Nascent Entrepreneurs Access and Use of Network Resources in a ...

Nascent Entrepreneurs Access and Use of Network Resources in a Technology Incubator Steven Tello, University of Massachusetts Lowell Yi Yang, University of Massachusetts Lowell Scott Latham, University of Massachusetts Lowell Abstract. This study utilized the setting of a technology incubator to analyze how nascent entrepreneurs develop and leverage networks to secure resources as part of the venture creation process. Through rigorous qualitative methods, we examined how six medical device entrepreneurs used networks to obtain needed resources, the types of resources pursued and differences among entrepreneurs based on their level of network skill. Our findings illustrate the importance of the incubator in providing both tangible resources (funding, space, equipment) and less tangible but equally important resources (credibility, relationships, access to networks). Initial findings suggest that differences in the level of an entrepreneurs’ network skill relate to the development, but not necessarily the success, of the venture. Résumé. Cette étude examine la façon dont les nouveaux entrepreneurs établissent et tirent parti des réseaux pour obtenir des ressources dans le cadre du processus de création de l’entreprise dans le contexte d’un incubateur de technologie. En faisant appel à de rigoureuses méthodes qualitatives, les auteurs ont examiné la façon dont six entrepreneurs dans le domaine du matériel médical ont tiré parti de réseaux pour obtenir les ressources nécessaires, les genres de ressources recherchées, et les différences entre les entrepreneurs selon leur degré d’habileté de réseautage. Les résultats obtenus révèlent l’importance de l’incubateur dans l’obtention de ressources tangibles (financement, locaux, équipement) ainsi que de ressources moins tangibles, mais tout aussi importantes (crédibilité, relations, accès à des réseaux). Les résultats préliminaires indiquent que le degré d’habileté de réseautage est lié au développement, mais non à la réussite, de l’entreprise.

Introduction In the early stages of technology ventures, the entrepreneur’s ability to identify and gather appropriate resources is critical to venture emergence and ultimately venture success. The quantity and types of resources needed vary based on the nature of the venture and stage of venture development, but include items such as funding, talent, R&D expertise and business knowledge. The process of commercializing new technologies is more about people and the relationships built with stakeholders at various points in the process than it is about the inherent characteristics of any one technology (Jolly, 1997). The entrepreneurship literature clearly supports the importance of networks in assisting the entrepreneur to secure the resources needed to promote venture emergence and success (Aldrich, Rosen and Woodward, 1987; Hoang and Antoncic, 2003; Kodithuwakku and Rosa, 2002). Indeed, a number of studies have found that the size of an entrepreneur’s network (Aldrich, Rosen and Woodward, 1987; Larson and Starr, 1993; Uzzi, 1999), strength of ties within a network (Uzzi, 1999), and the content or resources provided within a social network (Tornikoski and Newbert, 2007) each contribute to the success of entrepreneurial ventures. However, it is still unclear how entrepreneurs develop their networks and what factors may

Journal of Small Business and Entrepreneurship 25.3 (2012): pp. 375–397

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help them convert network resources into tangible resources (funding, R&D facilities, human resources) that are directly related to venture success. A focus of prior studies on cross-sectional research tends to obscure differences in how entrepreneurs at various stages of experience and development leverage social networks. As Larson and Starr (1993) point out, entrepreneurs need different types of networks at different stages in the venture’s development. Thus, qualitative, inductive research is needed to stimulate new theories and understanding of the dynamics of network formation, as well as the differences in how entrepreneurs leverage networks to obtain resources at various stages in their venture lifecycle. To address this gap, this study employed qualitative research methods to examine network activities and resource exploration of nascent entrepreneurs in their early venturing process. A grounded theory inquiry guided our examination of six nascent entrepreneurs as they pursued the commercialization of six different medical devices using the resources associated with a medical device incubator sponsored by a major, public university. We believe that incubators provide an ideal context to analyze questions of how entrepreneurs develop and leverage networks as part of the technology commercialization process. The primary goal of a business incubator is to support the development and emergence of successful new business ventures in their early stage (NBIA, 2008). Over the course of one year, we collected data on six medical device entrepreneurs through participant observation, semi-structured interviews and document review as they accessed the resources and networks associated with the incubator. The opportunity to observe these nascent entrepreneurs provides an additional and unique contribution to the central question of entrepreneurship literature—what factors contribute to entrepreneurs’ viability (Delmar and Shane, 2004; Brush, Manolova and Edelman, 2008). Our study reveals a complex picture of resource utilization by entrepreneurs, where the ability to access resources is dependent on multiple factors, including the stage of venture development and the networking skill of the entrepreneur. We found that entrepreneurs “learn” how to leverage various networks. Thus, the incubator plays a critical role in assisting nascent entrepreneurs in shifting their focus from “opportunistic ties” (Larson and Starr, 1993) to relationships that contribute directly to the social and economic growth of the venture. The manuscript progresses in the following fashion. First, we offer a brief account of the manner in which nascent entrepreneurs interact with networks. Then, we put forth a brief discussion of the role and importance of incubators as a potential resource network. Building on this discussion, we offer the methods employed, followed by a detailed discussion of our findings. Finally, we discuss the scholarly, business, and policy implications of our paper. Literature Review Value of Networks to the Entrepreneur The literature in entrepreneurship has examined the value of networks to entrepreneurial activities in several respects, including size of the network (Aldrich and Reese, 1993; Baum, Calabrese and Silverman, 2000); centrality or the ability of actors to connect with other actors in the network (Johannisson et al., 1994); strength of ties among network actors (Granovetter, 1973; Hansen and Witkowsk,i 1995); and diversity of resources available through the network (Birley, Cromie and Myers, 1991; Burt, 1992). Specifically, the size of an entrepreneur’s network and the resources available within the network have been found to contribute to the emergence and success of new ventures

