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SALIENT THEORY: RESOURCES AND CHANGES IN NEW VENTURES

Resource–Based View in Entrepreneurship

How are entrepreneurial companies bundles of resources? Ever since Schumpeter, the emergence of new ventures has been explored in terms of opportunities and resources that are combined in specific ways (Penrose, 1959; Barney, 1991). In its simplest form, the emergence
of a firm results when an entrepreneur perceives an opportunity for new combination (Schumpeter, 1934/1959; Liebenstein, 1968), and marshals the resources to capitalize on that opportunity (Glade, 1967; Gartner, 1985; Vesper, 1990), producing and marketing products and services, and building an organization (Cooper, 1981; Churchill & Lewis, 1983). The success of each of these endeavors requires leveraging certain capabilities against perceived market opportunities, and turning these into competencies and strategic advantages that make the new firm unique (Greene, Brush and Hart, 1997).

According to the Resource Based Theory [RBT] of the firm, a firm's strategic advantage is derived through it's unique set of competencies and capabilities. Resources are defined as “all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable [it to] improve its efficiency and effectiveness” (Barney, 1991: 101). Much of this literature focuses on how these resources are leveraged, developed and deployed in a way that best leads to its competitive advantage (e.g. Amit & Schoemaker, 1993).

How is the RBT a useful approach for newly emerging firms, before they have resources to deploy? Recent applications of the theory examine the acquisition of resources that can leverage the emergence of new ventures (Brush & Greene, 1996). This approach combines Gartner's definition of new venture creation as "organizing (in the Weickian sense) of new organizations" (Gartner, 1985:697) with Penrose's theory of the firm as a "collection... and acquisition...of productive resources" (1959/1995: 31). This combination results in a theoretical typology of resources that need to be acquired and from which new ventures are composed (Brush & Greene, 1996: 5). Their typology, synthesized from numerous studies of strategic resources in entrepreneurial and established firms, includes the Human and Social capital of the entrepreneur, the Physical and Financial capital needed to start the company, and Organizational capital that produces the goods and services in the firm.

Definitions of these five resource categories reveal a broad distinction between organizational and other types of capital. Human Capital refers to the “attributes of the individual entrepreneur or the entrepreneurial partners involved in the creation of the organization” (Brush & Greene, 1996: 19). Following traditional entrepreneurship literature, the development of new ventures rests on skills, intentions and connections the entrepreneur brings from previous experience (Glade, 1967; Cooper, 1981; Bird, 1992). For example, until the emerging company has a chance to ‘prove itself,’ the reputation of a new venture would likely rely on the experience of the entrepreneur rather than on the organization (c.f. Dollinger, 1995). Similarly, the entrepreneur brings with her or him Social Capital—familial, ethic and professional connections that support the acquisition of further resources (Glade, 1967). Thirdly, acquiring Financial Capital can also rely on the proven success or savvy of the entrepreneur (Brophy, 1992). Physical capital is “the tangible assets necessary for the operation of the business” (Brush & Greene, 1996: 21), Since these assets are often difficult to acquire, the choice of which industry to enter may depend on which physical resources the organization can acquire. Technology, which in established firms is usually counted as a separate resource category (Hofer & Schendel, 1978; Dollinger, 1995), can be considered either physical or organizational capital, depending on its centrality to the company (Brush & Greene, 1996).

Finally, Organizational Capital includes the skills, knowledge and learning embodied within the firm over time or brought by the employees, in contrast to the Human, Social, Financial and sometimes Physical capital which may exist through the entrepreneur's past experience and reputation. Organizational capital “is embodied in either organizational relationships, [the skills of] particular organizational members, the organization’s repositories of information, or some combination of the above in order to improve the functioning of the organization (Tomer, 1987: 2). Examples of organizational resources include organizational learning (Huber, 1991), systems and routines (Nelson & Winter, 1982), core competencies (Hamal & Prahalad, 1990), as well as the combined Human and Social capital of the managerial and line employees hired by the entrepreneur to carry out his or her goals (Jones, Hesterly, Lichtenstein, Borgotti & Talman, 1997).

In summary, these five categories of capital are theorized as the essential resources needed to drive the emergence of a firm. The RBT argues that the ‘right’ combination of productive resources provides the firm’s strengths and optimally its competitive advantage (Penrose, 1959; Barney, 1991; Greene et. al., 1997). Theoretically the development of strategic capabilities relies on certain combinations and re–combinations of resources, and the prudent sequencing of those resources over time (Amit & Schoemaker, 1993). In new and emerging firms one would expect that a series of such resource–acquiring configurations might be necessary before a firm becomes established or self–sustaining (e.g. Churchill & Lewis, 1983). Understanding this process requires a new approach to understanding growth of new ventures.

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