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Int. J. Business Environment, Vol. 3, No. 1, 2010

The effect of entrepreneurs motivation and the local economic environment on young venture performance Alberto Arias
Facultad de Ciencias Econmicas y Administrativas, Pontificia Universidad Javeriana Cali, Calle 18 N 118-250, Cali, Colombia E-mail: aarias@javerianacali.edu.co

Iaki Pea*
Basque Institute of Competitiveness, University of Deusto, Mundaiz 50, Donostia 20.012, Spain E-mail: ipena@ud-ss.deusto.es *Corresponding author
Abstract: In this study, we examine the effect of entrepreneurs motivation and the local economic environment on young venture performance. Field data was collected from entrepreneurs of two different regions, South America and Europe. Our findings suggest that the degree of entrepreneurial motivation at firm creation (i.e., necessity-driven versus opportunity-driven motivation) determine subsequent venture performance during firm infancy (i.e., three to four initial years from inception). Results show that the human capital profile of necessity-driven entrepreneurs at the moment of firm start-up is weaker than that of opportunity-driven entrepreneurs in both regions. When we compare the profile of necessity-driven entrepreneurs for each region, noticeable differences arise. Keywords: necessity-driven entrepreneur; opportunity-driven entrepreneur; entrepreneurs motivation; young venture performance; South America; Europe. Reference to this paper should be made as follows: Arias, A. and Pea, I. (2010) The effect of entrepreneurs motivation and the local economic environment on young venture performance, Int. J. Business Environment, Vol. 3, No. 1, pp.3856. Biographical notes: Alberto Arias Sandoval is the Director of Business Administration Department and an Associate Professor of the Faculty of Economics and Business Administration at Pontificia Universidad Javeriana Cali, Colombia. He holds a Doctorate from Universidad de Deusto, Spain. He teaches various topics of strategy and competitiveness in undergraduate and postgraduate programs. He has published articles on internationalisation of business and entrepreneurship in international journals. Also he is a member of the Global Entrepreneurship Monitor (GEM) as part of the team of the GEM Colombia research group. He directed the MBA at Universidad Javeriana Cali.

Copyright 2010 Inderscience Enterprises Ltd.

The effect of entrepreneurs motivation and the local economic environment

Iaki Pea Legazkue (MSc and PhD, Purdue University) is the Director of the Entrepreneurship Department at the Basque Institute of Competitiveness and Associate Professor of the Management Department at Universidad de Deusto (Spain). He has published numerous articles and book chapters on entrepreneurship, innovation, and regional competitiveness. Some of his most recent articles have been published in journals such as Small Business Economics, International Entrepreneurship and Management Journal, and International Entrepreneurship and Innovation Management Journal. He is a member of Global Entrepreneurship Monitor, GEM, international research consortium and the team leader of GEM-Basque Country.

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Introduction

Findings in the entrepreneurship literature suggest that new firm survival and growth seem to be influenced by internal and external factors to an organisation. In this paper, we centre our attention on an important internal element: entrepreneurs degree of motivation during the venture gestation process. We draw upon human capital theory and claim that entrepreneurs personal characteristics, viewed as critical intangible assets, affect venture success. Taking this concept a step further, and without any intention to underestimate the relevance of other conventional human capital elements (i.e., such as an entrepreneurs education, experience, market knowledge...), we propose that the motivation of an entrepreneur to start up a new firm (i.e., necessity-driven versus opportunity-driven) can be an influential factor to explain young venture success. Given the renewed interest and importance of the concept of motivation, opportunity recognition and exploitation in the field of entrepreneurship, we examine the effect of individuals motivation for firm start-up on young venture performance. Findings from recent global entrepreneurship monitor (GEM) reports show that the ratio between necessity-driven and opportunity-driven entrepreneurs differs considerably across countries. Developing countries seem to be ahead in the ranking of necessity-based entrepreneurial activity. While Latin American countries top the list of necessity-driven entrepreneurship, most European regions come into last positions of that ranking (Bosma et al., 2007; Acs et al., 2004; Ikaskuntza, 2007). The ratio of opportunity total entrepreneurial activity (TEA), to necessity-TEA for a country is low when a relatively high proportion of people are forced into business start-ups for lack of better alternatives compared to those who choose to improve their conditions by exploiting a business opportunity. GEM observes that countries with low opportunity TEA to necessity TEA ratios also have low GDP per capita. As a countrys national income rises, its relative percentage of opportunity-driven entrepreneurship increases (Acs et al., 2004; Ikaskuntza, 2007). The unequal economic, institutional, educational and cultural support received by entrepreneurs in different countries (and regions as well) may partially explain why necessity-driven entrepreneurs proliferate in certain economic environments. The high unemployment rate of developing countries may trigger unemployed individuals to startup new ventures as an option to ensure their own subsistence. This phenomenon is known in the entrepreneurship literature as the refugee effect (Thurik et al., 2008). Often, new firm owners from these economies lack the resources and skills required to start-up a new firm. In fact, the high firm failure rates of these economies suggest that

