The Making of an Entrepreneurial Community in the New Economy: Entrepreneurs, Networks & Dynamics in the Dutch ICT-industry 1975-2000

(project 014-43-745)

Research problem

This study examines the contribution of start-up entrepreneurs, dynamic firms and their networks to the emergence of the ICT/Internet industry community in the Netherlands between 1975 and 2000. The research builds on previous work by the research team on the peculiarities of the new entrepreneurial economy and the importance of new companies and their networks. In the shaping of new technologies and markets over time, several (f)actors are distinguished: the role of large integrated firms and research laboratories, the dynamic posed by start-up firms, and the role played by institutions addressing the particular needs of entrepreneurs and young firms. This study adheres to the distinction between entrepreneurs without and those with a support network. In the first group, ‘lonesome cowboys’, the entrepreneur sets out by using weak ties with other actors. Results on the network dynamics of lone starters seem to conflict with some of the existing literature. This issue will be addressed by using actor-oriented statistical models on a larger sample of start-up entrepreneurs.

Spin-offs are different from 'lonesome cowboys', not only in terms of their support network, but also with regard to the type of start-up. While lonesome cowboys pioneer with new business models, spin-offs generally exploit the knowledge base of the 'mother' organization and rely upon the dominant heuristics. Both type of start-ups also generate failures. Next to the lone starters and spin-offs, the new phenomenon of ‘recombinant firms’ are distinguished. These emerge after failures in a earlier phase of entrepreneurship and contribute to the increasing dynamic in the high technology industries. Each of the three projects (lone starters, spin-offs and recombinant firms) adds insights into how different types of start-ups and their particular networks have fueled the development of the Dutch ICT/Internet industry community over time. The combined results of the three projects improves the understanding of the emergence of industrial communities.

Scientific relevance

Although the value of networks is widely acknowledged, there is considerable disagreement as to the role network characteristics play in the performance of emerging firms Efforts have been made to reconcile these various views in which it is argued that they are not necessarily conflicting, but play different roles and valuable for different populations or purposes. This research sheds light on these options for reconciliation. The research also contributes network theory. First, the longitudinal approach used here, is relatively unique to the study of the network effect on entrepreneurship. Secondly, this will be one of the first studies in which the development and contribution of ego-centred networks to the more established actor-oriented networks at the industry/community level will be investigated. The data collected by the three projects offer unique opportunities for theorizing on the emergence of the ICT/Internet community. This will be related to various perspectives on strategies entrepreneurship. The ICT/Internet industry serves as an example to test theories of knowledge accumulation, learning, selection, failure and recombination in the early stages of industry life. In particular, a paradox has risen in economics concerning the value of failure. Interesting is whether failures are real failures. In the literature on firm survival, it has been viewed as unambiguously negative. In particular, new-firm start-ups have a particularly high rate of failure. Recent evidence points to the learning effects of start-ups which fail in their early years but may still contribute to the knowledge base of the entrepreneurial community. In industries where failure is high, the propensity for new firms to enter is also high. This raises the paradox, why would entrepreneurs choose to start a new firm when they are confronted by a high likelihood of failure? A main goal of this study is to address this paradox.

Social and policy relevance

Entrepreneurial networking has been institutionalised by more or less formal platforms and specialized institutions like Twinning. Some of these initiatives have been supported by the government. This study provides information on the impact of these initiatives and their role in the legitimatisation of the ICT/Internet community in the Netherlands. Schumpeterian processes of creative destruction, innovation, learning and recombination seem to characterize the evolution of the ICT and Internet industry. The reconfiguration of business models, spin-offs, mergers and acquisitions, and the demise of both established and young companies are everyday phenomena. Moreover, the failure of one firm may lead, directly or indirectly, to the formation of another venture. This logic of ‘flexible recycling’ is one of the key factors underlying the growth of regions. How has this affected the economy?

Methodology

The analysis of the contribution of different start-ups over time makes data requirements impressive. In analyzing particular data sets this study can benefit from recent developments in social network analysis. The three projects will contribute to a relational database on the Dutch ICT community. The projects start by collecting material on ICT firms including new entrants and failures. The PhD project focuses on ‘newcomers’ to the ICT community, the ‘lone starters’. Most network studies focus on closed networks, which enables to study embeddedness in straightforward measures. In this study, however, we also examine the effects of personal ties not necessarily limited to a single closed system. In order to delineate these personal networks and measure the effects of one’s social capital, a lot can be learned from ego-centered research. We develop network questionnaires and measure these personal network effects at different points in time for the same set of start-ups. This longitudinal set-up has the advantage that there is no retrospective bias in reporting on network ties.

Two other projects will use actor-oriented models. These statistical models allow for changes in a relative closed group of organizations. Network structure is measured at several points in time and by this the development of the network of ICT firms is estimated. The second project focuses on failures and its effects on the ICT community. The challenging issue is whether failure is really failure. The third research project deals with academic and corporate spin-offs, which are often industry insiders. Although some data will be collected on the number and particularities of spin-offs in the ICT industry, this project will officially start in 2004/5 as another ‘postdoctoral’ study.