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(Aldrich, Rosen and Woodward, 1987; Larsson and Starr, 1993; Tornikoski and Newbert, 2007; Uzzi, 1999). Entrepreneurs consistently use networks to access information, ideas and opportunities (Hung, 2006; Singh et al., 1999; Johannisson et al., 1994). In addition, the network relationships entrepreneurs form provide reputational or signaling content, lending credibility to the venture in the eyes of network partners who control resources (Calabrese, Baum and Silverman, 2000; Stuart, Hoang and Hybels, 1999). Several researchers suggest that the existence or strength of ties among actors in a network determines the diversity or range of resources the entrepreneur can access (Burt, 1992; Granovetter, 1973; Hansen and Witkowski, 1995). While strong ties offer close association and access to network actors, strong ties may limit opportunity and risk-taking by trending toward homogeneity. Weak ties are typical of extended networks, which may offer the entrepreneur access to new actors, resources and opportunities (Granovetter, 1973). Burt (1992) suggests the absence of ties between actors offers an opportunity for “bridging structural holes,” a concept where the focal actor benefits from exposure to new and novel information and resources. McAdam and Marlow (2008) summarize the value of networks for entrepreneurs as providing access to new ideas and resources; credibility through the formation of partnerships and alliances; the exchange and creation of shared knowledge; and the opportunity to create new networks which further facilitate the venture growth. Hoang and Antoncic (2003) also suggest that: 1) networks contribute to the development of new ventures; and 2) the entrepreneurial process and venture outcomes, in turn, affect network development. Larson and Starr (1993) present a network formation model composed of three stages, each with different networking strategies. In Stage I, the entrepreneur focuses on “opportunistic ties,” relationships that focus on the anticipated needs of the entrepreneur. As the entrepreneur matures into Stage II, the entrepreneur begins to filter network relationships, focusing on relationships that will contribute to the social and economic growth of the venture. Stage III networks assist the entrepreneur in the final phase of organizational formation. Stage III exchanges bring formal organization to the business venture, defining and assigning various business functions and roles within the new company. Although prior studies have recognized that the relative importance of factors varies during the different stages of venture development (Hoang and Antoncic, 2003), less attention has been paid to the transition between stages, especially network evolution during the early stages. Neergaard, Shaw and Carter (2005) suggest information networks are particularly important to entrepreneurs during the early stages of firm creation, when the entrepreneur may have limited knowledge and skills regarding development of the venture. However, since these networks are relatively new and the venture concept immature, these early stage networks offer primarily potential resources, instead of tangible and available resources. To facilitate their venture process, nascent entrepreneurs need to change their network relationships from the opportunistic, one dimensional pursuit of the entrepreneur to a mutually beneficial, social-economic exchange between the entrepreneur and other network members (Larson and Starr, 1993). Thus, what brings the venture into the next stage is not only the size or content of an entrepreneur’s network, but, more importantly, how it directs the evolution of the network into relationships that can directly contribute to the growth of the venture. Role of the Incubator Business and technology incubators provide one method of facilitating new venture access to both networks and resources. The primary goal of a business incubator is to support the development and emergence of successful new business ventures (NBIA, 2008).

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The literature identifies three basic types of incubators — non-profit incubators focused on regional, economic development; university-associated incubators focused on technology and research commercialization; and for-profit incubators designed to provide a financial return to the incubator operators (Peters, Rice and Sundararajan, 2004; Campbell and Allen, 1987; Hackett and Dilts, 2004). In their review of 35 incubator research articles, Hackett and Dilts found that in addition to physical space and infrastructure, an incubator is organized to facilitate the success of new ventures while also controlling for the cost of venture failures. In their survey of 54 university business incubator managers, Lee and Osteryoung (2004) found four sets of factors critical to the success of incubator tenants. These categories include goal/operations factors (goal clarity, operations strategy), physical/human resource factors (facilities and equipment, common space, entrepreneurial support, administrative assistance), incubator services (technology transfer, research & development, business and legal services, financial support and consulting, entrepreneurial education) and networked programs (institutional expertise, external networks, finance/business networks, government and community networks). Consistent with our earlier discussion regarding the value of networks to entrepreneurs, Hansen et al. (2000), Bollingtoft and Ulhoi (2005) and others (Sun, Ni and Leung, 2007) conclude that access to an incubator’s network resources is critical to the success of incubator clients. These network resources include individuals and organizations with a range of technical, business, financial, organizational and professional abilities that assist the nascent entrepreneur in organizing, funding and launching a new venture. Linkages with university personnel and resources in particular have been identified as the major success factor for incubator clients (Mian, 1996). Approaching the problem from a different perspective, several researchers suggest that while the resources an incubator offers are quite important, it is the process which the emerging entrepreneur experiences in his or her interactions with incubator staff and network actors that contributes to the success of the venture. Campbell, Kendrick and Samuelson (1985) offer a framework that identifies four areas where the incubator creates value for the emerging venture: 1) diagnosis of business needs; 2) selection and monitored application of business services; 3) provision of financing; and 4) access to the incubator network. Their framework complements Jolly’s (1997) five stages of commercialization—1) imagining; 2) incubating; 3) demonstrating; 4) promoting; 5) sustaining—in particular picking up at the incubation stage then providing insight and resources to move the venture through demonstration (prototype development, fundraising) and on toward promoting to sustaining. Based on their review of the literature, Hackett and Dilts (2004) suggest future research should examine in more detail the actual incubation process. Numerous studies have attempted to measure incubation success through graduation rates and economic impact, while earlier studies have identified the various types of incubators and services offered. However, very little is actually known about the process entrepreneurs undergo as they access incubator networks and resources. Although the entrepreneurship literature clearly supports the importance of networks in the emergence of entrepreneurial ventures (Aldrich, Rosen and Woodward, 1987; Hoang and Antoncic, 2003; Kodithuwakku and Rosa, 2002), it is still unclear how entrepreneurs develop their networks and what factors may influence the dynamics of the network formation. In this study, we view incubation as a process meant to support the emergence of new companies based on the entrepreneur’s access of networks and resources affiliated with the


