The role of intellectual capital in the success of newventures

Esther Hormiga & Rosa M. Batista-Canino &Agustn Snchez-Medina

# Springer Science+Business Media, LLC 2010

Abstract Identifying the factors that contribute to the success of new ventures is adifficult and challenging task. In that respect, this paper proposes an analysis of theintellectual capital within new business ventures. Based on the study of a sample of130 new companies, for the purpose of this work we have analysed the influence ofthe proposed intangible assets on the success of newly-created organizations,acknowledging the key role of the human and relational capital in the first few yearsof the life of the business.

Keywords New ventures . Intellectual capital . Success . Intangible assets

Introduction

The field of entrepreneurship is one of the research areas that have seen the greatestgrowth in recent decades (Vesper 1996; Gartner 2001; Busenitz et al. 2003). One ofthe main reasons for that growth is the recognition of new ventures as one of theprincipal mechanisms generating employment and as a motor of the economicgrowth of countries by transmitting dynamism and prosperity to a territory and

Int Entrep Manag JDOI 10.1007/s11365-010-0139-y

E. Hormiga (*)Economics and Business Organization Department, Facultat dEconomia i Empresa,Universitat de Barcelona, Diagonal 690, 08034 Barcelona, Spaine-mail: ehormiga@ub.edu

R. M. Batista-Canino :A. Snchez-MedinaEconomics and Business Organization Department, Facultad de CCEE y Empresariales,Universidad de Las Palmas de Gran Canaria, Campus de Tafira,35017 Las Palmas, Spain

R. M. Batista-Caninoe-mail: rbatista@dede.ulpgc.es

A. Snchez-Medinae-mail: asanchez@dede.ulpgc.es

enabling it to adapt to the structural changes that it is undergoing internally(Timmons 1990; Amit et al. 1993).

However, although there seems to be general agreement on the importance of newventures to the economic growth of regions and countries, that agreement is not sostrong when determining the factors that distinguish successful ventures fromunsuccessful ones. The high death rate of newly created companies indicates thatthe study of those factors is an important issue and the greater the amount ofinformation obtained, the more it will favour the development of firms in the firstyears of life. Therefore, it should be stressed that the starting-up of a new business isa complex process involving the combination of various assets to start the venturesactivity and initiate the different tasks. The fact that the new venture has limitedmeans, whether physical, financial or intangible, places it in a position of highvulnerability (Van de Ven et al. 1984).

In the first stages of a new firms development, the identification and acquisitionof resources will be of vital importance to achieving good performance in the longterm (Katz and Gartner 1988; Brush and Greene 1996; Lichtenstein and Brush2001). Thus, in the last decades the strategic management literature has emphasizedthe crucial role of intangible factors or the intellectual capital as determinants ofbusiness competitiveness (Teece 2000). On that line, authors such as Lichtensteinand Brush (2001) find that intangible assets are more important and critical thantangible assets in such a decisive period of the life of a business. Thornhill andGellatly (2005) found that the investment in intangible assets is associated with atrack record of growth.

In an attempt to shed light on the issue, and following the recommendations ofauthors who highlight the importance of undertaking research from multipletheoretical perspectives within the field of entrepreneurship, and to enrich that fieldwith contributions from other theoretical approaches (Gartner 2001), we draw on theliterature that examines intellectual capital and stresses the importance of thoseintangible assets that provide value to the firm and from which its competitiveadvantages may stem.

However, one of the main problems of research into this topic is the fact thatmany firms do not explicitly recognise their intangible assets and so do not managethem correctly (Andriessen 2004). If, from the moment of the organisationsconstitution, the managers and owners were aware of the importance of these assetsto the short and medium-term performance of the firm and, especially to the long-tem competitive advantage, the management of these assets would improve, aswould the profits they generate. It is paradoxical that firms regularly becomeconcerned about these assets when they are older rather than when they are in theirinfancy. So, why does a firm wait until it is a certain age or size before it begins toidentify and measure its intellectual capital?

All the above leads us to propose the principal objective of this research;namely, to identify the intangible assets that influence the success of newly-created firms. To that end, we also propose the following specific objectives inaccordance with the three categories of intellectual capital most frequentlyreferred to in the literature: human capital, structural capital and relational capital

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(Kaufmann and Schneider 2004; Boedker et al. 2005; Marr and Roos 2005;Watson and Stanworth 2006):

a) To know the relationship that exists between human capital and the success ofnew ventures.

b) To discover the relationship between structural capital and the success of newventures.

c) To identify the relationship between relational capital and the success of newventures.

Literature review and research hypotheses

The constitution of a new venture is a complex process that involves thecombination of various assets to start the activity and to initiate the different tasks(Gartner 1985). In the first stages of the firms development, the entrepreneur, or theentrepreneurial team, evaluates the assets and decides which are more, or less,important for the firm, based on his/her expectations for the firms future. If thatevaluation is performed effectively, it may lead to the firm achieving significantcompetitive advantages and even increase its chances of survival (Chandler andHanks 1994; Brush et al. 1997; Katz and Gartner 1988; Hart et al. 1995; Lichtensteinand Brush 2001; Edelman et al. 2005) in its early years.

