepreneurial Network Theory
There has been a shift in the entrepreneurship literature from viewing entrepreneurs as
independent and rational decision makers, towards viewing them as embedded in social
networks (Hoang & Antoncic in Klyver, 2011:334).
Per Davidsson & Benson Honing found, in their study, that people embedded in networks
containing entrepreneurs, namely people who have parents, close family members, or friends
in entrepreneurial business, have a tendency to be entrepreneurial orientated (Davidson &
Honing, 2003:314-315; 317). Based on this, Kim Klyver et al. developed the assumption that
individuals, whose social networks include entrepreneurs, have access to valuable resources
e.g. useful business contacts, instrumental social support, and specialised knowledge about
the entrepreneurship process (2008:335).
4.8.2 Social Capital and Network
As mentioned earlier, entrepreneurs need information, skills, financial-, social-, and human-
capital to start business activities (Greve & Salaff, 2003:5). In economic terms, the financial
and human capitals are what define a company’s capabilities of production, or the backbone
of a company. However, the social capital is equally important, as it concerns the “relations
within and beyond the firm” (Burt, 2000:282). The social capital is the contacts one possesses
in one’s network and are a key component of entrepreneurial networks, therefore, social
capital is described by Ronald S. Burt, as the opportunities for the company to use its
capabilities (Ibid). Entrepreneurs’ social networks may include advisors, buyers, business
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partners, investors, customers, friends/relatives, mentors, shareholders, and suppliers (Klyver,
2011:338).
According to Burt, entrepreneurs’ networks have numerous properties, i.e. size, positioning,
and relationship structure (in Greve & Salaff, 2003:3). By size, Burt means that entrepreneurs
can augment their network in order to gain important information and other sources from the
experiences of others. Entrepreneurs position themselves within a social network to get access
to knowledgeable people, who possess the essential information, needed by the entrepreneur.
Finally, the relationship structure centres on the social contacts that may be related through
different types of relations and interactions (Ibid). In its simplest form a network is based on
the relationship or ties between social actors, and relationships which can be either ‘single’ or
‘multiplex’46 (Scott in Greve & Salaff, 2003:3).
According to research developed by Ed Boxman et al. (in Burt, 2000:285) the larger one’s
network is the more prone one is to obtain a higher position, as one has greater opportunities
to take ‘advantage’ of one’s network, i.e. the more contacts one has, the more possibilities,
and therefore a larger theoretical foundation for success. Accordingly, this is one way to
measure the social capital, by the size of the network. Another way to measure social capital
is by assessing the resources in ones network, more specifically;
“(...) this approach describes the manner in which resources available to any one
person in a population are contingent on the resources available to individuals
socially proximate to that person” (Burt, 2000:285)
In this approach, one’s success is not contingent on the size of the network, but rather on who
you know. Research, within this approach, is developed on the sociological claim that people
tie bonds with people similar to themselves (Ibid). Other researchers within this field, such as
Mark S. Granovetter (1973:1372) has made an interesting observation, that ‘weak’ ties (e.g.
old classmates) “(...) generally provide greater access to new information” (in Smith-Doerr,
2005:471), whereas ‘strong’ ties provide resources or support (Greve & Salaff, 2003:6).
46 In the single relationship “(…) each person performs only one activity with the entrepreneur, and is related to that person trough only one type of relation. And multiplex ties (…) have several layers of different content or types of relationships” (Scott in Greve & Salaff, 2003:3).
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4.8.3 Advantages and Disadvantages of Networking
Within a network, opportunities can arise via referrals, meaning getting your name mentioned
‘at the right time, at the right place’ might present an opportunity for the company (Burt,
2000: 287). Other benefits and valuable resources deriving from social networks are those of;
• Access to information and resources
• More rapid product development
• Enhanced innovation
• Access to finance
• Access to skills, knowledge and advice
• Social legitimacy
• Reputation and credibility (Klyver et al., 2008:332 & Powell & Smith-Doerr,
2005:379 & 389).
The dissemination of information, within a network, allows entrepreneurs to access
information better and at a lower cost, seeing that exchanges of information are facilitated
within a network. In continuation hereof, the network can bring about easier access to
resources that otherwise would be available for much larger companies (Human & Provan,
1999:185). Studies have shown that especially smaller companies and start-up companies
invest in networking where there is potential to share resources, tangible and intangible,
needed for succeeding in a competitive market (Miller et al., 2007:636).
Entrepreneurs, who enter into networks, are able to bring products to the market quicker and
more cost-effectively than they would be able to singlehandedly. While many good things can
be said of networking, less favourable things can as well be pointed out. For instance
networks have the risk of becoming too interwoven, where information only passes among a
selected few, and information that travels back and forth among the same selected few “can
lead to lock in, group think, and redundancy” (Powell & Smith-Doerr, 2005:391).