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incubator. This perspective integrates prior research on the role of incubators in supporting new venture success and the literature establishing the value of networks to entrepreneurs. Additionally, Larson and Starr’s model of network formation provides a framework for examining entrepreneurial development in the incubator from a network resource perspective where the entrepreneur transitions from relationships as “opportunistic ties” to mutually beneficial socio-economic relationships and ultimately to the final phase of business formation. Qualitative, inductive research is needed to advance our understanding of the differences in how entrepreneurs leverage networks to obtain resources at various stages in the venture lifecycle. A grounded theory research approach supports our close examination of a specific group of entrepreneurs in the incubator environment over time while encouraging the creation and revision of theory which addresses the “how” and “what” questions of new venture creation. Specifically, we examine the following three research questions: • What is the nature of the resources nascent entrepreneurs pursue and access in the early stage of venture formation? • How do nascent entrepreneurs use networks to obtain needed resources? • What factors contribute to the nascent entrepreneur’s ability to convert latent network resources into tangible resources? Methodology Sample A case study method was used to examine how nascent entrepreneurs accessed network resources associated with a medical device incubator. The instrumental case study method supports the selection of specific cases based on the researcher’s belief that these cases will best support examination of specific phenomena (Stake, 1995). The specific selection of cases, referred to as purposeful selection (Light, Singer and Willet, 1990; Maxwell, 2005), purposeful sampling (Patton, 1990) and criterion-based selection (LeCompte and Preissle, 1993) is an established strategy in qualitative research used to assist the researcher in identifying cases that will most likely address the phenomena under examination. Since our research proposed to examine entrepreneur access of network resources, cases were selected based on their use of incubator resources and their participation in incubator networking events. An effort was made to select cases developing different types of medical devices, and selected cases were evenly divided between those that received funding assistance from the incubator and those that did not. Six entrepreneur cases were selected from a technology incubator operated by a major public university in the northeast United States. This incubator provides a range of services to medical device entrepreneurs, including business plan development, engineering and prototype support, medical subject matter experts, office space, and funding assistance. Additionally, this incubator supports consultation and networking with venture capitalists, medical device company executives, economic development directors, and university researchers through formal showcase events and individual partner agreements. Each of the entrepreneurs selected to participate in this study had previously submitted an application to the incubator, met with incubator staff to discuss the resources each needed to move their venture forward and had developed a budget and development plan intended to guide their respective venture effort forward over the next year. The venture must have been in the very early phase of development, meaning the pre-prototype or early prototype stage, to be selected for this study. Actual physical location of the venture in the

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incubator at the time of the study was not a prerequisite for selection; however, subjects must have utilized at least two of the incubator’s resources during the six months prior to the interview, and must have been involved with the incubator for at least six months. Of the six cases selected for this study, two used office or laboratory space in the incubator (Case 2, Case 6); however, all six made use of some type of incubator resource (engineering assistance, clinical assistance, business planning, showcase event participation). At the time of their first interview with the researchers, each case had been involved with the incubator on a continuous basis for between six and twelve months. The incubator also offered a matching loan award as part of the application process; five of the six cases applied for this matching loan fund and three were awarded funds ranging from US$15,000 to US$75,000 (Case 1, Case 2, Case 4). Details regarding each case, their involvement with the incubator and initial and short-term outcomes are included in Appendix A. Data Collection Qualitative research techniques, including participant observation, document review and semi-structured interviews were used to develop an in-depth understanding of the experience of entrepreneurs participating in this study. The use of multiple data collection techniques within a study to confirm findings and reduce misinterpretation is referred to as triangulation (Bollingtoft, 2007; Denzin and Lincoln, 1994; Makela and Turcan, 2007). Within-method triangulation relies on the comparison of data from multiple sources. In this study, data collected from each entrepreneur through semi-structured interviews was confirmed through the review of pertinent documents (incubator application, business plan) and through the participant observation role of Researcher A (described below). Investigator triangulation, which attempts to reduce researcher bias by engaging multiple observers in the collection and interpretation of data (Bollingtoft), was supported by using two researchers to conduct and code each interview. Participant Observation. One researcher (Researcher A) joined the incubator as a consulting staff member, providing incubator tenants with assistance in business plan development and market assessment, prior to inception of this study. As an “insider-observer” (McMillan and Schumacher, 1997), Researcher A attended bi-weekly incubator executive team meetings where the progress and challenges of incubator tenants were discussed. Researcher A also attended “inventor showcase” events hosted by the incubator and all incubator advisory board meetings, where decisions regarding admission to the incubator and funding awards were made. Researcher A maintained descriptive and analytical notes of these meetings, which were used in this study to confirm the entrepreneurs’ access to incubator resources, and to confirm entrepreneur statements regarding progress or challenges in their individual commercialization efforts. Researcher A’s “insider-observer” role also helped inform the questions asked in the semi-structured interviews, since this researcher had developed a detailed understanding of the resources available through the incubator and the incubator’s extended network. In order to guide against interpretative bias on the part of Researcher A, analytical and meeting notes were regularly shared with, and reviewed by, the other two researchers conducting this study. Document Review. After receiving Institutional Review Board approval to commence research, the researchers met with the Incubator Director and reviewed incubator support materials for each entrepreneur associated with the incubator. These support materials included the incubator application, venture business plan (when available), venture presentation materials, and incubator business assessment of each entrepreneur. These data were


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reviewed by the researchers and used to code the following: • • • • • •

Entrepreneur’s prior venture experience Entrepreneur’s prior professional experience Experience of venture team Age of venture Stage of venture development (ideation, prototype development, fundraising) Type of medical device (diagnostic, procedure, preventative)