Since the beginning of the 1990s, authors such as Barney (1991) and Grant(1991) have established a series of characteristics that are essential to resources ifthey are to generate competitive advantage (i.e. rarity, importance, imperfectimitability, durability). On that basis, the strategic management literature hasstressed the importance of intangible factors as determinants of business competi-tiveness (Teece 2000).

Intellectual capital: importance and conceptual definition

At the end of the 20th Century, the World economy started to undergo certainchanges that have a decisive impact on aspects such as the generation of wealth andeconomic growth (Bradley 1997; Stewart 1998; Andriessen 2004b; Chaharbaghi andCripps 2006). Recent years have been marked by the increasing importance of therole of intangible assets in firms (Miles et al. 1998; Cole 1998; Stewart 1998;Ventura 1998; Ordez de Pablos 1999; Hansen et al. 1999; Becker et al. 2001; Lev2001; Kannan and Aulbur 2004; Augier and Teece 2005). Thus, authors like Bontis(2002) o Bradley (1997) declare that the current trend is for organisations to focusless on material assets and more on intangible assets when seeking competitiveadvantages and that those firms with adequate intellectual capital have a betterchance of survival (Daley 2001).

The concept of intellectual capital was first used in 1969 by John KennethGalbraith in a letter to Michael Kalecki. However, it was Tom Stewart whopopularised the concept in 1991, when Fortune Magazine published his article

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Brainpower: How intellectual capital is becoming Americas most valuable asset(Bontis 1998). In spite of the vast amount of research on the topic from that time todate, there is still no single definition that is universally accepted and applied withsome homogeneity in the majority of studies (Caibano et al. 1999; Edvinsson andMalone 1999; Bukh et al. 2001; Kaufmann and Schneider 2004; Sullivan 2005).

Thus, intellectual capital can be defined as the relationships with customers andpartners, innovation efforts, the infrastructure of the firm and the knowledge andskill of the members of the organisation (Edvinsson and Malone 1999). Similarly,Sullivan (1999) indicates that intellectual capital is that knowledge that can beconverted into future profits and comprises resources such as ideas, inventions,technologies, designs, processes and informatic programs. Stewart (1991) indicatesthat intellectual capital is everything that cannot be touched but can earn money forthe firm. On the same line, Lev (2001) considers that intangible resources are thosethat can generate value in the future but have no physical or financial form.

When reflecting on the value or benefit contributed by intellectual capital, manyauthors have chosen to determine it as the difference between the market value andthe book value of the firm and some even use that difference to define the term(Brooking 1997; Daley 2001; Lev 2001; Nevado and Lpez 2002; Ordez dePablos 1999, 2003; Petrash 1996; Roos et al. 2001; Sveiby 2000).

Finally, it is important to emphasise that, in recent years, various alternatives havebeen proposed for the categories that comprise intellectual capital. One classificationbased on three dimensions has achieved a certain degree of consensus and it includeshuman capital, structural capital and relational capital (Stewart 1998; Sullivan 1999;Caibano et al. 1999; Brennan and Connell 2000; Snchez et al. 2000; Petty andGuthrie 2000; Roos et al. 2001; Viedma Mart 2001; Bontis 2002; Ordez dePablos 2002, 2003; Palacios-Marqus and Garrigs-Simn 2003; Kaufmann andSchneider 2004; Boedker et al. 2005; Marr and Roos 2005). We now review each ofthose dimensions, including those aspects that the literature on entrepreneurship hasconsidered relevant to the success of a new firm.

Human capital

Human capital, despite being considered another dimension, is recognised by manyauthors as the organisations most important intangible resource (Johanson 2005;Marr and Roos 2005) by playing a fundamental role in firms in this new knowledge-based economy (Becker et al. 2001, Edvinsson and Malone 1999; Sveiby 1998,2000) and being the driving force of the other two components of intellectual capital:relational and structural capital (Fornell 2000). The technological advancesexperienced both by firms and by society in general have meant that the requiredworker profile is increasingly one with the competencies, attitudes and intellectualagility that permit critical and systematic thinking within the changing and uncertainenvironment that he/she must confront (Bontis 2002). Therefore, human capital isconsidered the potential source of innovation and generation of ideas for the firm,thus providing added value of unquestionable importance (Viedma Mart 2001;Bontis 1998). Consequently, the lack of adequate human capital may have a negativeeffect on the rest of the activities that create value for the firm (Edvinsson andMalone 1999).

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The very nature of new ventures means that a fundamental part of this humancapital lies in the entrepreneur or entrepreneurial team. Thus, the first hypothesis inthis work revolves around the proposal that the greater the value of the assetscomprising the human capital of newly-treated firms, the greater the success of thosefirms in their first years.

