Given the main goal of the research, finding an appropriate research methodology was not easy. The reason behind this study is not just to understand the phenomenon of new venture (start-up) creation. Rather it is a problem solving approach which tries to solve the problems of elaborating the phenomenon. It shows the business logic behind the formation of such entities, i.e. start-ups. It aims to design and build a model that represents the process of new venture creation. Then, a “problem solving” approach is used based on the design science approach by March and Smith (1995). This proposes a two-sided framework, i.e. (i) research activities, and (ii) research outputs (Figure 1). In this framework: (i) the constructs mention the main terms and concepts of the domain, (ii) the model is a set of propositions showing the relationship between the constructs, (iii) the method is a set of steps used to perform a task, and (iv) the instantiations operationalize the constructs, the models, and the methods. March and Smith (1995) consider that four research activities are required, namely: To build means to construct the constructs, models, methods, and artifacts. To evaluate means to develop criteria, and to assess the findings. To theorize and justify are simultaneously conducted. The result will be a justified theory. This research is mainly focused on the first two research activities, which are to build and evaluate. Moreover, research output is focused on constructs and model. The final framework is based on Whetten’s (1989) questions, and March and Smith’s (1995) approach. It should be noted that the authors used speculation, library research, and literature analysis to answer the main research questions.
As mentioned earlier, theories of new venture creation are among the most prominent theories which cover start-up companies (Davidsson and Gordon, 2015). However, start-ups, in their present sense, are not only preorganizations (Katz and Gartner, 1988), but also creative ventures aiming at making change. Whetten (1989) suggests the questions of what, how, why, who, where, and when in order to scrutinize the process of theory development. These questions reveal the elements embedded in a typical theory. In sum, in his views: (i) “What” refers to “which factors (variables, constructs, concepts) logically should be considered as part of the explanation of the social or individual phenomena of interest?’’; (ii) “How” deals with how these sets of factors are related. These two, i.e. what and how, constitute the subject of a typical theory;
Describing And Explaining The Phenomenon
In this study, the phenomenon in question is the process of new venture creation. Thus, to describe the phenomenon, the first step is to identify and describe the underlying concepts or stages. Since a process view is considered, the authors critically review the existing models, and suggest the following stages: (i) ideation, opportunity (venture idea) recognition, (ii) shaping the entrepreneurial intention, (iii) preparation, (iv) networking, (v) entry, (vi) value creation, (vii) exit, and (viii) organization. However, the last stage shows the birth of an organization, and is not considered as a stage in this process. To elaborate the subject of the theory, a definition is suggested which includes both “what” and “how” elements. Thus, the “Creation of a start-up company is:
a process (e.g. see, Gartner, 1985; Davidsson and Gordon, 2012),
that starts with a venture idea (e.g. see, Vesper, 1990; Deakins and Whittam, 2000; Serarols, 2008; Becker et al., 2015) or opportunity (e.g. see Bhaves, 1994; Deakins and Whittam, 2000; Dimov, 2010),
followed by an intended individual (e.g. see, Katz and Gartner, 1988; Aldrich, 1990, 2000; Brush et al., 2014) entrepreneur (e.g. see, Gartner, 1985; Campbell and De Nardi, 2009; Dimov, 2010; Davidsson and Gordon, 2102),
who organizes a series of activities (e.g. see, Gartner, 1985; Deakins and Whittam, 2000; Delmar and Shane, 2004; Samuelsson and Davidsson, 2009), creates competency (e.g. see, Van de Ven et al., 1984) and mobilizes resources (e.g. see, Katz and Gartner, 1988; Vesper, 1990; Lim et al., 2008; Samuelsson and Davidsson, 2009),
(iv) using his/her networks (e.g. see, Vesper, 1990; Larson and Starr, 1993), (ivi) in an environment (e.g. see, Gartner, 1985),
(ivii) in order to create value (e.g. see, Katz and Gartner, 1988; Vesper, 1990; Bhaves, 1994; Deakins and Whittam, 2000)”.
This process starts with a gestation stage (Haugh, 2007; Liao and Welsch, 2008), i.e. an early stage evolution, continues with an entry (Gartner, 1985; Shaver and Scott, 1991, Gonzalez-Perez and Velez-Ocampo, 2014), e.g. go to market activities (Gonzalez- Perez and Gutierrez-Viana, 2012), and ends with an exit strategy (Becker et al., 2015), such as merger and acquisition, IPO, etc. Although, this process indicates the lifecycle of a successful start-up, and some start-ups might fail. As mentioned earlier, “Why” mentions the ‘‘underlying psychological, economic, or social dynamics that justify the selection of factors and the proposed causal relationships?’’ (Whetten, 1989: p. 491). The proposed definition which includes “what” and “how” elements, is drawn from the existing literature. Thus, selection of the factors is based on: (i) logical sequence of the process, and (ii) the supporting arguments and propositions available in the literature. However, there are some propositions consolidating the causal relationships.