This initial round of coding documents informed the development of three sets of interview questions that explored the prior experience of the entrepreneur, the prior experience of the venture team, and the stage of venture development. Additionally, the researchers reviewed these documents immediately prior to interviews with each entrepreneur in order to inform their conversation with each entrepreneur and to confirm statements made regarding experience, venture status and progress. Semi-structured Interviews. Initial face-to-face interviews were scheduled with the founding or principal entrepreneur associated with each case following the initial coding and review of documents. Each interview was audio recorded and lasted approximately 1.5 hours. The researchers used a semi-structured interview format, which included a list of 20 open-ended questions examining the types of resources accessed from the incubator and from external networks, the types of resources believed to be most beneficial to the venture, the types of relationships pursued by the entrepreneur in their efforts to collect resources, the methods they used to develop relationships, and the perceived benefits and limitations of the incubator. The same set of questions was used for each interview, while the interview tool also included probing prompts meant to assist the researcher in fully exploring each response. An effort was made to pair two researchers per interview and each researcher led at least one interview session. Each interview was transcribed in MS Word, printed and later imported into the NVivo 8 qualitative data analysis software. The researcher who led an interview session closely reviewed the audio and printed transcription for that interview in order to ensure the accuracy of the transcript. If questions regarding the content or meaning of an interview comment emerged, the researchers contacted the subject of the interview for clarification and also reviewed supporting documentation collected as part of this study. Data Coding and Analysis Grounded Theory. This study utilized a grounded theory approach to aid in developing new insights into how entrepreneurs access network resources, along with understanding the process of converting latent network resources into tangible resources of potential to benefit to emerging ventures. Grounded theory is: Theory derived from data that has been systematically collected and analyzed using an iterative process of considering and comparing earlier literature, its data and emerging theory (Makela and Turcan 2007: 123). The process of developing theory from qualitative data was introduced by Glaser and Strauss (1967) and has since been established in the qualitative research literature by a number of researchers (Charmaz, 2005; Eisenhardt, 1989; Strauss and Corbin, 1998; Yin, 1994). The process includes:

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• • • • • •

Definition of research questions; Development of early constructs (based on existing literature and researcher experience); Sample definition and selection; Data protocol development and data collection; Data analysis, theory development and data collection refinement; and Theory refinement.

We began our analysis with a comprehensive examination of the network resource literature as it relates to entrepreneurship and emerging ventures. As discussed above the literature is clear in identifying network factors that contribute to new venture success, but the literature does not clearly discuss how individual entrepreneurs develop their networks and what factors influence network formation in the early stages of venture creation. While Larson and Starr propose a useful stage model for examining network formation, it had not been applied to the emergence of technology-based ventures. Our perspective of incubation as a process meant to support the emergence of new companies by providing access to resources and networks suggests that the incubator setting provides a unique opportunity to examine how entrepreneurs in technology ventures access network resources. Our review of the relevant literature and our own experience working with one technology incubator led to the formation of our research questions: • • •

What is the nature of the resources nascent entrepreneurs pursue and access in the early stage of venture formation? How do nascent entrepreneurs use networks to obtain needed resources? What factors contribute to the nascent entrepreneur’s ability to convert latent network resources into tangible resources?

Coding. Two of the three researchers conducted all interview coding. They first each reviewed the same interview independently then used NVivo 8 qualitative data analysis software to develop initial coding categories. This software tool proved particularly helpful in coding and organizing data, but also assisted in retrieving and examining the relationships between subjects and key concepts. Strauss and Corbin (1998: 101) refer to this initial phase of coding as open coding, “an analytic process through which concepts are identified and their properties and dimensions are discovered.” Open coding is a broad process, where you generate many initial codes that will later be organized under categories. Our open coding process resulted in the generation of more than 100 initial codes. Many of these codes were descriptive in nature, describing characteristics of an entrepreneur (persistent, self-confident, exercising control), different types of networks (college friends, industry groups) and types of needed resources (engineering help, funding, clinical assistance). The researchers then met to compare coding categories and application of codes in subsequent cases. These initial coding discussions resulted in the development of several categories that included the codes described above (entrepreneur characteristics, network types, network resource type). As coding progressed, 11 categories emerged which described the major themes or topics found in the data. Strauss and Corbin (1998) refer to this as axial coding, a process where the dimensions and properties of a category are linked to the category. These major categories are listed in Table 1. The initial, open codes, which tend to describe dimensions of the major category codes, were then merged under these major categories (using the parent-child node function of NVivo).


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Table 1. Major Categories Identified through Data Coding Application Process

Environmental Factors

Network Resource Type

Entrepreneur’s Networks

External Network

Stage of Venture

Entrepreneur’s Characteristics

Funding

Team

Entrepreneur’s Experience

Incubator Resources

Coding of interviews continued while the researchers explored potential relationships between categories, data and cases. The researchers used the query tool within NVivo to examine differences among the cases regarding access and use of networks, characteristics of entrepreneur and venture, level of networking skill and other concepts central to this study. When the researchers were satisfied that no additional information, concepts or relationships could be identified through analysis, theoretical saturation was assumed and coding ended. Findings Types of Resources Sought by Entrepreneurs Our first set of interview questions examined the types of resources nascent entrepreneurs sought to acquire during the early stage of their involvement with the incubator. According to Larson and Starr (1993), entrepreneurs in such a stage (Stage I) focus on anticipated needs and prepare for the transition to more selective resource seeking and networking activities (Stage II). The six cases reveal a wide range of resources that were accessed or pursued by the nascent entrepreneurs in this study. As Table 2 highlights, the subjects sought human resources (management team members, employees), business planning assistance, clinical/ regulatory assistance, funding resources, technical assistance, exposure and access to additional resource networks. This is consistent with the literature that identifies physical/ human resources, incubator services and networked programs as critical to the success of incubator tenants (Peters, Rice and Sundararajan, 2004). Four types of resources in particular appeared to be most important to the subjects in the study. These included technical resources (21%), exposure (21%), funding resources (16%), and access to additional networks (15%). Table 2. References to Types of Network Resources (Count = 190)

Note: The term “count” refers to the total references coded across all cases to the nodes discussed in each table. The percentage represents the number of references coded per node divided by the count.