We now explain the intangible assets that are related to human capital and havebeen considered important for firms in the first stage of life.

The entrepreneurs knowledge. In new ventures, knowledge, especially that of theentrepreneur, is seen as a crucial asset for the development of those firms (Vesper1990; Stuart and Abetti 1990). However, it is a very complex task to identify thespecific sources of the know-how necessary to start up and manage a business. Apartfrom the problem of identifying the source of knowledge, the inclusion of humanintangible assets creates a problem of demarcation: what proportion of theknowledge and skills of the entrepreneur or employees is part of the firm and whatproportion is not? (Andriessen 2004). Thus, the principal means of identifying thefounders knowledge has been to evaluate previous experience, in other words, theknowledge that he/she acquired from the activities performed prior to starting up theventure (Stuart and Abetti 1990; Storey 1994; Bosma et al. 2004; Rauch et al. 2005).On that basis, the first sub-hypothesis proposes that:

H1a: The greater the knowledge of the entrepreneur, the greater the possibility ofthe venture being successful in its first years of life.

The entrepreneurs motivation The motive that drives the founder to develop hisbusiness project can either mean added value for the firm or have a negative effecton it. Various authors have studied the influence of motivations on the subsequentsuccess of the firm and on organisational processes (Gatewood et al. 1995; VanPraag 2003; Van Praag and Cramer 2001; Pea 2002; Collins-Dodd et al. 2004).Most of those authors draw the conclusion that the fact the owner is driven byintrinsic motivation, that is, by putting a personal idea into practice, or by the need tobe his/her own boss, is an asset for the firm, which will have greater chances ofsurviving and obtaining future rents than if he/she is driven by the impossibility offinding a job. Therefore, we propose the sub-hypothesis:

H1b: The stronger the entrepreneurs extrinsic motivation to create his enterprise,the lower the probability that the business will be successful in the first yearsof life.

The commitment and resolve of the entrepreneur Since, in the initial stage of the firm,the routines and processes are not formally established, it is necessary for theentrepreneur to be more involved in order to overcome that deficiency. Thus, thepresence of the entrepreneur will be important to consolidate control of the organisation,and, if he/she works in the firm, this will represent reduced labour costs. Therefore, ahigh level of personal commitment and resolve by the entrepreneur contributes addedvalue to the firm and may mark the difference between some entrepreneurial initiativesand others (Timmons 1990). In that respect, authors such as Cooper et al. (1994) statethat greater commitment from the entrepreneur has a decisive influence on the survival

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of the firm. For their part, Pea (2002) and Collins-Dood et al. (2004) find that there isa positive relationship between the level of the founders dedication to the businessand the level of success of the business. Therefore, hard work, as well as strongcommitment and resolve have been highlighted as important elements for the smoothrunning of newly-created firms (Martins-Rodrguez 2003). Based on these assump-tions we proposed the next two sub-hypotheses:

H1c: The greater the entrepreneurs commitment to the venture, the greater theprobability of the business being successful in its first years of life.

H1d: The stronger the entrepreneurs resolve, the greater the probability of thebusiness being successful in its first years of life.

The entrepreneurs social skills The importance of intellectual skills, the creation ofknowledge and explicit knowledge tends to be emphasised in the literature onintellectual capital. However, the intangible assets that are not intellectual or orientedto the right-hand side of the brain often tend to be neglected even though they maybe equally as important to the organisations future: we are referring to social skills(Andriessen 2004). Two of these social skills, namely social perception andadaptation, have found empirical support in that the value they contribute to thefirm in the initial stage of its life by helping it achieve higher revenues and profits inthe future (Baron and Markman 2003). In order to start up a venture, theentrepreneur has to interact with a great many strangers, and so must display atalent for social adaptability as well as perceive the characteristics, intentions andmotives of the other person (Baron and Markman 2003). For these reasons wesuggest the sub-hypotheses:

H1e: The greater the level of the entrepreneurs social adaptability, the greater theprobability of the business being successful in its first years of life.

H1f: The greater the level of the entrepreneurs social perception, the greater theprobability of the business being successful in its first years of life.

Interaction of the entrepreneurial team Some years ago, the entrepreneurialprocess ceased to be considered a merely individual activity and more and moreresearchers are recognising the fact that, on many occasions, firms are createdby two or more individuals (Gartner et al. 1994). The quality of the interactionamong the team members is considered one of the most important assets duringthis critical period. Therefore, if the team members enjoy a healthy relationshipcharacterised by cohesion, coordination and communication, significant value willbe added to the firm (Lechler 2001). Given the importance of this type of asset inthe firm, we suggest that the assets comprising the human capital, measured interms of the entrepreneurs knowledge, intrinsic motivation to start up the venture,commitment, resolve and social skills, as well as the good interaction of theentrepreneurial team, display a significant positive relationship with the success ofnew ventures.