4.9 Analysis of Social Network and Networking In this chapter, the networking opportunities of the seven start-ups will be presented and
analysed based on the theory established in the previous section.
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4.9.1 Social Capital and Networks
Access to networks provides information and knowledge, which complement the
entrepreneurs and help them establish a start-up. As mentioned in the theory, social capital
refers to the ability of actors to extract benefits from their social structures, networks, and
memberships.
The authors found that social capital is important in predicting successful exploitation and
networking. Having parents, close friends and/or neighbours in entrepreneurial businesses are
strongly associated with the probability of becoming an entrepreneur, as stated in chapter 4.8.
Furthermore, entrepreneurs are likely to take advantage of this pool of knowledge when they
create a business of their own. Three of the seven entrepreneurs were inspired by friends or
neighbours (A5a, Daniel 05:00 & A3, Nana 31:43 & A7, Michael 7:47), while two others
were inspired by family members (A6, Dennis 16:36 & A8, Mads 54:34). Having previous
experience with a start-up has significant effect on the successful development of the
company. This was clear in Mads’ statement, when he said how previous experience with
starting a company had contributed positively in creating new start-up businesses;
“(…) first of all we have learned about doing business with both big companies
and small companies and we know how people react in a business environment,
we know how [to] handle money, we know how to write contracts, we know a lot
of things, but we have also established a network of people who can help us in
almost every situation we find ourselves in (…) and that is why you are above
making the same mistakes twice, hopefully (…) this is experience basically” (A8,
Mads 17:17)
Additionally, Daniel shares a similar opinion, based on his own experience with Company X,
and how this positively affected his new company (Y) (A5a, Daniel 11:59).
Encouragement, as well, seems to play an important role in the start-ups’ development and
consequently in developing networks. Encouragement by fellow entrepreneurs, friends,
family, and even potential customers is quite strongly associated with the motivation to move
forward. Louise, from Art District, stated that a huge dose of encouragement came from
fellow entrepreneurs whom she encountered by chance (A2, Louise 11:29), further
encouragement came from mentors;
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“(…) it’s really important to find these cool people who wanna help you and
support you and all these people they do it for free (…) I’m so grateful, because it
has changed everything that I’ve had these cool people cheering me on and
supporting me (…) it would be so hard without them, because you don’t know
anything when you’re young and starting up, everything is just new and so many
days I just felt like such a moron” (A2, Louise 37:35)
Moreover, EMP Group got a big support from the incubator Katapult that helped them to
establish a network with fellow entrepreneurs in San Francisco;
“We got a trip sponsored there (...), we got to pitch for a lot of American
investors, which is interesting, [Niels: and basically just got a taste of the whole
culture over there (...) very different from Danish entrepreneurs, everything over
there was just networking (…)]” (A6, Dennis & Niels 32:20)
Nana, on the other hand, got her emotional, as well as financial backing, from family and
friends (A3, Nana 9:48; 31:43). In the case of HED, the early approval of the product from
potential customers gave them reassurance (A8, Mads 11:46).
4.9.2 ‘Strong’ and ‘Weak’ Ties
Starting up a business requires a certain blend of relations and time to establish and maintain
these. The relations can take the shape of either weak or strong ties, where “(…) those to
whom we are weakly tied are more likely to move in circles different from our own and will
thus have access to information different from that which we receive” (Granovetter,
1973:1371). Therefore, weak ties become increasingly important when the process
progresses. Multiplex ties (see section 4.8.2) may play numerous roles in the entrepreneur’s
network. Burt puts forth that members of a social network can contact and communicate with
one another, thus expanding the opportunities available to the entrepreneur (Burt, 1992). As
the selected entrepreneurs presented, accumulating social capital is crucial when starting and
moving forward with a new business. This was for instance illustrated in the interview with
HED, who was able to create a close network of weak ties outside of Denmark, in order to
reach the right market;
“(…) networking (…), for the company it’s really the global contact that we have
managed to get ourselves, by travelling to the US, by being in conferences in
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Germany or [Czech and Slovakia] or wherever we have been (…) it is more how
we have been able to create a network outside the Danish borders (…)” (A8,
Mads 33:50)
Mads’ statement can be supported by P.R. Christensen’s research, in which he shows that in a
small market, like Scandinavia, international networking is adopted as an export-marketing
strategy for gaining entry to new markets. In order to overcome the barriers of entering new
and international markets, entrepreneurs need to create new groups of companies, or get the
access via personal ties (in Johannisson & Mønsted 1997:123).