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entrepreneurs face serious difficulties to build up successful businesses (Reynolds et al., 2003). Clearly, both the market environment and the social capital endowment of a region play an important role in explaining why certain economies show a relatively larger proportion of necessity-driven entrepreneurs. Little is known about the similarities and differences between necessity-driven and opportunity-driven entrepreneurs in both developing and developed economies. Scholars in the field of entrepreneurship have not disentangled yet the issue whether human capital profile differences between necessity-driven entrepreneurs versus opportunity-driven entrepreneurs are similar worldwide. Furthermore, the entrepreneurship literature has not sufficiently explored the linkage between the motivations degree of entrepreneurs to start-up a new business and the effect of this level of motivation on venture performance during firm infancy. Indeed, the literature on entrepreneurial motivation is not conclusive concerning the ongoing debate on opportunity-driven entrepreneurs outperforming necessity-driven entrepreneurs. With the aim of responding to these intriguing issues, we develop a conceptual framework and test it using data from two distinct economic environments. We selected purposely a European and a South American region for our survey (i.e., the Basque region in Europe and the Ecuadorian region of Tungurahua in South America). We expect that our results will shed some light to the field of entrepreneurship and will make a modest contribution in several ways. First, we test empirically that opportunity-driven entrepreneurs are better endowed in terms of human capital attributes than necessity-driven entrepreneurs. Secondly, our conceptual model expands extant theories on entrepreneurs motivation, opportunity recognition and exploitation by considering different types of opportunity-driven entrepreneurs. Lastly, and perhaps most importantly, our study is a pioneering attempt to test empirically the linkage between entrepreneurs motivation at firm gestation (i.e., ex-ante period) and young venture performance during its infancy stage (i.e., ex-post initial three to four critical years from inception). This paper proceeds with a brief outline of the main contributions in the literature concerning entrepreneurial motivation. We develop a two-dimensional conceptual framework, which comprehends distinct motivational elements and recognises three types of entrepreneurs: necessity-driven, opportunity-driven and opportunity-driven with self-renunciation entrepreneurs. The different typologies embraced in this framework will serve as the basis to formulate our hypothesis on venture performance. In Section 3, we describe the data for our empirical and the statistical methods applied in our empirical tests. After discussing our findings in the fourth section, we end the paper with main conclusions and implications.

Necessity versus opportunity driven entrepreneurs

By the end of the 20th century, when the average unemployment rate in the EU was over 10%, a policy-shift towards the support of small enterprises was in process in most European economies. Policy makers considered SMEs as engines of economic growth in an entrepreneurial economy. Nowadays, a similar process is in course in most Latin American economies. Audretsch and Thurik (2001) argue that the central role of government policy in an entrepreneurial economy versus the traditional managed economy is to foster the generation, transfer, production and commercialisation of

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knowledge, a knowledge, which emerges and responds to unexploited market opportunities. In fact, many of these opportunities are identified while entrepreneurs have been, or still are being employed by other companies (Reynolds, 1997). In some instances, the existence of knowledge spillovers and positive externalities in concentrated regions prompts the creation of new organisations where entrepreneurship acts as a mechanism to promote economic growth (Acs and Armington, 2002). According to the authors, certain economic enclaves seem to be more attractive to pursue opportunity-driven entrepreneurial projects (i.e., due to advantages of certain locations to innovate and benefit from positive externalities, spill-over effects, cross-fertilisation of ideas). The opportunities are out there in a Kiznerian sense, and entrepreneurs have to look for them. While some individuals have a well developed absorptive capacity and the ability to detect or exploit business opportunities, most people just are not capable or give up to the choice of becoming entrepreneurs. Ardichvili et al. (2003) argue that the creation of profitable businesses follows a successful opportunity development process. While their framework is useful to explain the role played by opportunity recognition and development in business formation, yet their model in our opinion is not complete. It is useful to describe the behaviour of potential entrepreneurs in areas as described by Acs and Armington (2002), where, for instance, knowledge spill-over possibilities prevail. The relevance of a well planned process of identification and exploitation of opportunities to ensure venture success is at the core of their model. We believe that a substantial percentage of business owners start-up their firm because they do not have a real and good opportunity to access to the labour market and to be employed by other firms. In most of these cases, the firm gestation process is not so carefully rationalised, planned and executed as it is advocated in Ardichvilis (2003) and other opportunity recognition and exploitation models. This is particularly true in developing countries, such as South America. We extend Ardichvilis (2003) framework and add into our model the possibility of firm creation induced by entrepreneurs necessity to ensure their self subsistence. Moreover, we do not only broaden their conceptual model, but also, we test it empirically as it has been proposed by numerous scholars (Ardichvili et al., 2003). There seems to be an ample consensus in the academic community regarding the positive effect exerted by favourable geographical environments (or ecosystems) on new firm creation and economic growth (Zucker et al., 1998). Success stories explaining the role played by business start-ups for the development of prosperous regions are well-known worldwide (i.e., Silicon Valley, Cambridge, etc.). In these locations, we find many entrepreneurs that abandon their own job to start-up a new business (i.e., with the support of a well developed business angel-venture capital financial community, rich business networks, etc.), bearing a high opportunity cost (i.e., they could be employed by companies that pay a high wage in these areas). For the purpose of this study, we name them opportunity-driven entrepreneurs. There are also non-favourable local conditions which may prompt new firm creation. A disadvantageous economic environment may lead to firm creation by necessity-driven entrepreneurs. In contrast to opportunity driven entrepreneurs, necessity-driven entrepreneurs would be forced to create a new firm for subsistence (not by opportunity). Necessity-driven entrepreneurs are often unskilled workers with difficult access to the labour market and not gifted or trained to start-up new firms. Hayton et al. (2002) explain that new business formation rate and venture performance differences arise among developing and developed economies (Hayton et al., 2002). One plausible reason of this