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Technical resources. Nascent entrepreneurs sought technical resources from both an engineering and medical perspective to assist in the development of prototype medical devices. They discussed the need for engineering assistance with prototype development and testing, along with medical guidance regarding their approach and device capabilities. Case 1 – It’s (the incubator) given us an entrée to the medical school. I’ve been out to talk with the urology group out there, for instance. And I’ve talked with … some of the other folks in the engineering department. Case 4 - I asked the plastics department to see if they could come up with a unique set of parameters, such as stretchability, which is elasticity, strength, which is how much pressure it will hold, at the same time it will work properly…That’s where they helped me. All six entrepreneurs identified the need for technical assistance from either the incubator or from external sources. Exposure. The entrepreneurs in this study consistently identified opportunities to publicize and share their venture concept with others as critically important to the success of their venture. All six entrepreneurs repeatedly discussed the importance of exposurerelated activities in their interviews. Our review of their comments indicates two types of exposure were valued, event exposure and publicity. Event exposure refers to opportunities where the entrepreneur presents a poster or venture presentation to a specific audience. The events identified in this study were sponsored by a variety of organizations, including the incubator, other medical device/life science organizations, and regional and state economic development groups. The entrepreneurs identified several benefits to event exposure, including the development of presentation skills, the development of networking skills, and access to new networks. Case 1 (referring to his presentation at the incubator showcase events) – it’s good, and certainly the more – I’m not a great public speaker – the more experience I have getting up in front of people it’s good. So having to come up here and give two or three presentations as part of this process was all fine, was good. And it always helps to – the more often you do it, the better. Case 2 – The inventor showcase in May, which I probably wasn’t mentally prepared for. ‘Cause it was much bigger than I expected it to be…And then so I got a little bit more comfortable with what was going on. And then, like a week after that was the Life Sciences Innovation thing…and that worked out well. I think M.B., who works for the incubator …she must have forwarded me the Life Sciences Innovation Day paperwork. Both comments refer to the process aspect of an entrepreneur’s participation in the incubator, assisting the entrepreneur to improve his or her public speaking skills and venture pitch by participation in incubator events. At the same time, the entrepreneur increases exposure to network actors. Case 2 - I think the incubator sort of gets me access to these events and presentations and things like that, where you meet people from the business side … Or you know exposure – just getting the project exposed so that, … you know different people are approaching us as far as where the business opportunity goes. That’s sort of where the incubator has helped as far as getting exposure.


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The literature clearly identifies the benefits of both event and publicity exposure as important to new venture development (Campbell, Kendrick and Samuelson, 1985; Lee and Osteryoung, 2004). Publicity exposure came in the form of press releases distributed by the university’s public relations staff, along with external press that attended various events. Publicity refers to actual media stories in printed periodicals or on websites that present the inventor’s story or publicize related activities. The incubator regularly distributes press releases when tenants join, receive funding or participate in public events. Five of the entrepreneurs discussed publicity as an important resource in moving their ventures forward. Case 1 – (When asked what resources have contributed the most in terms of moving his concept forward?) Getting accepted into the program. That press release was probably the most important thing that happened with respect to the incubator… Because it was a publicly announced imprimatur by a third party, a trusted third party…has given us some sort of an imprimatur that said we did due diligence and we found them worthy…that’s helped us a bit in terms of talking to funds and so forth … they can see that somebody associated with this state has said, “These guys are good.” Of all of the cases, Case 1 speaks most directly to the benefit of publicity exposure, and how publicity lends credibility to the venture. While the other entrepreneurs did not state this so clearly, they did appreciate the value of publicity and publicity’s ability to attract investors. Case 3 – The incubator did us a huge favor at the early stages; after the pitch they referred us to a local reporter who did a really nice article on us…as the conversation went on they actually did an article that: 1) drove our website traffic; and 2) opened up a couple of investor leads that one or two have closed…They want to do another major story. MD Buyline – so it’s starting to get awareness out there to our potential customers’ facilities, and within that there are clearly investors. This comment is echoed by Case 2 below, when discussing the benefit of the matching loan fund award associated with the incubator. Exposure indicating that these entrepreneurs and their respective ventures were associated with a university-sponsored incubator lent credibility to their efforts, signaling to other network actors that these ventures might be worth a further look. Funding. As seen in Table 3, nascent entrepreneurs were pursuing a variety of funding sources—self-funding, government grants, and angel funding. None of the cases had received venture capital investment at the time of the interview, which is consistent with their early-stage status. Table 3. Sources of Venture Funds Sources of Funds

Funds Raised by Case prior to Initial Interview

Case 1

Founders, Board, Incubator Matching Loan

Less than $25,000 – Cannot raise matching fund

Case 2

Institution Awards, Incubator Matching Loan

$30,000 – Institution provides match

Case 3

Friends & Family, Angels

$3.0 million

Case 4

Self-Funded, Debt, Incubator Matching Loan

Less than $25,000 – Cannot raise matching fund

Case 5

Self-Funded

Less than $25,000

Case 6

Successful Round I SBIR Grant

$225,000

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The entrepreneurs expressed mixed feeling towards the funding process. On one hand, they were happy to share their successes. Cases 2, 3 and 6 secured funds from several different sources, including matching loan funds, institutional grants, federal grant programs and individual investors. Case 2 - Gaining access to incubator resources was a step for me. And then getting the Fast Lane funding really sort of validated us…this concept is legit, it is worthwhile pursuing…it really gave the project a solid sort of platform…and then (Entrepreneur’s Institutional Employer) decided to come up with $15,000 initially and then go from there … based on what the prototype shows. Case 3 - We went to a mix of friends and family and orthopedic surgeons who would get us off the ground because they understood the technology. And any of our early 15-16 investors either knows science, worked in the field in the past, or knows somebody who has knowledge there that they trust and gave them a reference on us. On the other hand several entrepreneurs openly shared their frustration with obstacles confronted in the effort to raise funds for their venture. Obstacles identified included grant and loan program policies (matching funds difficult to raise, criteria for selection, length of time it takes to get funded), the financial crisis of 2008-2009, and challenges in identifying appropriate investors for their venture. Case 1- The (matching loan) funding has been utterly useless from our point of view ’cause – as a startup, we don’t have any, and therefore, having matching funds is really utterly useless – it’s like somebody’s holding something just out of reach, but you can’t – So that’s probably been the most frustrating part…There’s almost no deals being closed with pre-revenue companies. I’ve talked to a number of different variations on incubators over the years, and the one piece that’s always missing is the funding. Case 4 - I mean they (the incubator) constantly refer me to people, but it hasn’t worked well yet. … They (the incubator) have investor connections more than investors themselves…In other words, it’s a gap for them too because if they were fully capable of sustaining and enhancing a project like this they will be able to provide the money. Networks. The entrepreneurs discussed access to network resources as frequently as they mentioned funding resources. While our intent was to solicit specific resource types, it was clear from the entrepreneurs’ comments that they viewed the network associated with the incubator as a valuable resource. All six entrepreneurs indicated they used the incubator network to access external network resources. Case 2 – Getting into the incubator was a step in the sense that it gave me, I felt like I had more access to different networking opportunities, different – because I see the incubator as a more developed tech transfer office than my . Case 4 – The incubator has been instrumental in exposing the project and myself to other groups. I benefitted a great deal from them from contact. The State Technology Transfer Center - that was done through the incubator, and in addition to that there’s another article written about myself and the project at StateDevice.com.