Research

• Prof. dr A.R. Thurik, Rotterdam School of Economics.
• Prof. dr W. Hulsink Rotterdam School of Management & ERIM, Erasmus University Rotterdam.
• Drs. E. Stam, Rotterdam School of Management & ERIM, Erasmus University Rotterdam.
• Prof. dr T. Elfring; Faculty of Social and Cultural Sciences, Free University Amsterdam.
• Drs. W. Stam; Faculty of Social and Cultural Sciences, Free University Amsterdam.

Results

Stam, E. (2005) Review of Handbook of Entrepreneurship Research. An Interdisciplinary Survey and Introduction (by Z.J. Acs and D.B. Audretsch), Journal of Evolutionary Economics 15.2, pp. 234-237

Stam, E. (2005) The Geography of Gazelles in the Netherlands. Journal for Economic and Social Geography (TESG) 96.1, pp. 121-127.

Van Oort, F.G. & E. Stam (2005) Agglomeration economies and entrepreneurship: testing for spatial externalities in the Dutch ICT industry. Papers on Entrepreneurship, Growth and Public Policy #09-2005, Max Planck Institute for Research into Economic Systems - Entrepreneurship, Growth and Public Policy Group, Jena.

Stam, E. & E. Garnsey (2005) New Firms Evolving in the Knowledge Economy; problems and solutions around turning points. Papers on Economics and Evolution #05-2005, Max Planck Institute for Research into Economic Systems – Evolutionary Economics Group, Jena.

Stam, E. & V. Schutjens (2005) The fragile success of team start-ups. Papers on Entrepreneurship, Growth and Public Policy #17-2005, Max Planck Institute for Research into Economic Systems - Entrepreneurship, Growth and Public Policy Group, Jena.

Audretsch, D.B., Meijaard, J. and Stam, E., (2005) Renascent Men or Entrepreneurship as a One-Night Stand. CEPR Discussion Paper 5342, London: Centre for Economic Policy Research.

Braaksma, R.M., De Jong, J.P.J. and Stam, E. (2005) Creatieve bedrijvigheid in Nederland. Structuur, ontwikkeling en innovatie. Zoetermeer: EIM Business and Policy Research.

Stam, E., Audretsch, D.B. and Meijaard, J. (2005) Entrepreneurial intentions subsequent to firm exit. SCALES-paper N200506, Zoetermeer: EIM Business and Policy Research.

Stam, E. and De Jong, J. (2005) De creatieve klasse op de pijnbank, Economisch Statistische Berichten 03-06-2005, pp. 257-259

Van Oort, F.G. and Stam, E. (2005) Entrepreneurship and agglomeration economies in the Dutch ICT industry. In: Johansson, I. (ed.) Regions in Competition and Co-operation, pp. 689-718. Uddevalla: University of Trollhättan/Uddevalla.

Stam, E. (2005) Kennis en kennissen. Ublad 14/04/05, pp. 10

Stam, E. and J. de Jong (2005) Creatieve klasse, cultuur en economie. Idee tijdschrift van het kenniscentrum D66 26.5, pp. 34-36.

“Teamspirit”, in SPROUT nr. 3, 2005, pp. 11

“Netwerkkeuze kan groei meebepalen”, in Het Financiele Dagblad 29-11-2005, pp. 10

Stam, W. (2005) . ‘Entrepreneurial networking strategies in emerging industries: A community perspective on the creation and exploitation of social capital.’ Proceedings of the Interdisciplinary European Conference on Entrepreneurship Research (IECER), February 2005, Amsterdam (NL).

Hulsink, W., Stam, W., and Elfring, T. (2005) . ‘The locus of innovation at SMEs: Network effects in the discovery and realisation of innovations.’ Proceedings of the Interdisciplinary European Conference on Entrepreneurship Research (IECER), February 2005, Amsterdam (NL).

Stam, W. (2005) . ‘Networks of interfirm relations in the emerging Dutch open source  software industry: Effects on firm-level innovation and performance’ Paper presented at the workshop ‘Entrepreneurship and regional networks of innovation’, May 2005, Toulouse (FR).

Stam, W. (2005) . ‘Entrepreneurs, networks, and dynamics in the Dutch open source community.’ Paper presented at the EUDOKMA International Ph.D. Seminar ‘Organizational learning, networks and communities: Innovations in the emerging strategic entrepreneurship field’, June 2005, Amsterdam (NL).

Stam, W., Elfring, T. (2005) . ‘Outsider or outperformer? Linking structural and relational embeddedness of new ventures in emerging industry networks to firm performance.’ Proceedings of the RENT XIX Conference, November 2005, Naples (IT).

Stam, W., Elfring, T. (2005) . ‘Outsider or outperformer? Linking entrepreneurial orientation, network position and bridging ties of new ventures in emerging industry networks to firm performance.’ Paper presented at the workshop ‘Entrepreneurship and networks’, December 2005, Amsterdam (NL).