H1f: The better the interaction among the members of the entrepreneurial team, thegreater the probability of the business being successful in its first years of life.

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Structural capital

The second dimension of intellectual capital is structural capital, which refers to theknowledge that the firm has been able to internalise and that remains in theorganisation, be in its structure, its processes or in its culture, even when employeesleave (Bontis et al. 2000; Camisn Zornosa et al. 2000; Petrash 1996, 2001). For thatreason, and unlike the human capital, which cannot be totally appropriated by theorganisation, this capital is the property of the firm (Edvinsson 1997) and includesall the non-human tangibles of the organisation, from the culture or internalprocesses to the information systems and data bases (Bontis et al. 2000). Sveiby(2000) calls this dimension the internal component and includes in it the patents,structures of functioning, administrative and informatic organisation, the culture,organisational climate, etc., which are the property of the firm and, therefore, meetthe previously mentioned condition of remaining in the firm when employeesleave.

The evaluation of this type of capital in new ventures is the most complex,mainly because they are usually not yet consolidated due to the short time that thistype of firm has had to internalise the aspects that contribute value and transformthem into knowledge. Thus, one of the cornerstones of the value of intellectualcapital is precisely the transformation of its human and relational capital intoknowledge inserted into the organisational structures and processes so that it ceasesto belong to individuals and become the property of the organisation (Bontis et al.2000; Camisn Zornosa et al. 2000; Ordez de Pablos 2003; Meli and Boulard2003). However, it was decided to study the importance of this type of capital in afirm that is beginning its activity; therefore, the second hypothesis proposes thatthe greater the value of the assets comprising the structural capital of newventures, the greater the probability of the business being successful in its firstyears of life.

Routines In general, firms confront the uncertainty around them by developinginternal procedures and routines that enable them to access a suitable solution whena problem arises (Edvinsson and Malone 1999; Roos et al. 2001). Although it is notpossible to talk of the standardisation of the productive or service generation processin its entirety (Baum and Silverman 2004), during the first years of a firms life andfor certain activities, some routines are established that facilitate the entrepreneurswork and permit him/her to devote time to those tasks that really need his/herknowledge, criteria of decision and drive. Thus, by way of example, the fact that theemployees know the steps to take in the case of an incident with customers orsuppliers without having to consult the owner every time helps streamline theprocesses and may have a positive effect on the performance of the business. Thus,the established routines enable these young firms to save time and resources whenseeking a solution to certain problems or facing determined situations, bysimplifying day-to-day decision taking. On that basis:

H2a: The greater the firms adoption of routines that streamline its day-to-dayactivities, the greater the probability of the business being successful in itsfirst years of life.

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Innovation When one speaks of innovation, one is generally referring to theintroduction of a new product or process (Woo et al. 1989; Kalleberg and Leicht1991; Karlsson and Olsson 1998); however, because of their vary nature, and in acertain way, new ventures represent a form of innovation in most cases (Amason et al.2006). In the context of startups, which are generally small, the level of theircontribution to the innovation activity is considerable and, in some sectors evenexceeds that of large companies (Thurik 1996; Heunks 1998). Moreover, apart fromthe introduction of new products, innovation in processes, such as the incorporation ofnew technologies, is also very important in new firms (Roure and Maidique 1986;Siegel et al. 1993; Bruton and Rubanik 2002; Huang and Liu 2005). In fact, in thespecific case of small firms, and despite the fact that any type of innovation usuallystimulates the growth of such firms, Heunks (1998) finds that it is only processinnovation that increases productivity. In light of the above, we propose the sub-hypothesis that:

H2b: The greater the level of innovation in the organisations, the greater theprobability of the business being successful in its first years of life.

Efficacy in the production of the product/service In studies applied to large,consolidated firms, the efficiency and efficacy of the productive/service generationprocess are two aspects that are of vital importance within the intellectual capital(Bontis et al. 2000; Hussi 2004). Hence, an exhaustive analysis of the process mayreveal that it entails significant losses of time and money. While this may be anegative aspect, the firms processes can also become one of its strengths byproviding added value on which one, or several, of the organisations competitiveadvantages may depend. The processes are not often definitively established innewly-created firms but are in a stage of change and adaptation in the early years.However, in spite of the frequent changes, the first years constitute a critical time forthe future of the firm and aspects such as the time taken to perform the productive/service generation process or the errors that occur may be determinants of success byinfluencing aspects like the customer loyalty or the reputation that the firm is startingto build (Edelman et al. 2002). For this reason, we propose the following sub-hipothesis:

H2c: The greater the efficacy of the productive/service generation processes, thegreater the probability of the business being successful in its first years oflife.