Louise rented an office space in SOHO (A2, Louise 09:04), an office space within an
entrepreneurial network, where she quickly gained contacts with different types of
entrepreneurs and general members of a business network, who helped her company to
complete tasks that normally could not have happened so fast. As most entrepreneurs, Louise
was missing a particular knowledge and therefore networking with weak ties made it possible
for Art District to move forward with e.g. producing a short, 300,000 DKK, movie for free
(A2, Louise 09:04), having people to help with Public Relations and press releases, and
getting contact to the ‘right’ people who could be of further assistance (A2, Louise 20:57). In
addition to Art District, Shabenaa had a similar experience in the same office space (A3, Nana
21:17).
Both Louise and Dennis dedicate their time to build and develop their business network by
taking a part in judging the Venture Cup competition (A6, Dennis 54:28 & A2, Louise 11:52).
Dennis admitted that this is partly to keep in contact with a specific network of people, as well
as being able to take a part in different networking events that are not available to the public.
The efforts put into building this particular business network should benefit to the growth of
EMP Group (A6, Dennis 54:28).
According to the theory, strong ties provide support and resources (see section 4.8.2), which
make it easier for new start-ups to get information without spending too much time searching
for it. This use of strong ties can benefit the company, as is illustrated by EMP Group;
“Niels’ parents are doing all the graphic design for us, so they are doing that for
free, so it’s also about (…) networking, taking advantage of those. My dad does a
lot of stuff in the company, business wise, he has helped us a lot with the whole
start-up (…)” (A6, Dennis 43:55)
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Based on the empirical data it can be assumed that entrepreneurs will use a larger proportion
of strong ties in the beginning of the growth phase, compared to the later phases of the start-
up.
Surprisingly, the contact with Venture Cup, and other incubators in Denmark, appeared not
always to provide the kind of assistance, or access to resources and network, as expected.
Both Martin and Michael commented on this by saying;
“(…) I think we would be roughly at the same place (…) if you look purely traffic
wise, I think we'd be at the same place because getting the investment and being
a part of Venture Cup have not affected how the company has grown in that
sense, but we probably wouldn’t have launched such a good business plan as we
have done now (…)”47 (A4, Martin 33:55)
“(…) I got a coach, who was probably a bit too alternative for me (...) I didn’t
really get anything out of it, if I have to be completely honest”48 (A7, Michael
12:25)
Furthermore, Mads admitted that Venture Cup had no impact on the company’s development
(35:37), as their market is beyond the Danish borders;
“We would like (…) to talk positively about Venture Cup, because it is a really
good competition (...) it is quite tough to describe when your market’s really
outside Denmark, how much the Danish people [Danish network] really have
helped us” (A8, Mads 37:05)
However, Venture Cup can also serve as a good ‘kick’ of encouragement to those who have
been nominated to the final three. This is strongly associated with the motivation to move
forward, as some of the entrepreneurs agree;
“Venture Cup (...) it was something that really made the company go from being a
hobby project to something serious”49 (A4, Martin 34:39)
47 Free translation of:”(…) jeg tror vi ville være nogenlunde samme hvis man kigger rent trafikmæssigt, så tror jeg vi ville være samme sted fordi det at vi har fået investeringer og været med i Venture Cup har ikke påvirket hvordan virksomheden har vækstet på det punkt, men vi havde nok ikke lanceret så god en markedsplan som vi har gjort nu (…)” 48 Free translation of: ”(…) jeg fik en coach, det var nok lidt for alternativt for mig, (…) jeg fik sgu ikke rigtig noget ud af det, hvis jeg skal være helt ærligt.” 49 Free translation of: ”(…) Venture Cup som jeg sagde før, (…) det var noget der virkelig gjorde, at virksomheden gik fra at være et hobby projekt til at være noget seriøst.”
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“(…) it helps you to keep going, it pads you on the back [Dennis: that’s really
needed sometimes] it enforces [you], ‘it’s a good idea!’, ‘you guys can do it, go
for it!’ (...) I think networking and also winning the competition gave us a huge
boost” (A6, Niels & Dennis 52:55)
Additionally, Venture Cup gave IconFinder and EMP Group publicity, which most likely
contributed to an increased word-of-mouth (see chapter 4.7).
“(...) it's really cool that we have something called Venture Cup and that there’s
so much focus on it, we were on TV2 News, (...) it was a pad on the back in a way,
it motivates you”50 (A4, Martin 34:44)
“Venture Cup gave us a lot of publicity, but it kind of fades down quickly, it’s
hard to keep the momentum. Katapult helped us a lot, but that is more of an
internal help (…)” (A6, Dennis 46:05)
Also other incubators are considered, by some of the interviewed entrepreneurs, as a ‘helping
hand’ during the first phase of the start-up process, and are seen as a good network tool.