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phenomenon may be that the motivation of entrepreneurs for starting-up a new firm may influence this outcome. Following this line of thinking, an additional claim we make in this study is that necessity-driven entrepreneurs are not homogeneous across regions. Our conjecture is that the human capital attributes of necessity-driven entrepreneurs in developing countries are different from those of necessity-driven entrepreneurs in developed regions, and this is (partially) due to the external environment, social capital, and economic context where they live and start-up their firms. In brief, empirical evidence suggests that it is common to find a higher proportion of opportunity-driven entrepreneurs in prosperous regions and a higher percentage of necessity-driven entrepreneurs in economically distressed areas, and this seems to respond to a self-fulfilling development process. Certainly, the health of the economy may depend on the pursuit of opportunities by prospective and incipient entrepreneurs (McMullen and Shepherd, 2006). Successful entrepreneurs obtain supra-normal market rents while simultaneously improving local economic and social conditions. This leads us to believe that the social, cultural and economic capital endowment embedded in a region matter to determine the share of opportunity or necessity-driven entrepreneurs in that location. Moreover, we claim that opportunity-driven entrepreneurs would comprehend more capable and skilled individuals to start-up a new firm than necessity-driven entrepreneurs in both developing and developed economies. This means that opportunity-driven entrepreneurs would be better endowed than necessity-driven entrepreneurs in terms of human capital (intangible) assets, regardless the place where they launch their businesses. This argument leads us to formulate our first hypothesis. H1 Human capital (i.e., education, experience, etc.) of opportunity-driven entrepreneurs is richer than necessity-driven entrepreneurs, regardless the environment or development stage of the local economy. Hitt et al. (2001) coined the term strategic entrepreneurship to refer to the integration of entrepreneurial (i.e., opportunity seeking behaviour) and strategic (i.e., advantage seeking) perspectives in developing and taking actions designed to create wealth. In addition to analysing motivational differences for venture creation in two distinct economies, we also want to examine young venture performance. More specifically, we want to find out whether a positive relationship exists between a higher degree of entrepreneurial motivation before firm creation gestation stage and subsequent venture performance after the firm is born infancy stage. To ensure new firm survival and growth during the infancy stage is as important, or even more crucial, than to start up a new business. The infancy period is a difficult stage where entrepreneurs find out their true ability to build up a successful organisation (Jovanovic, 1982). A trial and error learning process occurs, whereby entrepreneurs seek to develop an understanding of the competitive situation and determine how to compete within that context (Nicholls-Nixon et al., 2000). A new firms life endurance will also be determined not only by this process of strategic experimentation, but also by entrepreneurs own threshold of performance (Gimeno et al., 1997), which may vary across regions and may depend on entrepreneurial motivation. The process of starting and building up a new firm usually evolves through different transition stages. Typically, entrepreneurs depart from a gestation stage (i.e., ex-ante phase in which the planning of a start-up project is developed), and some of them move onto the next infancy stage (i.e., ex-post phase where firm inception occurs and a market

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adaptation period starts). Once a new firm is created, many new firm owners realise that the reality is not what they expected during the previous ex-ante gestation stage. However, it will not be appropriate to think that there is no link between the ex-ante gestation and ex-post infancy stages. Rather, the ex-ante stage may condition the ex-post stage. We could presume that the level of initial motivation of entrepreneurs at gestation could affect the level of success achieved by a new venture during infancy. Within the entrepreneurship literature, the human capital of entrepreneurs is viewed as a key predictor of new firm survival and growth. Conventional wisdom suggests that there exists a positive relationship between the human capital endowment of entrepreneurs and venture performance. We will focus our attention on one of the constituent elements of the human capital of entrepreneurs, but still empirically unexplored in the literature: entrepreneurial motivation. Certainly, the two pivotal subjects behind our conceptual framework are the intent and opportunity cost of the entrepreneur, that is, what drives entrepreneurs to start up a new firm and the opportunity cost of creating a new company. We believe that these two notions are at the core of the entrepreneurial motivation of new firm owners. In an attempt to address both issues, we have designed a conceptual framework and classified entrepreneurs according to their degree of entrepreneurial motivation during the ex-ante gestation period. In our approach, we consider, first, the reason why entrepreneurs start-up a business (i.e., intent), and secondly, the ex-ante employment status of new firm owners (i.e., opportunity cost). See Figure 1.
Figure 1 Two-dimensional model of entrepreneurial motivation
High

Nonentrepreneur

Opportunity Cost (Being employed)

Necessity Driven

Opportunity with SelfRenunciatio

Opportunity Driven

Low Low High

Intent (Focussed commitment to start-up a firm)

Along our first dimension, we distinguish those entrepreneurs with a clear own-impetus, vision and initiative to start-up a firm (i.e., high focussed commitment side in the model) from those who have started a firm driven by a vague idea (i.e., low focussed commitment side in the model). The opportunity cost of the choice to create a new firm is highlighted along our second dimension of the model. We believe that the opportunity cost is high when an entrepreneur gives up her current job and the potential professional career that she could have developed in that or any other company (i.e., being employed side in the model). The opportunity cost would be low when the