Cultural The analysis of the organisations culture is another important aspectthat helps provide an understanding of the intangible assets and of howknowledge flows within the organisation (Kannan and Aulbur 2004). The cultureand climate existing in newly-created firms will be critical for them to face thefollowing stages of life and growth (Timmons 1990). Although it is rare to findconsolidated values and a strongly established culture in a firm that is justbeginning its life, certain circumstances occur in these early years that are going tocondition the culture that the entrepreneur wishes to instil or that the companyitself is developing. Although the culture is created by the shared experiences of

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the organisations members, it will be the founder who initiates this process in thefirst instance by implanting his/her beliefs, values and suppositions. Basically,culture has three sources: (1) the beliefs, values and suppositions of the firmsfounder; (2) the learning experiences of the members of the organisation, and (3)the new beliefs, values and suppositions introduced into the firm by new membersand leaders (Schein 2004). When relating cultural characteristics with firmperformance, Denison and Mishra (1995) find that the characteristics ofadaptability, internal consistency and participation exercise a positive influenceon the success of the business. In light of the above, we propose the sub-hypotheses:

H2d: The fact that, in a newly-created firm, there is an incipient culturecharacterised by greater participation by employees will have a positiveeffect on the probability of the firm being successful.

H2e: The fact that, in a newly-created firm, there is an incipient culturecharacterised by greater adaptability will have a positive effect on theprobability of the firm being successful.

H2f: The fact that, in a newly-created firm, there is an incipient culturecharacterised by greater internal consistency will have a positive effect onthe probability of the firm being successful.

Relational capital

Finally, the dimension of relational capital is based on the idea that firms areconsidered not to be isolated systems but as systems that are, to a great extent,dependent on their relations with their environment. Thus, this type of capitalincludes the value generated by relationships not only with customers, suppliers orshareholders, but with all stakeholders, both internal and external. The relationshipsof this type that contribute value to the firm are considered to be relational capital. Inother words, it is the knowledge that is found in the relationships between theorganisation and its reference groups. Sveiby (2000) calls this dimension the externalcomponent and includes in it the relationships with customers and suppliers, theproduct names, registered trademarks, the reputation and the image. Some of thoseelements can be legally protected while in other cases this is practically impossible.Moreover, investment in many of these assets generates uncertain benefits; forexample, it is difficult to predict the effects of investing in strengthening the imageof the firm (Sveiby 2000). Thus, the final hypothesis proposes that the greater thevalue of the assets comprising the relational capital of firms, the greater the successof those firms in their early years.

Support from informal networks Although it may first seem that the relationshipsestablished with agents linked to the firm are the only significant relationships, theentrepreneurs personal networks are going to be a fundamental resource for a firmthat is starting its life (Ostgaard and Birley 1994; Lechner and Dowling 2003), and,within those networks, the support of family and friends will occupy a predominantposition (Brderl and Preisendorfer 1998). In that respect, it is important to stressthat, on most occasions, the family provides both emotional support and active aid to

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the entrepreneur. In many cases, family members and friends become a fundamentalsource of funding as well as labour, which represents a saving. Thus, on the onehand, the work done by family members during the first years of a business can helpcompensate for the financial restrictions and reduce expenditure on staff during thatperiod and, on the other, the loyalty and security offered by a family memberworking in the business means less effort in the control of the entrepreneurialactivity (Sanders and Nee 1996; Brderl and Preisendorfer 1998). Moreover, thesupport of the entrepreneurs life-partner can provide emotional stability thatbenefits the activity of the new firm (Brderl and Preisendorfer 1998). Thus, wepropose that:

H3a: The greater the support that the entrepreneur receives from his/her informalnetworks, the greater the probability of the business being successful in itsfirst years of life.

Reputation In the context of new ventures, reputation is an intangible asset that canhave various interpretations and perspectives. In that respect, it will be the result ofthe prestige or renown that may precede the entrepreneur and that which theorganisation has been able to acquire during its first months or years. In these earlystages, a good reputation can help not only to attract new customers and promotecustomer loyalty, but also to obtain funding or resources that would not be availablewithout this intangible asset (Shane and Cable 2002). Thus, an entrepreneur or firmthat has managed to improve on or build a good reputation will have moreprobability of surviving and obtaining higher profits. However, undertakingactivities that damage this intangible may have negative repercussions for theorganisation that make it complicated to forge a new reputation or recover lostprestige (Kupferberg 1998; Michalisin et al. 2000; Lechner and Dowling 2003).Therefore we suggest that:

H3b: The better the reputation acquired by the firm, the greater the probability ofthe business being successful in its first years of life.

Connectivity Within the networks established in the early years, alliances withother firms can have significant impact on the performance of new ventures(Pea 2002): collaborations and alliances with other businesses can support thedevelopment of the firm by providing information, knowledge and complementaryresources (Cohen and Levinthal 1990; Deeds and Hill 1999; Lee et al. 2001).Moreover, the establishment of agreements can help attract investors for the newventure by giving legitimacy to the business by dispelling possible doubts aboutrecovering the investment (Lee et al. 2001). In addition, the relationships that thefirm establishes with its environment, the contacts made with other organisations inthe same or a different sector will be important. Thus, any alliances, whetherformal or informal, can constitute communications channels, the obtaining ofresources or access to distribution channels. Moreover, the events, trade fairs andcongresses related to the business constitute another means to absorb relevantinformation about the specific market in which the firm moves and about

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entrepreneurial activity in general (Ordez de Pablos 2003). For these reasons, wepropose that:

H3c: The greater the connectivity of the company, the greater the probability of thebusiness being successful in its first years of life.