“Right after Bachelors we got to work there, started up, they had a little growth
house (…) incubator called Katapult at Copenhagen University, we enrolled in
that, and they started helping us a lot (…)” (A6, Niels 06:46)
Further, they continue that Katapult helped them in networking, providing free office space,
covering the costs of some of their legal fees, and in the drafting of contracts (A6, Dennis &
Niels 47:12). Similarly, Nana also received legal support and accounting assistance from
Væksthuset and Erhvervscentret (A3, Nana 18:33).
The only exception is Art District, who never used any network or other benefits from
incubators, however still managed to grow the company, and this, according to her, is based
on her personal skills (A2, Louise 9:04; 10:30).
4.10 Sub-‐Conclusion of Social Network and Networking The theoretical chapter and the analysis have examined the third research question, which
reads;
50 Free translation of : ”(…) det er rigtig fedt, at vi har noget der hedder Venture Cup og at der kommer så meget fokus på det, vi blev dækket af TV2 News, (…) det var et skulderklap på en måde, der var meget motiverende.”
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HOW DOES ENTREPRENEURS CREATE AND MANAGE THEIR NETWORKS TO GROW THEIR START-UP
COMPANY?
As the theory establishes, social relations, or social networks, play an important role in
establishing a firm. Entrepreneurs use their social capital to access resources and information
in each stage of the development process. Furthermore, social networks provide a way to
collaborate and share ideas with peers, search for partners, locate service providers, get the
necessary information to run a business, join a community of fellow entrepreneurs, etc. The
theory also established that ‘weak’ ties provide access to new information, where ‘strong’ ties
provide support. The advantage, the entrepreneur can have from his network, depends on
‘who he knows’ through the weak ties.
The analysis corroborates the theoretical framework, as it shows that knowing someone who
started a business in the past significantly increases entrepreneurial participation.
Entrepreneurs need to build social networks in order to move faster forward, and the focus is
more likely to be on the strong ties during the very beginning of the start-up phase, whereas
the emphasis on weak ties is further progressed and significant within the stage of growing
the business (Birley & Muzyka, 2000:178). Though further research is needed in the use of
networking in the different stages of growing a start-up, all of the entrepreneurs agreed that
networking is one of the most important tools in managing and growing a company.
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5. Discussion Since the aim of this project is to answer the stated problem formulation, the discussion will
introduce the concept of Danish graduates into the context of growing a start-up company,
and thus explore their role as entrepreneurs. As has been illustrated earlier, Denmark is in a
time of economic crisis, which undeniably has had its toll on the Danish labour market.
Additionally, within recent years, the universities have educated an increasing number of
academics (Albrecht, 2012), which is a paradox considering the current labour market
conditions. Consequently, Denmark has been very focused on growth, over the past few
years, and there has also been considerable focus on how academics may contribute to the
growth of society. In relation to the abovementioned, this chapter will embrace the findings of
the empirical data and critically discuss the fourth research question;
WHAT ARE THE ADVANTAGES AND DISADVANTAGES FOR DANISH GRADUATES IN GROWING
THEIR START-UP COMPANY?
Academics are likely to have the ability to know where to search for information and people
with knowledge, as a result of larger and more diverse networks compared to less educated
people (Marsden, 1987:129). Given that education is associated with a diversified network,
the authors are then able to argue that these types of networks provide greater access to varied
others, or what Granovetter recognises as ‘weak ties’.
As established in the theory chapter (see 4.8), social networks and networking are an integral
part of entrepreneurship, as they, especially through weak ties, provide information and the
specific knowledge needed in establishing and growing a start-up. Further, the findings from
the analysis (see chapter 4.9) strongly point to the fact that the entrepreneurs view networking
as a way to speed up the growing process of their start-up companies, as they, through social
relations, are able to mobilise essential resources. This is an important discovery, as
networking can be advocated to help to overcome the problem that many small firms lack,
which is resources to implement a growth strategy. Therefore, by the exploitation of the larger
and diverse network, the graduate is able to grow his business, which is an advantage. Louise
did mention something similar, when asked why a higher education can be advantageous in
regards to entrepreneurship;
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“(…) there are so many people who want to help you, and there are, like,
incubators and stuff when you are studying and you want to start your company
(…)” (A2, Louise 18:15)
Another possible advantage of having an academic degree, in relation to starting and growing
a business, could be that those who have graduated with a business degree are better equipped
to write a business plan of high-quality, as writing such is often part of the course. Business
plans or due diligence reports are required when applying for loans or funding from banks
and/or investors (Oliver, 2011:52). With this in mind, the authors believe that graduates, who
hold a business degree of some sort, technically should have a better chance of getting loans
and funding, which are important for most start-ups in order to set growth into motion
(Damgaard, 2012).