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entrepreneur neither has a job nor the possibility to be employed in the local economic area (i.e., not being employed in the model). In essence, we want to create a spectrum of entrepreneurial motivation degree where in one extreme we identify a pull effect (i.e., entrepreneurs are forced to start up a firm for their own personal survival) and in another extreme, we recognise a push effect (i.e., entrepreneurs reject other job opportunities, which very likely will increase their wealth in the future, and instead, they opt to bear risk and assume the challenge of starting up a new firm). The latter case would be represented by that type of entrepreneur located at the upper right corner of Figure 1. In all, we shall consider four potential scenarios for mapping entrepreneurs into our two dimensional model: Non-entrepreneurial employees: This group includes people who are employed currently by companies and have no intent to start up a firm (see upper left corner of Figure 1). For the purpose of our study, we will ignore this segment of individuals because there is no entrepreneurial activity within this group. Necessity-driven entrepreneurs: Unemployed people may continue looking for a job until they get an opportunity to work for a company. If the situation becomes very desperate, an alternative would be to start up a firm. Even though they are not very motivated, they need to work independently in order to survive. They are what we call the necessity-driven entrepreneurs (see lower left corner of Figure 1). Opportunity-driven entrepreneurs: We may also find unemployed people who could easily have access to the labour market (i.e., high skilled labour force) and could be employed by large companies. Instead, this group of jobless people seeks other type of challenges and chooses to start up firms. These are entrepreneurs who found an opportunity to succeed by creating their own business or what we call opportunity-driven entrepreneurs (see lower right corner of Figure 1). Opportunity-driven entrepreneurs with self-renunciation: In this group, the entrepreneurs are being employed by other companies at the time they think in starting up a new firm. They are willing to give up to their current job in order to create their own company. In other words, they renounce their former job position (and in some instances a promising professional career within a company) and assume a new venture since they feel more attracted to the idea of creating and managing their own companies (see upper right corner of Figure 1). The study by Ucbasaran et al. (2009) states that experienced entrepreneurs, like the ones who belong to this segment of our framework, identify more opportunities and exploit more innovative opportunities with greater wealth creation potential.

The percentage of entrepreneurs mapped in each of the four scenarios embedded in Figure 1 varies across countries. For instance, these percentages are different in the regions examined in this study (i.e., Basque region and the region of Tungurahua in Ecuador). Even within the same economy, we can find changes in the percentages of the four scenarios for different intervals of time. Ultimately, economic conditions in each region at a given period of time determine the share of each type of entrepreneur in the map. In a recent study, Cassar (2006) found that individuals with high opportunity costs, that is, with higher current household income and greater managerial experience, had

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higher levels of intended firm size in five years time. In our study, we intend to measure the extent to which the ex-ante framework (i.e., which includes our three types of entrepreneurs: necessity-driven, opportunity-driven, and opportunity driven with self-renunciation) explains the ex-post performance of firm start-ups. Following Cassars (2006) argument, our conjecture is that opportunity-driven entrepreneurs should perform better than necessity-driven entrepreneurs because they are more motivated and focussed on succeeding. Therefore, there should be a linkage between the ex-ante gestation and ex-post infancy phases discussed earlier. More specifically, the proposition we wish to test is that opportunity driven with self-renunciation entrepreneurs should out-perform the remainder types of entrepreneurs. Opportunitydriven with self-renunciation entrepreneurs risk more than the rest of groups in starting a new venture, and apparently have more business experience and face a higher opportunity cost. Consequently, they should be more pressed and endowed to perform better and achieve better results in their ventures. According to our reasoning, a higher threshold of risk, human capital and motivation would demand a higher expected value from the venture, and thereby, this would lead to a higher probability of business survival and growth. H2 All else being equal, opportunity-driven entrepreneurs with self-renunciation (i.e., entrepreneurs that bear higher risk and have a clearer vision for their ventures) will experience larger employment growth during firm infancy (i.e., initial three to four years from inception) than other opportunity or necessity-driven entrepreneurs.

Data and research method

3.1 Sample
Our entire study sample consists of 295 observations representing new ventures located in a European developed region (i.e., Basque region) and in a South American developing region (i.e., the region of Tungurahua in Ecuador). We conducted a survey and interviewed entrepreneurs during the year 2003 and 2004 in both regions and asked questions about their human capital characteristics, the organisation they had created, local economic environment factors and venture performance. More precisely, we collected information from 196 entrepreneurs in Tungurahua and 99 entrepreneurs from the Basque region. The region of Tungurahua is about twice the population size of the Basque region analysed in our study. We did not include start-up firm failures in our sample and all companies were three to four years old. The sample firms represent companies which operate mainly in the service sector (i.e., about 65% of the sample firms; this percentage is similar to the distribution of the population of firms by economic activity in both regions). The sample firms are geographically dispersed within each region and are representative of the population of firms of both regions (i.e., for firm size and age). Necessity-driven entrepreneurial activity (measured by TEA, the main entrepreneurial activity indicator used in the GEM study) amounts for 8.4% of the adult population in Ecuador. The necessity-driven entrepreneurial activity of Basque entrepreneurs is only 0.85%, that is, ten times lower than that of Ecuador (Ikaskuntza, 2007).