Accessibility Another very important aspect for the functioning of firms is the degreeof closeness and access to the customer, especially for non-manufacturing and sales-oriented businesses. Thus, the location of the business, depending on its activity, canhave a critical influence on its progress (Martins Rodrguez 2003). In any case, thefact that customers can easily access the business and feel close provides addedvalue to the firm. Moreover, being located in a strategic place, such as a pedestrianzone or a very busy area in the case of retail businesses, or in a prestigious buildingin the case of a firm offering professional services, can have a positive effect on thesuccess of a startup.

H3d: The greater the firms accessibility to the customers, the greater theprobability of the business being successful in its first years of life.

Supplier profile This asset refers to both the size and the location of the supplier. Inthat respect, in the case of newly-created firms, Pea (2002) obtains interestingresults that point to the fact that the most successful firms happened to be those whomade greater volume purchases, in other words, those who used fewer suppliers.Pea (2002) also finds that having higher proportion of local suppliers has a positiveinfluence on performance. The interesting results of that study led us to include thisasset in the model in order to test whether a particular supplier profile could be anasset of any value to the firm. More specifically, the studied profile consisted ofchecking the new firms purchase volume and the location of the suppliers.Consequently, we propose that:

H3e: The fewer suppliers that newly-created firms concentrate their purchases on,the greater the probability of the business being successful.

H3f: The higher the percentage of local suppliers of a newly create firm, the greaterthe probability of the business being successful in its first years of life

Research methodology and design

In order to test the hypotheses relating intellectual capital to the success of newly-created firms, primary data were gathered by means of a questionnaire. For thepurpose of operationalising the concept of the new firm, and in line with Reynolds et al.(2005), this work considers a newly-created firm to be one with more than 3 andless than 42 months of life. Moreover, the firms in questing really had to beperforming a new activity: in other words, any firm that had simply modified itslegal status or changed owner was excluded from the sample of this study.Although the data provided by the Informa organisation established that a total of

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19,469 companies registered in the Canary Islands during the period of study(March 2002 to April 2005), the SABI data base that was available to theUniversity of Las Palmas de Gran Canaria in July 2005 only provided contactinformation (telephone, fax or e-mail) about 2,615 companies; therefore, the finalnumber of firms to which the questionnaire was sent was 1,288. After variouscommunications with the firms, a total of 147 completed questionnaires werereceived, of which 130 were valid. This represents a response rate of 8.3% and asample error of 8.55%.

In all cases, the questionnaire was completed by an owner of the business whoalso took an active part in the daily activity of the firm and, preferably, was theowner with greatest responsibility. Moreover, all the firms had been formed betweenMarch 2002 and April 2005 in the Canarian Autonomous Community, whichensured that all the analysed units had been created within the same economic andfiscal framework.

The dependent variable in this research is the success of newly-created firms.Subjective indicators were used to measure that variable by means of the perceptionsof the founders: a method that has been widely used in previous research works (VanGelderen et al. 2000; Zahra and Bogner 2000; Rhodes and Butler 2004). Thus, aseries of questions asked the entrepreneur to indicate, on a 7-point Likert scale, his/her level of satisfaction with sales, ROA, growth, the achievement of the initiallyestablished objectives, the overall success of the firm, and success in relation to itscompetitors. The final dependent variable is a construct resulting from aconfirmatory factor analysis of those 6 indicators that confirmed the existence of asingle factor. Moreover, in order to confirm the validity of the previously mentionedsubjective measures, the questionnaire also asked for objective data of success, suchas the growth of sales and of profitability in relation to the previous year, expressedas percentages. The high correlation between the subjective and objective measuresis significant proof of that validity.

The independent variables are grouped into three dimensions: human capital,structural capital and relational capital. The dimension of human capital includes sixintangible assets: (1) The entrepreneurs knowledge of the business, measured bymeans of his/her experience, using his/her number of years experience in the sectoras the indicator (Van de Ven et al. 1984; Sandberg and Hofer 1987; Duchesneau andGartner 1990; Chandler and Jansen 1992; Van Praag 2003). That indicator iscomplemented with information about the entrepreneurs knowledge by means oftwo items based on those proposed by Feeser and Willard (1990) and Cooper et al.(1994). The aim of those items was to identify the degree of similarity by comparingthe current customers and competitors and the knowledge and skills necessary todevelop the activity in the new firm with those of the firm in which the entrepreneurpreviously worked. (2) The motivation that led the entrepreneur to create his/herbusiness was studied by proposing a series of motives that the entrepreneur had toevaluate on a 7-point Likert scale according to the importance he/she attaches toeach of them (Roberts 1989; Gimeno et al. 1997; Watson et al. 1998; Pea 2002).The reasons for becoming an entrepreneur included extrinsic motivation and intrinsicmotivation. (3) The entrepreneurs commitment was captured by the number of hoursper week devoted to the business, which is one of the most widely used methods tomeasure this variable (Van de Ven et al. 1984; Basu and Goswami 1999; Pea 2002;