As has been noted in previous chapters (see 4.1 & 4.2) certain abilities are important to
entrepreneurs and business developers. Generally speaking, these abilities do not only require
knowledge but also a certain skill-set, which according to Drucker, can be taught:
“The entrepreneurial mystique? It’s not magic. It’s not mysterious, and it has
nothing to do with the genes. It’s a discipline. And, like any discipline, it can be
learned” (Drucker, 1985)
In close relation to this, there are some people who all together doubt that entrepreneurship
can be taught within the educational system. The well-known entrepreneur, Martin Thorborg,
belongs to these sceptics, as he raises the question: “why is education often inhibitory to
become an entrepreneur?” (Thorborg, 2007). Here, he refers to the fact that academic
learning (explicit knowledge) is not sufficient, and that experience-based learning (tacit
knowledge) is key when it comes to the entrepreneurial process. Thorborg believes that
traditional classroom learning can be directly inhibiting to the development of the
entrepreneurial skills, because the current kind of education reduces the individuals’ capacity
to act, which is such a central aspect of being an entrepreneur. This is, to some extent,
highlighted by Martin from IconFinder, who experienced that his educational institution was
not really encouraging entrepreneurial behaviour;
“(…) one is not really encouraged to start his own company alongside the studies,
they [the educational institution] say repeatedly that the education is a full-time
job (...) you will not be told that you have to start a company before you’ve
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finished studying, (…) they just want you to sit on your butt and do your school
tasks (…)”51 (A4, Martin 12:42)
Over the years, there has been a growing interest in integrating the subject of entrepreneurship
within the Danish educational system. In early 2004, the Ministry of Education together with
the Ministry of Science, Technology and Innovation emphasised that a strategy was put into
place. The strategy had the aim of getting Denmark into the European elite in regards to
entrepreneurship, and the educational system played a key role in this development
(Undervisningsministeriet, 2004). Nine years later, this topic is still on the political agenda,
and the political message from 2004 still holds: the Danish welfare is dependent on the
collective ability to think creatively and innovatively. Therefore, children and young people,
as early as possible, have to learn to see opportunities in life and turn them into viable
businesses.
However, in order for the political vision to come true, a change in the educational culture is
required, which the authors see as being strongly influenced by the wage-earner culture. With
this the authors mean that students who want to start their own businesses are currently not
sufficiently stimulated to see the attractiveness of being a business owner, and those who find
it attractive are not being encouraged to go after their dream, as seen with e.g. Martin. Hanne
Leth Andersen, pro-rector at Roskilde University, explains how universities do not promote
entrepreneurship in the following way;
“There has been a paradigm shift in our education, where we have made the
students to be pupils. We are trying to reach some clear goals for the educations
on employability, and everything must be of use to the labour market”52 (cited in
Rottbøll, 2012)
Moreover, it is expected of the students to employ a certain mindset when studying at the
universities – a mindset, which typically does not allow for creative and innovative thinking.
The authors find this interesting, as it is in clear breach with what the political agenda is
51 Free translation of: “(…) man bliver ikke så meget opfordret til at starte eget firma sideløbende med studiet, de siger gentagende gange at studiet det er et fuldtidsarbejde, (…) du bliver ikke skubbet ud og får fortalt at du skal starte firma inden du er færdig med at studere, (…) de vil bare gerne have at du sidder på din numse og at du laver dine opgaver (…)” 52 Free translation of: “Der er sket et kæmpe paradigmeskift i vores uddannelser, hvor vi har gjort de studerende til elever. Vi løber i øjeblikket efter nogle klare mål for uddannelserne om employability, og det hele skal kunne bruges på arbejdsmarkedet.”