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3.2 Variables and statistical methods

We selected several firm owner (human capital) variables to identify differences in their motivation to start-up. Additionally, we used entrepreneurs human capital and firm-related independent variables to explain venture ex-post performance during infancy. We also included control variables which represented external factors to the venture. Human capital variables describe the educational level of entrepreneurs, their managerial and business start-up experience, etc., as it is common in the entrepreneurship literature. Explanatory variables representing the amount of initial financial investment and strategic decisions made overtime (i.e., changes in firm location, entry in new markets, development of new products, etc.) are some of the organisational variables included in the study, since they are expected to influence young venture performance as well. The dependent variables are the type of entrepreneurs1 to test the first hypothesis and venture growth for the second hypothesis. A correlation test was conducted to ensure that the independent variables included in our empirical models were not highly and significantly correlated, and to make sure that our findings were absent of multi-collinearity problems. We provide, for simplicity, a short and precise definition of variables below:
Table 1 Description of variables Dependent variables GDIS Employment growth categories. 1 = declining growth when GOLS < 0%, 2 = none growth when GOLS = 0%, 3 = moderate growth when 0% < GOLS < 100%, 4 = high growth when GOLS 100. Percentage of employment growth (i.e., (EMPLt1 EMPLt0) / EMPLt0) Number of employees at year t Type of entrepreneur. 1 = necessity-driven, 2 = opportunity-driven, 3 = opportunity-driven with self-renunciation Independent variables Entrepreneurs human capital AGE EDUCATION EMPLOYED ENTRFAM FINSOURCE INDIV MGMTCOURSE MGMTEXP NUMEMPR OPPORT STARTEXP WORK YEAR Number of years of the entrepreneur. Entrepreneur has a college degree. 1 = yes, 0 = no Entrepreneur was employed by a company at firm start-up. 1 = yes, 0 = no Entrepreneur has been exposed to an entrepreneurial family. 1 = yes, 0 = no. Percentage of initial investment from own savings Only one founder of the venture. 1 = yes, 0 = no Entrepreneur has been trained with business courses. 1 = yes, 0 = no Number of years holding a previous managerial position Number of firms in which entrepreneur has worked in the past Entrepreneur identified a unique opportunity to start-up a venture. 1 = yes, 0 = no Entrepreneurs prior firm start-up experience. 1 = yes, 0 = no Number of years being employed by a company in the past

GOLS EMPLt TYPENTR

The effect of entrepreneurs motivation and the local economic environment

Table 1 Description of variables (continued) Independent variables Organisational or firm characteristics BPLAN INVEST NEWLOC NEWMKT NEWPARTN NEWPROD PARTNERS Control variables COUNTRY GENDER BEINDEP HRSWEEK CUSTOMREQ GROWPOT INCRWEALTH INSTSUPP KNOWMKT Citizenship of the entrepreneur. 1 = Basque country, 0 = Ecuador Gender of entrepreneur. 1 = male, 0 = female Entrepreneur uses a business plan as a decision making tool. 1 = yes, 0 = no Amount of invested at firm creation Changes in business location. Likert scale from 1 = none to 3 = many Changes in markets attended. Likert scale from 1 = none to 3 = many Changes in founding partnership. Likert scale from 1 = none to 3 = many Changes in the product line. Likert scale from 1 = none to 3 = many Number of founding partners at firm start-up

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Relevance of being independent as a reason to start up a firm. Likert scale from 1 = none to 5 = very important Number of hours per week devoted by entrepreneur to the venture The firm was started as a requirement of a customer. 1 = yes, 0 = no Growth potential perceived of the output market. Likert scale from 1 = very low to 4 = very high Relevance of wealth increase as a reason to start up a firm. Likert scale from 1 = none to 5 = very important Relevance of institutional public support as a reason to start up a firm. Likert scale from 1 = none to 5 = very important Relevance of high familiarity with the market as a reason to start up a firm. Likert scale from 1 = none to 5 = very important

To address our first hypothesis, we have conducted a discriminant regression analysis and identified those human capital variables that differentiate best among our three types of entrepreneurs (that is, necessity-driven, opportunity-driven and opportunity-driven with self-renunciation types of entrepreneurs). In other words, results from this test allow us to explain the existing main human capital profile differences between necessity-driven and opportunity driven entrepreneurs at the gestation stage (i.e., start-up instant). The second hypothesis in our study deals with the relationship between entrepreneurs motivation and venture performance during the infancy stage. To conduct this test, we considered firm growth as our dependent variable. We used a variable describing the employment growth experienced by the venture during its first three to four years period from inception. Rather than firm increases of sales or profits, we believe that employment increase in the venture denotes a more serious commitment of

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entrepreneurs to expand and to seek structural growth of their organisations (Pea, 2004). First, we ran an exploratory discriminant analysis over our entire sample without controlling for regions, where four distinct growth patterns were recognised within our dependent variable GDIS (i.e., ventures with declining growth, no growth, moderate growth and high growth). Secondly, to test the robustness of our results, but controlling this time for regions, we applied an ordinary least square regression (i.e., we used a continuous dependent variable, GOLS, to verify our second hypothesis in both sub-samples separately).