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Collins-Dodd et al. 2004). (4) Resolve was measured by means of the scale proposedby Baum and Locke (2004) and, to that end, the informants had to evaluatestatements about three of the items proposed by those authors. (5) The entrepreneurssocial skills, namely, social perception and social adaptability were measuredaccording to the hypotheses in the work of Baron and Markman (2003) in whichthey examine the influence of these skills of the successful entrepreneur. (6) Finally,and in relation to the entrepreneurial team, the teams social interactions weremeasured by means of the scales proposed by Lechler (2001), which measureaspects such as the communication, coordination and cohesion of the entrepreneurialteam.

The dimension of structural capital includes six assets. (1) The degree of processinnovation, which, following the works of Solem and Steiner (1998) and Wolff andPett (2006), led us to ask directly about the importance of new technologies in theproductive/service generation process of the business, as well as about the level ofimplementation of the technologies. (2) To know the degree of efficacy of theproductive/service generation process of the firm, we used some indicators similar tothose used by Kaplan and Norton (1997) and Bontis et al. (2000), which reflect thenumber of complaints received in a determined period of time, as well as theincrease or reduction in the average time taken to perform the production process.(3) The degree to which the routines were established in the firm was asked directlyby means of a statement which the informants had to evaluate on a 7-point Likertscale. Finally, the incipient culture of the firm was assessed by means of the scaleproposed by Denison and Mishra (1995). Those authors relate the proposed culturaltraits with higher performance in the firm, and principally highlight the character-istics of (4) participation, (5) adaptability and (6) internal consistency. Eight of theitems proposed by those authors were formulated as statements and used to measurethese characteristics.

Finally, the dimension of relational capital comprises five assets. (1) relationshipswith customers and suppliers, both current and potential, were measured by the timedevoted to establishing and maintaining these relationships, specifically by the hoursper week spent keeping in contact with present and new customers and suppliers(Birley et al. 1991; Greve and Salaf 2003; Sawyerr et al. 2003; Witt 2004). (2)Support from informal networks was measured by means of the scale proposed byBrderl and Preisendofer (1998), which aims to reflect the amount of active andemotional support received from the entrepreneurs life-partner as well as fromfamily and friends. (3) The connectivity of the firm was quantified by the number offirms with which some type of agreement had been established: an indicator used byLee et al. (2001), Ordez de Pablos (2003) and others. (4) The asset of accessibilityand closeness to the customer was included in the model, after taking intoconsiderations the reflections made subsequent to the qualitative study of thisresearch. Thus, the items used are inspired by those in the works of Hoogstra andVan Dijk (2004), who attach significant importance to the accessibility of new firms.Thus, the entrepreneurs were asked to evaluate, on a 7-point Likert scale, theimportance that they attach to the present location of the business, as well as to theease of access for customers by being in a busy zone, and to the closeness ofsuppliers. (5) Finally, two indicators used by Ordez de Pablos (2003) wereemployed to measure the firms reputation: the percentage of customers that the

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entrepreneur believes to have recommended the firm and the percentage that repeatafter the first purchase or service. Apart from those two indicators, the entrepreneurswere asked directly for their opinions about the reputation acquired by the firm in itsfirst years of life and the improvement that it has entailed for the firm in relation toits closest competitor.

Moreover, a series of control variables that may influence the dependent variableand condition the final results was also analysed. These variables are: (1) the sectorto which the firm belongs, represented by 5 dummy variables and a control variable primary sector, industrial, construction, retail and catering, financial, legal andtechnological activity, and other activities -; (2) the size of the organisation, measuredby the number of employees at the time of the survey; (3) the firms age in months and,finally, (4) the entrepreneurs perception of the number of competitors in the specificzone in which the firm operates.

The firms comprising the sample have an average age of 29 months, with 4workers and 2.3 partners. Multiple Regression Models were used to validate thework hypotheses. The nature of the dependent variable meant that a valid alternativewould have been to use an ordinal probit or logit model; however, since success wasmeasured by means of six items, the interpretation of the model would have beenconsiderably more complicated. In addition, there are few individuals positioned atextreme values and, consequently, the use of regression models was moreappropriate.

Analysis and interpretation of results

In this section, the data are analysed with the aim of testing the hypotheses. Table 1shows the regressions corresponding to the analysis of the relationships betweeneach of the dimensions of intellectual capitalhuman, structural and relationalcapitaland the success of new firms. Moreover, when a series of control variableswere also considered, it can be seen that firms operating in financial, legal andtechnical activities display a higher level of success than other firms in the sample(see Table 1).