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aiming for with their strategy on getting Denmark amongst the European elite in
entrepreneurship;
“I have the last six months followed electives from a variety of Master degree
programs, and it has repeatedly struck me how students are taught to solve the
same types of tasks and use standard formulas, without questioning whether it
really is realistic assumptions that form the background for the analyses. (…) The
Universities are simply educating the students to ask: ‘where can I find the
answer to the previous year's exam papers?’ rather than think for themselves”53
(Jørgensen, 2013)
As a result of the abovementioned, it can be argued that the students are becoming more
uncertain and start to question themselves on how to solve tasks, which explains why ‘The
Good Project’ is a best seller amongst students54 (Rottbøll, 2012). They are simply relying on
previous formulas and predetermined templates to help guide them. Further, Louise from Art
District substantiates this behaviour, as she expresses how her education contributed to
insecurity;
“(…) it [the education] has been an obstacle because I’m used to (…) over
thinking everything, and, like, finding an argument for why I’m doing this and
why I’m doing that, often I had to stop myself and say ‘ok, you fucking have to do
it now and stop thinking [you] can’t find the solution (…) thinking just to think’
(…) My friend calls it ‘abe-kademisk’55 (…)” (A2, Louise 16:56)
Thus, the mindset that one acquires from the universities can in some cases inhibit creativity
and proactiveness, which have been established as critical factors in the entrepreneurial
process (Drucker, 1985:34-35).
Although, the authors have tried to present strong arguments as to how educational learning
may work as a disadvantage, in regards to certain entrepreneurial abilities, there will always 53 Free translation of: “Jeg har det seneste halve år fulgt valgfag fra en række store kandidatuddannelser, og det har gang på gang slået mig, hvordan de studerende undervises til at løse typeopgaver og bruge standardformler, uden at stille spørgsmålstegn ved, om det virkelig er realistiske forudsætninger, der danner baggrund for analyserne. (…) Universiteterne uddanner ganske enkelt de studerende til at spørge: »Hvor finder man svaret på de tidligere års eksamensopgaver?«, frem for at tænke selv.” 54 In Danish: ’Den gode opgave’, and is a book widely used by freshmen attending university. The book offers the recipe for the ‘perfect project’. 55 ‘Abe-kademisk’ would in English mean: monkey-academic, which relates negatively to the skills of a monkey. However, the authors have decided to keep the Danish word within the text, as the word in Danish underlines Louise’s point better.
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be an exception to the rule. In this study, some entrepreneurs expressed another opinion than
the authors’ view stressed above;
“I think actually it [the education] has helped us, because what we are doing, I’d
say it’s a mathematical and statistical challenge, it’s not something I just sit down
and do, so I think in that sense the degree has definitely helped (…)” (A6, Dennis
1:07:47)
“(…) to compete in (…) the medical business, you have to have a certain amount
of academic level of skills, (…) you have to be on a certain level, academically, to
make all these different things, because it is quite heavy stuff (…) you have to be
able to cope with hard stuff. I’m not saying that it’s rocket science and I’m not a
doctor or anything, but still you have to be able to cope with a lot of information
at the same time” (A8, Mads 29:49)
From these two quotes, the authors are willing to re-consider their strong points made above,
as both Dennis and Mads are of the belief that an academic degree in fact can be an advantage
in growing a start-up. Further, what can be deduced from these findings is that the industry, in
which the start-ups are operating, ultimately determines the needed level of tacit versus
explicit knowledge. For instance, in the cases of HED and EMP Group, what they were taught
during their degrees, i.e. explicit knowledge, made them better in what they do. The industries
they operate in are the software and the medical, which are not to be taken lightly, as both
have a highly competitive environment, where a specific skill-set and knowledge are required
to stay ahead of the competition.
Additionally, the software and medical industries can be argued to be dynamic industries with
a rapid progression. In such industries, knowledge is treated as a highly sought-after
commodity, which quickly becomes obsolete, as a result of an ever-changing market, and
therefore requires constant renewal. What remains, is then the individuals’ ability to adapt to
this development by acquiring new knowledge;
“(…) [software] is such a rapidly evolving changing subject so you have to
educate yourself in a way as well, and have to keep up to date (…)” (A6, Niels
1:07:10)
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Thus, it is necessary to take the entire context into account when making assumptions, as to
whether or not an academic degree can be treated as an advantage or a disadvantage in terms
of growing a start-up company.
From the discussion that has taken place above, a picture starts to emerge. The picture clearly
illustrates that there are certain advantages and disadvantages of holding a higher educational
degree in terms of establishing, or more importantly growing, a business. The advantages
include a larger and more diversified network of people and possibly easier access to loans
and funding. Furthermore, the Danish educational culture can work as a great disadvantage, as
it impedes creativity and innovative thinking, as well as an advantage in certain industries,
where explicit knowledge, which is taught at the universities, is needed, as seen with HED
and EMP Group. In addition to the authors’ findings, several studies have shown that
graduates, regardless of study branch; help to increase the overall productivity in businesses
(see Junge & Skaksen, 2010). It is not just the individual graduate, who is more productive;
he also increases his colleagues’ productivity.