Stage 1- Ideation, opportunity (venture idea) recognition: The concept of entrepreneurial opportunity as the core concept in entrepreneurship proposed by Shane and Venkataraman (2000) has been challenged by Davidsson and Tonelli (2013). They suggest New Venture Idea (NVI) as a more appropriate concept. Thus, though individual-opportunity nexus is still a main concern, NVI is “becoming” a main driver of entrepreneurship. Moreover, research on new venture creation and start-up companies, confirms the importance and effect of venture idea (e.g. see, Vesper, 1990; Deakins and Whittam, 2000; Serarols, 2008; Khajeheian, 2013; Becker et al., 2015). There are a large number of research works that support the possibility of creating a new venture without a new venture idea (e.g. see, Dess & Lumpkin, 2005), or an opportunity to be exploited (e.g. see, Shaver and Scott, 1991). Moreover, the literature suggests that when a new venture idea or an opportunity exists, it motivates the intended entrepreneur to start a new venture (start-up) (Krueger et al., 2000).
P1: A new venture idea or an opportunity initiates the process of new venture (start- up) creation.
P2: A venture idea or an opportunity motivates the intended individual or entrepreneur to start a start-up company.
Stage 2- Shaping the entrepreneurial intention: Shaping the entrepreneurial intention is another dilemma. There are many new venture ideas which never come into existence, or would fail if introduced by someone who does not have enough intention to follow the idea though. He or she will start the process, but would be likely to fail, since entrepreneurial intention might not exist. As Degeorge and Fayolle (2013) argue, “new venture creation is a planned and therefore intentional behavior”. Thus, shaping the entrepreneurial intention is a critical issue.
P3: Shaping the entrepreneurial intention affects the process of new venture (start- up) creation.
Stage 3- Preparation: As mentioned earlier, research on entrepreneurial intention is a factor that motivates entrepreneurs to organize a series of activities (e.g. see, Gartner, 1985; Deakins and Whittam, 2000; Delmar and Shane, 2004; Samuelsson and Davidsson, 2009), create competence (e.g. see, Van de Ven et al., 1984) and mobilize resources (e.g. see, Katz and Gartner, 1988; Vesper, 1990; Lim et al., 2008; Samuelsson and Davidsson, 2009). It signifies the importance of entrepreneurial intention. Krueger et al. (2000) highlights this argument by contesting that: “Entrepreneurial intention is defined as the commitment to starting a new business”. Indeed, starting a business needs resource mobilization, creating competence, and activity organization (Ruef , 2005; Degeorge and Fayolle, 2013).
P4a: Entrepreneurial intention motivates the intended individual or entrepreneur to mobilize resources.
P4b: Entrepreneurial intention motivates the intended individual or entrepreneur to create competence.
P4c: Entrepreneurial intention motivates the intended individual or entrepreneur to organize activities.
Here, the mentioned three elements, i.e. resource mobilization, creating competence, and activity organization, are called “preparation”. Atherton (2007) mentions that there are activities to be undertaken by the entrepreneur in order to prepare for business start-up. He calls these activities “pre-start activities”.
P4: Entrepreneurial intention motivates the intended individual or entrepreneur to be prepared.
Stage 4- Networking: Networking is another requirement to initiate a successful business (Vesper, 1990; Larson and Starr, 1993; Forbes, 1999; Ramachandran & Ray, 2006). On the one hand, networking without preparation might lead to failure in the very early stage of new venture creation (Davila & Foster, 2007; Sommer et al., 2009), since the potential entrepreneur might fail to make relevant and useful connections based on his or her potentials, needs and requirements. Also, he or she might waste time on irrelevant networking activities. On the other hand, networking can help the intended individual or entrepreneur to enter the market and create value (Mitchell et al., 2000; De Carolis et al., 2009).
P5: Networking affects the process of new venture (start-up) creation.
P6: Preparation makes the intended individual or entrepreneur ready to initiate networking.
Stage 5- Entry: After the preparation stage, and networking, start-up companies try to offer their products or services to the market. This is called entry (Kuester et al. 1999). Entry is a critical stage, which affects the success or failure of the new venture (start-up). While entry strategies for different start-ups might differ, a successful entry is vital for any start-up (Gartner, 1985). As Dean and Meyer (1996) argue, entry barriers constrain the new venture (start-up) creation, and do not let them take advantage of available opportunities.
P7: Entry affects the process of new venture (start-up) creation.
P8: Networking helps the intended individual or entrepreneur to enter the market.