The second of the regressions presented in Table 1 shows the influence of humancapital on success, with the intangible assets in this dimension explaining 40.2% ofthe variable. As Hypothesis 1 predicted, there is a significant and positive correlationbetween human capital and success. Thus, the assets that are shown to be significantare: the interaction of the entrepreneurial team (=0.263, p

explain only 7.1% of the dependent variable, which casts doubt on their short-termeffect. More specifically, two of the six assets included in the multiple regression,namely, innovation (=0.263, p

this dimension, all the control variables were also left out of the model. With regardto the second of the proposed hypotheses, it would be more complicated than for theprevious hypothesis to state that structural capital plays a determining role inthe immediate success of newly-created firms because of the low percentage ofthe dependent variable that it explains.

The fourth regression includes the effect of the assets of relational capital on thesuccess of new businesses. As Table 1 shows, all the relational capital assetsincluded in the model are significant except the asset labelled supplier profile, whichrefers to those firms that opt to purchase from only a few suppliers. These assetsexplain 43.2% of the independent variable. Thus, reputation (=0.504, p

Following those assets mentioned above, both the absence of motivation to openthe business for necessity and the resolve of the founder are among the factors thatprovide value to the firm via, among other aspects, their positive influence on thesuccess of the firm. Finally, the good coordination, cohesion and communication ofthe team members is the last asset considered important when analysing the jointinfluence of the assets within the category of intellectual capital.

Conclusions, limitations of the study and recommendations

This research constitutes one of the first steps towards a better understanding of theimportance of intangible assets in newly-created firms. The results reveal therelationship between intangible assets and the success of newly-created firms. Oneof the principal conclusions reached in this study is the importance of human capitalto the performance of firms in the first stage of life. Thus, the results show theimportance of the already frequently highlighted role of the entrepreneur, whetherbecause of his/her knowledge or the time and effort invested in the venture.Moreover, if the company is formed by a team, satisfactory intercommunicationbetween the members plays a key role since, bad communication and coordinationcould lead to an inability to develop the business idea in an appropriate way andrepresent a liability for the firm.

Since the firms in the study are all in a stage of early development, structuralcapital is the most difficult category of intellectual capital to evaluate. Thus, theresults of the analysis of this type of assets indicate that only internal consistency,innovation and adaptability are significant. Therefore, one can suspect that, in newventures, the structural capital that provides value in the firms early days is thatwhich enables the firm to innovate and easily adapt to the environment, althoughhaving established certain routines that help the efficacy of the internal processesmay have a positive effect in the medium or long term.

The last of the analysed dimensions is relational capital, which is shown to play asignificant role in the firms under study. In general, the results of the analysishighlight the value provided by assets whose nature is defined by the relationshipsthat the firm establishes with its environment. Of these assets, it is unquestionablythe reputation acquired that contributes greater value in the short term and, in theseearly and uncertain times, is essential to capture new customers.

With regard to future lines of research, and following the path opened up in this work,it is recommended that future studies are oriented towards the identification of therelationships between the assets that could not be included in this study; for example, theinfluence of established networks on the structural capital of the organisation. It wouldalso be interesting to undertake a longitudinal analysis of the evolution of theseintangibles over time in order to know the impact they have on the long-term success ofthe firms.

Focusing on the limitations of the work, its should be stressed that, since the finaldata were obtained by means of questionnaires, it was not possible to perform adeeper and more exhaustive analysis, especially in the case of the more qualitativeaspects. In that respect, many of the analysed assets, such as networks, have anessentially qualitative and accumulative nature, which presents serious problems for

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the quantitative studies in this work. Thus, that limitation opens up what may be anew line of research in which it would be interesting to carry out case studies thatexamine the role of intangible assets in the early years of the business.

It is important to point out that this work has not been able to offer a completeanalysis of the impact of the variables of environment on the composition of theintangible assets of each firm and, consequently, on the way in which that impactconditions the success of newly-created firms. It should also be stressed that thisresearch focuses on a very early stage of the life of the firm and that the effects ofsome assets may take longer to appear. As regards the sample, and also due to thecharacteristics of the population of the study and of the setting of the research,the firms participating in the empirical study mostly belong to the tertiary sectorand operate within a particular economic and fiscal framework. This finallimitation calls for the study of firms performing some other type of activitybecause of the possible significance of analysis by specific sectors that can studythe specificity of the assets and establish the interrelations between a greaternumber of intangibles: not to mention the need to replicate the study in otherlocal contexts.

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Int Entrep Manag J

The role of intellectual capital in the success of new venturesAbstractIntroductionLiterature review and research hypothesesIntellectual capital: importance and conceptual definitionHuman capitalStructural capitalRelational capital

Research methodology and designAnalysis and interpretation of resultsConclusions, limitations of the study and recommendationsReferences

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