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These comments are consistent with earlier research on network content, which indicates that entrepreneurs consistently use networks to access information, ideas and opportunities (Hung, 2006; Johanninsson et al., 1994; Singh et al., 1999). As entrepreneurs access new networks, they also develop their individual network skills, a topic we will address below. Types of Networks and Resources Accessed The findings above suggest that nascent entrepreneurs used different types of networks to obtain needed resources. The entrepreneurs identified six types of networks as potential resources for growing their venture (Table 4). These included the incubator network, as well as five networks external to the incubator (i.e., investor networks, industry association networks, medical community networks, government networks, and CEO networks). The incubator network (28%), investor networks (23%), and industry association networks (22%) were discussed frequently in regard to the resources they offered nascent entrepreneurs. The entrepreneurs identified these networks as sources of five primary resources: technical resources, exposure, funding, business development assistance, and human resources. There was, however, some variation among the six entrepreneurs regarding their stated awareness of the potential value of these networks. Only four of the six entrepreneurs (Cases 3,4,5,6) mentioned industry associations as a source of resources, while five of the six discussed investor networks (all but Case 5). The incubator provides a variety of resources meant to support entrepreneurs in the development of their venture. As Table 5 shows, the incubator network (21%), event and publicity exposure (24%), engineering services (13%), and funding (11%) account for a significant proportion of the incubator resources sought by the nascent entrepreneurs in this study. Table 4. Entrepreneur References to Network Types (Count = 320)

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Table 5. References to Specific Incubator Resources (Count = 141)

These findings suggest that this group of entrepreneurs viewed the incubator as a source of specific types of resources, as well as a gateway to additional networks that offered resources unavailable directly from the incubator. Consistent with the literature, they used the incubator network to access additional networks and the resources associated with these external networks. Potential Impact of the Entrepreneur’s Network Skills While our study revealed that nascent entrepreneurs were introduced to a variety of networks and accessed different resources through their participation in the incubator program, our interviews and later coding of the data suggested some differences in their ability to access external networks and to convert these network resources into tangible resources. Interviews with three subjects (Cases 1, 3, 5) indicated that they had significant past experience in connecting with external networks prior to their involvement with the incubator. Case 1 - One of the things we did very early was to set up a – what I think is a worldclass board of advisors, the chair of this department, or the head of whatever. We got the head of the urology department at State University, the head of urology at Private Hospital, all of them teaching at major universities with world-class credentials… Case 3 - I think we just (work) the network from J&J. I focus on the big companies, particularly the companies I worked at …I’ll talk with everybody when I’m sitting on a plane going to Miami for a meeting, or golfing with somebody. Case 5 - I was consulting and then we started having these meetings that led to the (medical development group), which I helped to cofound with some other people in 2001. Didn’t know at the time we cofounded an industry group, but it’s grown quite immensely. As we coded each case for evidence of network skills, it became apparent that Cases 1,3,5 had significantly more experience at accessing external networks than Cases 2,4,6. Using the matrix coding function in NVivo 8, we examined differences in the frequency which Cases 1,3,5 (High Network Skill) and Cases 2,4,6 (Low Network Skill) discussed their access to external networks, their access to funding resources and their use of incuba-


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tor resources. As described in Table 6, the High Network Skill group discussed access to external networks (29%) much more than the Low Network Skill group (17%), and discussed funding access (29%) slightly more than the Low Network Skill group (22%). The Low Network Skill group discussed access to incubator resources (62%) more frequently than the High Network Skill group (42%). Table 6. Frequency of Resource Discussion by Level of Network Skill

When examining differences in regard to external networks (see Table 7), we found that the High Network Skill group discussed access to industry networks (46%) much more than the Low Network Skill group (20%), which in turn discussed government networks (33%) more than the High Network Skill Group (4%) . Table 7. Frequency of External Network Discussion by Level of Network Skill

In regard to differences around the discussion of funding (described in Table 8), the High Network Skill group discussed obstacles to funding (38%) much more than the Low Network Skill group (18%), which focused its discussion of funding to potential sources of funding (64% compared to 24% of comments for the High Network Skill group).

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Table 8. Frequency of Funding Topic Discussion by Level of Network Skill

Finally, in reviewing differences between the two groups regarding the resources they accessed or planned to access from the incubator (see Table 9), the High Network Skill group discussed the need for clinical/regulatory assistance (65%) much more than the Low Network Skill group (8%). The Low Network Skill group emphasized technical/engineering services (48%) and incubator funding assistance (44%) much more than the High Network Skill group (29% for technical engineering services and 8% for incubator funding assistance). These findings suggest that nascent entrepreneurs with high network skills in this sample may have greater access to, or greater participation in two types of external networks, industry association networks and investor networks. Interestingly, entrepreneurs with high network skills in this sample did not necessarily obtain funding more successfully than those without such skills (see Table 3 and Appendix A) but they did complain more about the difficulties encountered in the process of fundraising. Table 9. Frequency of Incubator Resources Discussion by Level of Network Skill