Results

4.1 Human capital and motivation of entrepreneurs during venture gestation

From our discriminant tests, we found two significant variables in discriminating among the three types of entrepreneurs in the region of Tungurahua (i.e., Ecuador). These variables are CUSTOMREQ and PARTNERS (see Table 2). Interestingly, necessitydriven entrepreneurs in Ecuador seem to create relatively more firms requested by potential customers than opportunity-driven entrepreneurs do. This result reinforces the idea that necessity-driven start-ups are induced by a pull effect. We should emphasise that, by definition, this pool of entrepreneurs represents unemployed people without a focussed idea or reason to start-up a new business. They probably have no other employment alternative. Hence, the start-up occurs because external forces (i.e., customers request) drive an entrepreneur to initiate a business activity. Although results are not statistically significant, we notice a similar pattern in the Basque subsample. Another interesting finding is that necessity-driven entrepreneurs do not tend to start up firms collectively; rather, they create firms individually without having the support of other partners. Self-employment seems to be the most likely start-up alternative for necessity-driven entrepreneurs. In the Basque sub-sample, we found two discriminant variables that were statistically significant: INVEST and KNOWMKT (see Table 2). Necessity-driven entrepreneurs invest smaller sums of money compared to opportunity-driven entrepreneurs at the start-up moment. This is particularly true if we contrast the investment made by necessity-driven entrepreneurs (i.e., average initial investment amount of 35,000) with that made by opportunity-driven with self-renunciation entrepreneurs (i.e., average initial investment amount of 64,000). Interestingly, this result is similar to the one obtained by the GEM project in the Basque country. Arguably, the commitment to ensure firm survival and to seek venture growth seems to be higher in the latter case. The other significant variable, KNOWMKT, suggests that necessity-driven entrepreneurs are less familiar with the condition of the market they enter. In contrast, opportunity-driven entrepreneurs have a more focussed and robust idea of their virtual business and have a better understanding of the competitive environment of the industry in which they will compete with other incumbent firms and entrepreneurs.

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Table 2 Human capital differences between necessity-driven and opportunity driven entrepreneurs

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In sum, we found support for our first hypothesis. We found clear differences in the human capital profile of necessity-driven and opportunity-driven entrepreneurs in both developed and developing regions. Opportunity-driven entrepreneurs are better endowed with financial resources (i.e., explained by the variable INVEST) and intangible resources (i.e., explained by the variable KNOWKMT). On the other hand, necessitydriven entrepreneurs are more prone to start up firms individually (i.e., explained by the variable PARTNERS) and by request of potential customers (i.e., explained by the variable CUSTOMREQ). McMullen and Shepherd (2006) offer a perspective that allows for examination of entrepreneurial action at the individual level of analysis while remaining consistent with a rich legacy of system-level theories of the entrepreneur. Following this line of thinking, Sarason et al. (2006) claim that an entrepreneurial venture is a result of the combined influences of the social and economic structure and the individual entrepreneur. In support of this view, we found that, the salient features that distinguish necessity-driven entrepreneurs from opportunity-driven entrepreneurs are different depending on whether they operate in a developing or a developed economy. Nevertheless, the tangible and intangible capital endowment of necessity-driven entrepreneurs is less productive in general, thereby enhancing the change of a poorer subsequent venture performance. Hence, we can interpret from our findings that the human capital of opportunity-driven entrepreneurs is richer than that of necessity-driven entrepreneurs, regardless of where they are located.

4.2 Motivation and venture performance during firm infancy

Discriminant and regression analysis methods have been applied to test whether the start-up motivation of the entrepreneur had any significant effect on venture performance. Our first step was to identify differences among four categories of ventures. That is, we wanted to find out the profile of business ventures experiencing declining growth, no growth, moderate growth and high growth. For that purpose, we created the variable GDIS. Results from the entire sample show that once entrepreneurs move from a gestation stage (i.e., ex-ante phase from firm inception) to an infancy stage (i.e., ex-post phase from firm inception where firm creation occurs and a market adaptation process begins) significant differences arise between high-growth and low-growth ventures. NEWPROD, NEWMKT and NEWLOC are significant variables in discriminating the four venture growth categories during the infancy period (see Table 3). Entrepreneurs who introduced more changes since firm creation within their organisation performed better than those who did not. Frequent strategic changes such as the development of new products, entry of new markets and change of a business location affected positively the firm growth. During firm infancy, business owners who experience a learning process and benefit from their capacity to absorb market knowledge are in a better position to adjust to the competitive marketplace. As entrepreneurs get involved in business activities, explore new ideas, enrich their networks, accumulate experience, and ultimately, learn about their own ability to face crucial strategic changes (Nicholls-Nixon, 2000). Three other significant variables merit also our attention: AGE, PARTNERS and BPLAN. While the youngest entrepreneurs showed the highest growth during the early stage of the venture, the oldest entrepreneurs experienced declining growth. Also, those

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owners who relied more upon a business plan for strategic decision making purposes exhibited negative growth. Having a founding team of at least two partners helped ventures in experiencing a moderate growth. Knowledge based competition seems to magnify the importance of learning alliances as a fast and effective mechanism of capability development (Rajagopal A., 2007).
Table 3 Discriminant analysis on venture performance Declining growth n = 21 Mean Human capital variables GENDER AGE EDUCATION MGMTEXP STARTEXP ENTRFAM WORK YEAR TYPENTR HR SWEEK PARTNERS INVEST NEWPROD NEWMKT NEWLOC MEWPARTN BPLAN COUNTRY 0.86 41.43 0.14 3.67 0.57 0.38 6.95 1.14 51.00 0.48 7.804 1.86 2.10 2.05 1.00 0.62 0.14 0.36 9.71 0.36 5.62 0.51 0.50 5.28 0.65 14.92 0.81 13.101 0.79 0.83 0.92 0.00 0.50 0.36 Wilks lambda NEWLOC PARTNERS NEWMKT NEWPROD AGE BPLAN 0.92 0.87 0.84 0.82 0.79 0.77 0.58 36.93 0.21 2.59 0.29 0.46 8.14 0.92 51.42 0.68 19.528 2.03 1.78 1.68 1.06 0.35 0.40 0.49 10.26 0.41 6.04 0.46 0.50 7.94 0.74 19.36 1.18 30.101 0.87 0.79 0.83 0.28 0.48 0.49 0.72 39.08 0.31 3.79 0.44 0.59 7.59 1.08 56.56 1.64 18.723 2.36 2.15 2.23 1.18 0.56 0.26 F-value 8.61 6.79 5.68 5.02 4.59 4.29 0.46 7.91 0.47 7.32 0.50 0.50 5.85 0.77 16.17 3.39 27.530 0.78 0.74 0.87 0.51 0.50 0.44 0.76 33.94 0.27 2.73 0.48 0.61 7.33 1.24 59.36 0.42 13.326 2.48 2.39 2.27 1.06 0.48 0.15 Sig. 0.01 0.03 0.02 0.02 0.01 0.01 0.44 7.80 0.45 4.30 0.51 0.50 7.11 0.71 17.29 0.79 28.066 0.71 0.75 0.80 0.24 0.51 0.36 Std. dev. No growth n = 202 Mean Std. dev. Moderate growth n = 39 Mean Std. dev. Mean High growth n = 33 Std. dev.