Martin Junge & Jan Rose Skaksen estimate that “(…) a person who has completed a higher
education contributes just as much to value creation, as does two people who have not
completed an education”56 (2010:3). Thus, academics can be said to impact productivity in
businesses, but also the national wealth is moved in a positive direction with an increase in
the gross domestic product of approximately 1% (Ibid:4). Taking Junge & Skaksen’s research
into consideration, the authors put forth that graduates may be of better use as ‘birthing
coaches’ opposed to entrepreneurs.
The authors’ findings support Junge & Skaksen’s statement, which will be elaborated in the
following. Both IconFinder and HED, placed in the advanced Go-Go stage, have a great
understanding of the industry, in which they operate, and run their companies successfully.
They are structured in their management and are consistent in growing their company, even
though the theory suggests that a company, in this stage, is not under control, and what is
more the management causes the crises (see 4.5.2). What can be deduced from these findings
is that great management skills and consistency in reaching goals, in the growing stage of a
company’s development, is the result of having highly-educated people on the management
56 Free translation of: “(...) at en person med en lang videregående uddannelse bidrager lige så meget til værdiskabelsen som ca. 2 personer uden uddannelse.”
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positions of a start-up. Thus, the line of reasoning is that graduates are better suited for
managing a company, than starting an entrepreneurial company.
This assumption is built on the finding that academics may not have the best creativity or
ability to ‘think out of the box’, but they do have the needed skills to grow a start-up. Thus, as
part of a growth strategy, it could be a proposal to put academic skills into play in already
existing start-ups.
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6. Conclusion Entrepreneurship is widely recognised as an important part of stimulating economic growth,
and as the European economy is still recovering from the financial crisis, it poses an
opportunity. The economic downturn has also taken its toll on the graduates, as a high
unemployment rate is prevailing. The same struggles are apparent in Denmark, but what is
lacking is high-growth entrepreneurs to stimulate the economy. Therefore, this study has
critically examined seven start-up companies founded by Danish graduates, and their ability
to grow a start-up. The study has uncovered the following findings, based on the problem
formulation, which reads;
HOW CAN DANISH GRADUATES SUCCESSFULLY GROW THEIR START-UP COMPANIES?
The study has identified the following motivations and abilities needed to successfully grow a
start-up. First, the graduate needs to have the ability to perceive change as an opportunity
rather than a risk, as well as a high tolerance of risk and uncertainties; otherwise the start-up is
not likely to succeed. Secondly, the findings show that having high work ethics is a
precondition for success, seeing that graduates have to put in long hours in the initial phase of
the start-up, for little or no pay. Thirdly, the ability to bounce back proved to be important, as
graduates will experience several naysayers, why it is important for the graduate to surpass
adversity, if they wish to be successful entrepreneurs. Lastly, for graduates to be successful
with their start-up, they need to have a positive underlying motivation.
Moreover, for a graduate to actually start their own company, they need to have the ability to
discover and exploit opportunities, as well as an enthusiasm about creating something new.
What can be deduced from these findings is that the graduates are no different from all other
entrepreneurs, in terms of personal abilities and motivational drive, when it comes to
successfully growing a start-up.
Several challenges, at the different stages of the start-up, were recognised in the study, where
graduates seemed more adapt for challenges in the later stages of the start-up. In the very
early stages of the start up, i.e. Infancy stage, challenges such as lack of resource and testing
and developing the product were found to restrain the growth of the start-up. Commitment to
the start-up proved to be needed by the graduates, in order to overcome these challenges,
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referring back to the graduate’s personal abilities to bounce back, and to perceive
opportunities rather than risks.
The graduates appeared to be more equipped in managing challenges in the growing stages,
i.e. Go-Go, as the challenges of unclear responsibilities, unclear communication, sales-over-
profit orientation, and founders’ over-confidence were not prevalent in the analysis. However,
in the later stages of the company’s development, i.e. Stagnation stage, passiveness and
indifference can prove to be a challenge in sustaining a successful company. The research
also elucidates the deficiencies of the organisational life cycle theories, as they neglect to take
into consideration the unique characteristics of the start-ups, the environment in which they
operate, and the technological development. Therefore, further research in this area is needed,
to shed light on the entrepreneurial opportunities and challenges in the start-up’s life cycle.
To further facilitate growth, graduates can use various marketing tools. The study found that
graduates generally lack funds for marketing, and therefore rely on word-of-mouth, digital
marketing, personal customer contact, and PR.