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The two groups also appear to have different preferences or focus in regard to the resources they perceive as important to moving their venture further along. The High Network Skill group emphasized the need for clinical/regulatory assistance, suggesting that their device was further along in its development stage than the devices under development by the Low Networking Skill group. The Low Network Skill group appeared focused on leveraging funding resources and engineering resources from the incubator. Engineering resources focus on prototype development, a step earlier than the clinical/regulatory phase on which the High Network Skill group was focused. This difference might explain the High Network Skill groups’ level of frustration with funding. Clinical trials and the regulatory process allow entrepreneurs to test their prototype and collect data that may attract funding from venture capitalists. Venture capitalists typically require a working prototype and clinical data as a prerequisite to funding consideration. Clinical trials tend to be quite costly for medical devices, so the limited matching funds available from the incubator or even state loan and grant funds are typically insufficient to fund these trials. The High Network Skill group understands this and perhaps is voicing their frustration with this situation while the Low Network Skill group could very likely move their prototype development forward with the limited matching funds and grant programs available through the incubator network. In summary, this analysis suggests that differences in the network skill of our six entrepreneurs, along with differences in the stage of each venture’s development, contribute to different perceptions regarding the relative value of the services, resources and networks associated with the incubator. Discussion Debatably, the central question in the entrepreneurship field is what factors are related to entrepreneurial viability (Brush, Manolova and Edelman, 2008; Delmar and Shane, 2004). Specifically, why do some new ventures succeed while other similar ventures fail? In addressing the previous question, increasingly the focus has not only examined the attributes of the entrepreneur, such as intention and motivation (Krueger, Reilly and Carsrud, 2000) and the merit of the idea, but also the surrounding network of invested stakeholders, such as investors, partners, and customers. Such a perspective is largely built upon Katz and Gartner’s (1988) work, which suggests that a nascent organization’s success is largely dictated by their interactions with external stakeholders. In accordance with such a position, this study investigated the manner in which nascent entrepreneurs’ access and leverage resources through networks associated with a business incubator. Specifically, we focused on the nature of the resources nascent entrepreneurs pursue and access in the early stage of venture development, the potential impacts of networks on resource access, and the factors that contribute to network formation and resources obtainment. What is the nature of the resources nascent entrepreneurs pursue and access in the early stage of venture formation? As past studies of nascent entrepreneurship have detailed, the process of entrepreneurship is not a linear process (Brush, Manolova, and Edelman, 2008). Indeed, the entrepreneurs within our study operated in parallel processes, simultaneously considering funding, product development, organizational viability and market identification — each appeared to evolve in a muddled, progressive process. Such dispersed effects in resource seeking may be necessary for nascent entrepreneurs because, in the early stage of venture development, one may easily run up against a “road block” in one area. A diversity of resources helps

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the entrepreneur to shift efforts to other entrepreneurial activities without delaying the venturing process. Although the literature has pointed out the importance of funding, we also found that the diversity of the resources that entrepreneurs sought went well beyond funding. While funding was a concern, it was not the sole concern. Entrepreneurs had a high level of expectation of technology and business support, continuing interaction with the incubator even when funding was no longer a possibility. Our interviews indicated that each entrepreneur approached the incubator to assist with a specific need (funding assistance, prototype development, business plan development) but were then exposed to a broader range of services and resources than anticipated. How do nascent entrepreneurs use networks to obtain needed resources? The entrepreneurs in our study identified six types of networks that led to potential resources for growing their ventures, a finding that echoes the value of networks to entrepreneurial activities highlighted in the literature (Aldrich and Reese, 1993; Baum, Calabrese and Silverman, 2000). Furthermore, our findings distinguish the value of the incubator network from that of other networks external to the incubator that entrepreneurs also identify as important to early stages of venture development. In general, nascent entrepreneurs view the incubator as a nexus of resource networks and find significant additional value in the external network resources facilitated through, or perhaps attracted to, the incubator itself. They spoke at great lengths about the value of the connections they made with resources external to the incubator through incubator-facilitated activities. It is clear that the entrepreneurs valued the incubator’s ability to “open” other network doors. This is consistent with McAdam and Marlow (2008) who found that incubators serve to increase the entrepreneur’s access to new ideas and resources. What factors contribute to the nascent entrepreneur’s ability to convert latent network resources into tangible resources? In relation to the incubator experience, two factors appear to contribute to the entrepreneur’s ability to convert latent resources into tangible resource. These two factors are legitimacy and the incubator process. Legitimacy was a “resource” that was much sought after from the incubator, thus supporting past research, which found that legitimacy is significantly and positively aligned to venture survival (Delmar and Shane, 2004). Nascent entrepreneurs hoped that their interactions with the incubator would serve as a “seal” of legitimacy when they ventured out into the broader business community. Research has found that incubators in particular lend “credibility” to the new venture, both in the incubator’s initial acceptance of the venture (Lender, 2003; Hansen et. al., 2000) and by exposing the venture to external networks and resources (Bollingtoft and Ulhoi, 2005; Lee and Osteryoung, 2004; McAdam and Marlow, 2008). In effect, nascent entrepreneurs hoped the incubator would open doors to other resources, as well as provide the key, legitimacy, to those doors. Our findings also suggest that the incubation process itself offers the potential to assist the entrepreneur in shifting from the “opportunistic ties” focus of nascent entrepreneurs discussed by Larson and Starr (1993) in Stage I, to Stage II, where the entrepreneur begins to focus on relationships that contribute directly to the social and economic growth of the venture. Our finding that the group of entrepreneurs in this study was evenly divided between those with “high network skill” and those with “low network skill” may be an indicator of this transition. More nuanced networking entrepreneurs viewed the incubator