Stage 6- Value creation: Value creation, which lies at the heart of entrepreneurship, is an integral part of new venture (start-up) creation (Bruyat and Julien, 2001; Zahra and Dess, 2001; Fayolle, 2007; Karra et al., 2008; Khajeheian, 2013, 2016). The more a new venture creates value, the more successful and valuable it will be (Bruyat and Julien, 2001; Brush et al., 2001; Teal and Hofer, 2003).
P9: Value creation affects the process of new venture (start-up) creation.
Stage 7- Exit: Once a start-up company offers its new products and enters the market, if not before, it is time to make a serious decision about the best exit strategy? Created value, both economic and social, generated in the entry stage (Katz and Gartner, 1988; Vesper, 1990; Bhaves, 1994; Deakins and Whittam, 2000) helps the entrepreneur choose an eftcient and effective exit strategy (Peters, 2009; MacKillop, 2009). Generally exit strategies are merger and acquisition, initial public offering (IPO), family business succession, etc. (DeTienne, 2010). However, it is important to think about an exit strategy at the outset and before the business is formally launched.
P10: Value creation helps the intended individual or entrepreneur to exit.
The context: As stated earlier, “Who”, “Where”, and “When” are conditions or the contexts which place limitations on the propositions generated in a theory. ‘‘These temporal and contextual factors set the boundaries of generalizability, and as such constitute the range of the theory’’ (Whetten, 1989: p. 492). The start-up creation takes place in an environment which poses boundaries to the theory. Gartner, one of the first new venture creation scholars, highlighted the role of environment in the new venture creation process. He argued that, in organization theory, there are two different views of environment: (i) environmental determinism (Aldrich, 2000; Hannan & Freeman, 1977), and (ii) strategic choice (Child, 1972; Starbuck, 1976; Weick, 1979). In entrepreneurship both views are taken into account. In his work (Gartner, 1985), and here, those variables which “are relatively fixed conditions imposed on the new venture from without are called environmental variables” (deterministic variables). The variables over which the start-up has more control should be considered in the start-up level (strategic choice variables). In his seminal paper, Gartner (1985) enumerates these environmental variables, which are supported in the literature also.
In entrepreneurship, new venture creation, and start-up research, environments play a significant role in the availability of entrepreneurial opportunity (e.g. see, Sine and David, 2003; Li, et al., 2006; Sarasvathy et al., 2010; Edelman and Yli‐ Renko, 2010; Renko et al., 2012).
P11a: The more the environment is ready for creating start-up companies, the more ideas or opportunities will be available.
Some scholars such as Choo and Wong (2006), Zhang and Yang (2006), Díaz- Casero et al. (2012), and Kristiansen and Indarti (2004) argue that environmental factors affect entrepreneurial intention. However, some environmental factors, such as informal institutions, social norms, social networks, might affect entrepreneurial intention, while others, such as entrepreneurial skills and press discourses, might not (e.g. see, Schwarz et al., 2009).
P11b: The more the environment is ready for creating start-up companies, the higher the level of entrepreneurial intention.
As mentioned earlier, environment is an integral part in any new venture creation process. The literature confirms this argument and argues that any start-up should be prepared for this journey (Forbes, 1999). The environment plays a significant role in the preparation stage. For instance, resource mobilization and availability of resources is a function of environmental variables (Edelman and Yli-Renko, 2010). Moreover, availability of financial resources is another dilemma (Gartner, 1985), and government plays a significant role in shaping the environment. Indeed, these will affect preparation (Maggioni et al., 1999).
P11c: The more the environment is ready for creating start-up companies, the easier the preparation will be.
Networking and building social capital for new venture creation and start-ups is another issue to be studied (De Carolis et al., 2009). In this regard, environment influences the networking criteria, such as network size (Coviello, 2006; Qian and Kemelgor, 2013), and network diversity (Auken, 2002), etc.
P11d: The more the environment is ready for creating start-up companies, the easier networking will be.
Value creation is a vital issue for start-ups and new ventures (Katz and Gartner, 1988; Vesper, 1990; Bhaves, 1994; Deakins and Whittam, 2000). If it fails to create value, the newborn company will die. Hence, it is clear that entry determines value and value determines the existence of a typical start-up. An appropriate environment makes it easier to go to market, enter, and create value (Mitchell et al., 2000; Cohen et al., 2008; Hitt et al., 2011).
P11e: The more the environment is ready for creating start-up companies, the easier entry/value creation will be.
Finally, when a start-up enters the market and creates value, it is time to make a valuation assessment in order to determine the value of that start-up (Bhave, 1994; Berk et al., 2004). In this stage, environment is a vital issue to be considered. If the market is uncertain (Sanders and Boivie, 2004), regulations are not appropriate (Ahlstrom and Bruton, 2006), key players are not interested in new venture creation (Ndonzuau et al., 2002), etc., valuation will be affected, and thus might limit the choice of exit strategies (Dossani and Kenney, 2002).
P11f: The more the environment is ready for creating start-up companies, the easier the exit will be.