Organizational variables

Note: 68.5% of original grouped cases correctly classified.

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The second step consists of examining the two sub-samples separately and conducting a multivariate regression analysis on venture growth in each sub-sample, controlling for a developing versus a developed region. This would allow us to test whether the same factors were conducing towards venture success in both economies. Even though the explanatory power of our regression tests are quite modest (i.e., close to 20% in each test), we consider that it is worth to highlighting certain findings from Table 4.
Table 4 OLSR regression results on venture performance (dependent variable CREMPL) Ecuador Beta (Constant) Human capital variables GENDER AGE EDUCATION MGMTEXP STARTEXP ENTRFAM WORK YEAR TYPENTR HRSWEEK PARTNERS Organizational variables INVEST NEWPROD NEWMKT NEWLOC NEWPARTN BPLAN Notes: Sample size 196 R-square 0.179 Adjusted R-square Sample size 99 R-square 0.176 Adjusted R-square 0.01 0.05 0.17 0.04 0.09 0.01 1.74 0.66 2.25 0.60 0.48 0.02 0.08 0.51 0.03 0.55 0.63 0.99 0.01 0.01 0.01 0.08 0.02 0.06 0.16 0.27 0.29 1.70 0.17 1.09 0.87 0.79 0.78 0.09 0.86 0.28 0.06 0.02 0.14 0.01 0.28 0.01 0.02 0.20 0.01 0.04 0.52 3.09 1.07 0.79 2.34 0.09 1.72 2.48 2.06 0.68 0.61 0.00 0.29 0.43 0.02 0.93 0.09 0.01 0.04 0.50 0.08 0.01 0.01 0.01 0.06 0.01 0.01 0.01 0.00 0.01 1.34 0.72 0.06 1.71 0.81 0.17 0.56 0.21 0.41 0.37 0.18 0.47 0.95 0.09 0.42 0.86 0.58 0.83 0.68 0.72 0.42 t 1.00 Sig. 0.32 Beta 0.04 Basque region t 0.17 Sig. 0.87

0.105 0.15

In the region of Tungurahua (i.e., Ecuador), venture growth is influenced by human capital variables such as AGE, STARTEXP, Work year, HRSWEEK and TYPENTR. In particular, younger entrepreneurs with prior business start-up experience, who have been employed for a longer period of time before creating their own firms, who devote a larger number of hours to their ventures and are opportunity-driven are expected to affect positively the firm structural growth. This latter finding confirms our second hypothesis and our broad conjecture that human capital attributes and the motivation degree exhibited by entrepreneurs during the gestation ex-ante phase before firm inception is linked to the ex-post infancy phase. For the purpose of our study, entrepreneurial

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motivation emerges in our results as a key component which connects this linkage. More motivated opportunity-driven entrepreneurs are more likely to ensure venture survival and growth. There are other organisational variables, INVEST and NEWMKT, which show a positive effect on venture performance. These variables emphasise the relevance of being financially well endowed at start-up and strengthening the organisation through an iterative learning and strategic experimentation process as new competencies are developed by the entrepreneur. Results from the Basque sub-sample, reinforce these findings. We found two statistically significant variables which explained structural growth during the infancy stage of the venture: MGMTEXP and NEWLOC. Again, we have a human capital and an organisational variable suggesting that the managerial experience of entrepreneurs and the ability to re-locate their businesses in new places are positively related to venture growth.

Conclusions

Recent entrepreneurial theories have emphasised the crucial importance of entrepreneurs human capital and favourable start-up environments to nurture successful ventures and to contribute favourably to economic growth. Entrepreneurship viewed through a structuration lens presents the entrepreneurial venture as an outcome of the entrepreneur-opportunity interaction through time and space (Sarason et al., 2006). The more adverse the external environment is, the more enterprising the venture behaviour will be (Oreja-Rodriguez and Yanes-Estevez, 2006). Entrepreneurial behaviour is not only merely a matter of being hard-pressed to start-up firms driven by poor economic prospects, but also of dynamically creating opportunities and new ventures through actions based on subjective interpretations and decisions. Moreover, the results by Thurik et al. (2008) suggest that public policy to reduce unemployment and to generate wealth would be best served by focussing more on innovative and high-growth entrepreneurship rather than on inducing unemployed into entering into self-employment. Following this line of thinking, in this paper we attempted to uncover differences between necessity-driven and opportunity-driven entrepreneurs that operate in distinct economic contexts. Our results are broadly supportive of these assertions and of our hypotheses. We made two main arguments in addressing our research questions. First, we suggested that differences between necessity-driven entrepreneurs and opportunity-driven entrepreneurs seem to be context-specific, and in general, opportunity-driven entrepreneurs seem to be better endowed in terms of human capital attributes. This hypothesis was supported. As stated by Corbett (2007), learning asymmetries among entrepreneurs not only exist, but they have a profound effect on why some individuals discover and exploit entrepreneurial opportunities while others do not. Discovering entrepreneurial opportunities requires that individuals possess some form of prior knowledge and cognitive abilities to value and exploit that knowledge. Necessity-driven entrepreneurs are more likely to lack such important human capital assets. Our findings suggest that the human capital profile of necessity and opportunity-driven entrepreneurs varies across regions. This result, indeed, may be due to region-specific socioeconomic and cultural differences. We also found that the