The study has identified networking as a requirement in growing a start-up. It is beneficiary
for graduates if they have an outgoing and extroverted personality, as this aid the
establishment of networks. Networks provide access to new information, resources, and idea-
sharing, and for graduates, it can be advantageous to ‘know the right people’ in terms of
successfully growing their start-ups. Additionally, the study recognises that graduates in
entrepreneurial environments are more prone to participate in entrepreneurial activities. The
study also reveals that graduates in the early stage of the start-up rely more on ‘strong’ ties,
e.g. family and friends, and as the start-up progresses become more reliant on ‘weak’ ties, as
these generally provide greater access to new information.
All of the graduates recognised networking to be an important tool in growing a start-up,
however, what can be deduced from these findings is that the graduates are no different from
all other entrepreneurs in terms of the need for networking.
Taking the abovementioned findings into consideration various ‘tools’ for growing a
successful start-up have been identified. Still, these findings can also apply to non-graduates,
thus other parameters must be what differentiate graduates from non-graduates, in relation to
entrepreneurship.
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The discussion uncovered that graduates are likely to have access to larger and more diverse
networks compared to less educated people. These networks originate from the educational
community and grant the graduate access to ‘weak’ ties, which is an advantage as these
generally provide greater access to new information.
The study detected that the educational institutions do not encourage entrepreneurial
activities; one argument is that academic learning is explicit knowledge, and that tacit
knowledge is needed for entrepreneurial success. It is further identified that graduates, at
universities, are trained in a specific mindset, which does not allow for creative and
innovative thinking, and thus inhibits critical factors in the entrepreneurial process. Other
scholars argue that entrepreneurship is a discipline, which can be taught, and the study does
include examples, where an academic education is an advantage in growing a start-up,
depending on the competitive environment. What is drawn from these findings is that the
industry, in which the start-ups are operating, ultimately determines the needed level of tacit
versus explicit knowledge.
Furthermore, the study ascertain that the context – study branch and/or industry – needs to be
taken into consideration when making assumptions as to whether or not an academic degree
aids the growing of a start-up. Lastly, graduates increase the overall productivity in
businesses, meaning they do possess the skills needed to grow a start-up. Based on the
findings in the analysis, and aided by the discussion, the main assumption is that; as the start-
up company progresses, so does the graduates’ qualifications in growing it.
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7. Perspectives Within the project, the authors have focused on how Danish graduates successfully can grow
their start-up companies; this deliberate choice has limited the project in certain aspects,
which will be reflected upon in the following, together with new areas of further research.
A limitation, which emerged during the analysis, originated from the bottom-up approach to
the collection of data, resulting in certain research areas not being covered sufficiently. For
instance, it was recognised by the authors that questions, concerning the type of network ties
that are important for the entrepreneurs in the various stages of growing the company, needed
deeper investigation. This can be seen as a limitation of this study, as the data set only
contains general questions associated with using networks during the entire process of
development. Thus, seen in retrospect, the study could have been further strengthened by
doing follow-up interviews with the entrepreneurs and asking more theoretically charged
questions. However, this was not possible due to time constraints.
Moreover, the project has investigated Danish graduates – generally speaking – meaning that
the authors have not distinguished between the different study branches as such. Looking
back, the findings of the project could have been strengthened if the authors had made a
greater distinction, or maybe even compared graduates from different study branches’ ability
to grow a start-up company. However, the authors did not have the time to carry out such an
extensive investigation, if this had been done; then it is important to stress that the authors
potentially had arrived at different conclusions on how Danish graduates successfully can
grow start-up companies.
While the focus of the investigation has been on the graduates, the authors find the whole
discussion around ‘graduate versus non-graduate’ interesting in relation to entrepreneurship.
Thus, it would have been noteworthy if the authors had included non-graduate entrepreneurs
in the study and compared these to graduates.
As the authors consider this study to be a pilot project, it should be viewed as the preliminary
work to possibly larger and more in-depth studies; possible areas of further research will be
highlighted below;
A chosen delimitation of the study has been to focus on Denmark, or more specifically the
geographical proximity of Copenhagen. In relation to this, it would be interesting to include
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the rest of Denmark into the study, or broadening it to include e.g. Sweden and/or Norway. If
this was to be done, similar methods could be applied together with quantitative methods, but
would have to be recreated in each country, as graduates in different parts of the world most
likely have different preconditions to successfully grow a start-up.
Closely connected to the aforementioned is the subject of culture, and how this impacts
entrepreneurship. During the investigation, it was pointed out by a few of the entrepreneurs
that the Danish culture actually could hamper the growth ambitions of start-ups. This was
usually as a result of the Danish mentality, i.e. the law of Jante, which stresses that “you shall
not think that you are special” (Janteloven, n.d.). The law of Jante can already be argued to
be present within the current investigation, as both IconFinder and HED referred to their
success in a very modest way. Thus, it would be interesting to validate this finding in future
research.
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