A taxonomy of new business ventures

Abstract In this study we develop and validate an empirically grounded taxonomy of new business ventures (NBVs) using qualitative and quantitative data generated from interviews of and questionnaire responses from 106 entrepreneurs. The taxonomy describes eight different types (gestalts) of NBVs. These eight types are profiled across four dimensions: Individual: What kinds of background characteristics, abilities, skills, and motivations do these entrepreneurs have? Organizational: What kinds of competitive strategies and organization structures are used by NBVs? Environmental: What kinds of competitive environments are NBVs created in? Process: What kinds of activities are pursued, and how much effort is devoted to the activities that entrepreneurs undertake to create their NBVs? An NBV gestalt is an ideal type generated through cluster analysis. It is a composite summary of the case descriptions of the NBVs that fell into each particular cluster. Although each NBV gestalt is a complex combination of many different characteristics, a simplistic description of each NBV gestalt is outlined to provide an overall view of the taxonomy. Type 1: Escaping to Something New: Individuals who start these firms seek to escape from their previous jobs—jobs that from their perspective offer few rewards in terms of salary, challenging work, and promotion opportunities. The new venture is in a different industry and is a different type of work than the entrepreneur's previous job. This firm enters an established highly competitive market and offers goods/services similar to its competitors. Type 2: Putting the Deal Together: The concern of the entrepreneurs in this group is to assemble the different aspects of the business (suppliers, wholesale and retail channels, customers) into a “deal” in which each participant in the deal can be assured of winning. Contacts are a crucial factor. Type 3: Roll Over Skills/Contacts: Before the start-up the entrepreneur worked in a position using technical skills and expertise similar to those required in the new venture. He or she spends little time selling, marketing, or advertising because customer contacts from a previous position are used. This firm provides goods or services that are based on the owner's professional expertise and are usually generic services (e.g., auditing, advertising). The firm competes by offering better service than competitors. Type 4: Purchasing a Firm: Since this is a purchase, a great deal of time is spent acquiring capital for the acquisition. The venture is viewed as a turn-around situation from the previous owners. Upon acquisition a great amount of time is spent evaluating the firm's products and services. The firm competes by adapting to the changing needs of customers. Type 5: Leveraging Expertise: This entrepreneur is among the best in his or her technical field. The firm starts with the help of partners. The firm enters an established market and competes through flexibility in adapting to customer needs since the entrepreneur is keenly aware of changes in the environment. A great deal of time is devoted to sales. The environment is characterized by high technical change and complexity. Type 6: Aggressive Service: The firm is a very aggressive service-oriented firm, usually a consulting firm in a very specialized area. The environment requires that the entrepreneur have profes- sional or technical expertise of some kind. Knowing the right people in this industry is very important for making sales or for gaining access to those who influence which firms have the opportunity to make sales. Type 7: Pursuing the Unique Idea: The firm is created because of a new idea for a product or service that is not being offered. The products or services are not technically sophisticated or difficult to manufacture. Since this is the first firm in the marketplace to offer such products/services, there is some uncertainty as to whether customers can be found. Type 8: Methodical Organizing: The methodical aspect of the start-up is reflected in the entrepreneur's use of planning both in acquiring the skill venture. The firm's products or services are similar to those of other firms, but the firm has some new twist, either a slightly different way to manufacture the product or provide the service or by selling to a slightly different customer. The NBV taxonomy outlines a situation-based framework that may be useful for helping potential entrepreneurs match their skills, abilities, and interests to possible new venture types.