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motivation level at firm start-up influences subsequent business performance during firm infancy. A higher level of motivation of an entrepreneur is positively associated with young venture performance. We found ample support for this statement. Some scholars raise the question about the way opportunity recognition and knowledge is generated, exploited and transferred within a location is region-specific. A recent study shows that ventures located within geographic clusters absorb more knowledge from the local environment and have a higher growth and innovation performance (Gilbert et al., 2008). Despite the limitations of our study (i.e., it would be preferable to examine larger samples and more variables in more regions), our findings shed some light on entrepreneurs motivation and venture performance. Opportunity driven entrepreneurs bear higher risk, not only because some of them give up to their previous job, but also, because they invest larger amounts of money in their ventures (i.e., namely push effect). We found that necessity-driven entrepreneurs are more prone to start-up companies by request of future customers to develop non sophisticated goods and services (i.e., namely pull effect). As our study demonstrates, the salient features that differentiate necessity-driven entrepreneurs from opportunity-driven entrepreneurs are not the same in developing and developed economies. The nature of market imperfections that lead to the entrepreneurial choice may differ significantly between developing and developed regions (Cohen and Winn, 2007). This result conveys important policy implications, since policies that succeed in one country may fail in others (Acs, et al., 2004). More needs to be explored on this interesting issue. We leave this as a future research avenue. We cannot talk about the same opportunity driven entrepreneurs in developed and developing countries, as they differ in many respects. As stated before, our regression results show that entrepreneurial motivation influences business survival and growth. Hence, opportunity-driven entrepreneurs are more likely to experience higher venture growth than necessity-driven entrepreneurs. This result is consistent with opportunity cost and human capital arguments used by other authors (Cassar, 2006). An important implication of our study is that entrepreneurs that bear higher risk by investing more in a new venture and have gained relevant knowledge-experience in a prior job, feel more committed and better endowed to succeed. Our empirical evidence suggests that both tangible (i.e., savings from past job) and intangible resources (i.e., business skills, knowledge, experience and learning capabilities) are fundamental human capital elements to achieve successful venture performance. In conclusion, our findings are expected to provide some guidance on how policy makers can better design firm start-up policies. In addition to evincing clear human capital profile differences between necessity-driven and opportunity-driven entrepreneurs who belong to different economies (i.e., static perspective), we showed that ex-ante characteristics of entrepreneurs may influence venture performance (i.e., dynamic perspective). National and local employment and firm creation policies may attract necessity-driven entrepreneurs (Pea, 2004), but authorities should be aware of their likely lower venture performance, which may result in an overall poorer contribution to economic growth. Regarding implications for the academic community, further research is needed to examine how opportunity-driven and necessity-driven entrepreneurs survive and perform beyond the infancy period. We studied venture growth in a sample where all the companies struggled during the critical three to four infancy years. Thus, the analysis of young venture survival (or firm failure) within and beyond that period is an issue that we

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leave for further research. In addition, it would be interesting to examine the effect on venture performance of different types of motivation of our model in a foreign market. That is, how is the relationship between entrepreneurs motivation and venture performance for immigrant entrepreneurs compared to local entrepreneurs? Answers to these questions will help us in gaining our understanding on entrepreneurs motivation and young business performance. While we recognise the existence of heterogeneity among necessity-driven entrepreneurs (and opportunity-driven entrepreneurs as well), we do not tackle this issue in our paper and leave this question unanswered for further research.

Acknowledgements
The authors thank Patricio Carvajal for his support in conducting the survey and an anonymous referee for valuable comments. The authors also want to thank the participants in the Babson Kauffman Entrepreneurship Research Conference held in Glasgow and the participants in the RENT Conference held in Copenhagen for their helpful comments on an earlier version of this paper.

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Notes
1 The three types of entrepreneurs embraced in our conceptual model represent the categories of our dependent variable, TYPENTR. We asked entrepreneurs whether they were employed at the time they decided to start-up a firm (i.e., EMPLOYED: 1 = yes, 0 = no) and the reason why they decided to create a new business (i.e., OPPORT: 1 = found a unique opportunity, 0 = else). From the combination of the values of these two variables, we created three categories to define each of the three types of entrepreneurs for our dependent variable TYPENTR. For instance, the category describing a necessity-driven entrepreneur for the dependent variable TYPENTR would be the result of having a 0 value in both variables (i.e., EMPLOYED = 0 and OPPORT = 0). Another category for the dependent variable TYPENTR, opportunity-driven entrepreneur with self-renunciation, would result from having a value of 1 in both variables (i.e., EMPLOYED = 1 and OPPORT = 1). Finally, the remaining category, an opportunity-driven entrepreneur, would derive from the combination EMPLOYED = 0 and OPPORT = 1. We found no respondents for the combination EMPLOYED = 1 and OPPORT = 0.