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as a source of resources, but more importantly, recognized that it also offered a gateway to other external networks that may offer additional resources. Less nuanced networking entrepreneurs, while expressing appreciation for the external publicity and exposure accompanying their incubator tenure, tended to view the incubator as a “one-stop shop” in regard to fulfilling their need for venture resources, potentially missing the importance of developing the incubator’s external networking relationships. This difference in network and resource focus suggests that: 1) the ventures of the two network skill groups were at different stages of development (pre-prototype development versus clinical trials); and 2) that the High Network Skill group was in transition to Larson and Starr’s Stage II. Such a finding supports past research that suggests entrepreneurial experience does not benefit the venture per se, but more so the entrepreneurs’ ability to recognize avenues for garnering resources, such as social networks, as well as establishing other linkages (Sarasvathy, 2001). Additional examination of the subjects’ use of the incubation process over the next one to two years will assist our efforts to examine this transition more closely. Consistent with a grounded theory approach, this study has helped to refine Larson and Starr’s model of network formation by applying it to technology entrepreneurs working within a medical device incubator. As discussed above, our findings suggest that activities associated with the incubator process may assist nascent entrepreneurs in the transition from a focus on opportunistic ties (Stage I) to a focus on relationships that contribute directly to the social and economic growth of the venture (Stage II). While entrepreneurs enter the incubator to secure resources of some type, participation in incubator events helps them to develop presentation and networking skills. Development of these skills is important in assisting the entrepreneur to convert latent resources into tangible resources. Our finding that entrepreneurs in this study could be characterized as high or low network skill also suggests an opportunity to examine more closely how network skill level affects venture formation and how the incubator process might be modified to improve or transition entrepreneurs from a low to a high network skill level. Limitations and Future Study As suggested by Hoang and Antoncic (2003), a qualitative research methodology provides insights into the personal networks that evolve between entrepreneur, the incubator stakeholders and other involved parties, in a way that cannot be captured by cross-sectional survey research. We utilized multiple data collection techniques, including participant observation, document review and semi-structured interviews, in order to triangulate our data sources and to verify the credibility of the phenomena reported (Bollingtoft, 2007; Makela and Turcan 2007). In addition to triangulation we used member checks, where our transcripts and summary findings were reviewed by the entrepreneurs who participated in the study (Willis, 2007). Researcher A’s participant observer role also provided long-term engagement with the entrepreneurs and incubator staff, supporting the development of a deep understanding of the entrepreneurs’ experiences and allowing regular conversations with both groups (entrepreneur, incubator staff) regarding entrepreneur progress and resource access. For these reasons, we believe the data presented in this paper accurately portrays the experiences shared by each entrepreneur in this study. At the same time, scholars might reasonably question the transferability of these findings to other settings. Our study was meant to advance the understanding of nascent entrepreneurs by following one group of entrepreneurs through the incubation process, and is not meant to describe the experience of all entrepreneurs in this process. These findings are

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limited to the experiences of one group of nascent entrepreneurs with one incubator in the medical device industry. It is possible that entrepreneurs launching ventures in other industries may experience different resource needs or potentially different venture development trajectories. An observational approach is meant to describe the actual experiences of a specific set of respondents over time through the collection and analysis of rich data, and is not meant to generalize from a sample to a population. As Willis (2007: 222) so aptly summarizes: “Meaning resides in context, and it cannot be completely removed from it.” From this perspective we believe our method and study provides additional and unique insight into the resource gathering process so critical to the development of new ventures. In closing, our findings confirm earlier research regarding the important role incubators play in directing nascent entrepreneurs to resources and resource networks. We expand on earlier studies by first identifying differences in the level of network skill possessed by nascent entrepreneurs and then by suggesting that level of network skill may account for an entrepreneur’s passage from a stage focused on the development of opportunistic ties to a more nuanced stage focused on expanding network connections in conjunction with the search for needed resources. This development in theory still needs to be tested, while we have uncovered differences in the level of network skill among our subjects, we do not yet know the relative importance this difference has on moving a venture forward. While our entrepreneurs embraced the value of networking opportunities associated with the incubator, it is not yet clear which opportunities will ultimately support venture success. Future longitudinal studies could in fact examine the impact these variables have on the development of individual network skills as well as on the successful formation of new ventures. If future research can examine and answer these questions, it may be possible to refine the incubation process in a way that contributes to greater venture success. Contact For further information about this article, contact: Steven Tello, Associate Professor, Management & Entrepreneurship and Associate Vice Chancellor, University of Massachusetts Lowell, Lowell, Massachusetts USA E-mail: [email protected] Tel: (978) 934-4240 Yi Yang, Associate Professor, Management & Entrepreneurship, University of Massachusetts Lowell, Lowell, Massachusetts USA E-mail: [email protected] Tel: (978) 934-2813 Scott Latham, Associate Professor, Management & Entrepreneurship, University of Massachusetts Lowell, Lowell, Massachusetts USA E-mail: [email protected] Tel: (978) 934-2928

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Medical Approved for matching loan Preventative Device prototype assistance

Medical Procedure

Medical Procedure

Case 4 12 months

Case 5 12 months

Case 6 12 months

Co-author SBIR

Not awarded matching loan

Receives initial SBIR $225K Lab space in incubator

Attends multiple incubator-sponsored events

Declines matching loan Cannot raise matching funds

Received second SBIR $1 Million Develops prototype Animal testing Lab space in incubator

Continues search for funds

Partners with incubator Network member Raises $65K private CEO Search

Access to interns Credibility w/funders Space Attends incubator events

Not awarded matching loan Attends multiple incubator-sponsored events

Enters sister incubator Raises $3M angel funds Develops prototype Maintains involvement

Medical Procedure

Case 3 11 months

Credibility w/host institution Forms company Hires CEO through incubator event Moves into incubator

Accepts matching loan Institution provides match $30,000

Approved for matching loan Device prototype assistance Business planning assistance Attends multiple incubator-sponsored events

Medical Procedure

Case 2 8 months

Publicity and exposure Attends incubator events Raises $75K private

One Year Outcome

Declines matching loan Cannot raise matching funds

Initial Outcome Prior to First Interview

Approved for matching loan Attends multiple Incubator-sponsored events

Medical Diagnostic

Case 1 9 months

Initial Incubator Action

Device

Entrepreneur

Appendix A. Subject Information and Outcomes

NASCENT ENTREPRENEURS ACCESS AND USE OF NETWORK RESOURCES 397