* Academy of Management journal2001, Vol. 44, No. 2, 292-303.

A MULTIDIMENSIONAL MODEL OF VENTURE GROWTH

J. ROBERT BAUMEDWIN A. LOCKE

KEN G. SMITHUniversity of Maryland at College Park

We drew upon strategic management theory, organizational behavior theory, organi-zation theory, and entrepreneurship models to form an integrated model of venturegrowth including 17 concepts from five micro and macro research domains. The modelwas tested with responses from 307 companies from the architectural woodworkingindustry. CEOs' specific competencies and motivations and firm competitive strategieswere direct predictors of venture growth. CEOs' traits and general competencies andthe environment had significant indirect effects.

This research explores the causes of venturegrowth. In past entrepreneurship research, individ-ual differences (Begley & Boyd, 1987), strategicmanagement concepts {McDougall, Robinson, &DeNisi, 1992), and organization theory concepts(Aldrich & Wiedenmayer, 1993) have often beenstudied as isolated causes of venture performance.The authors of more recent studies have proposedthat individual, organizational, and environmentaldimensions combine to provide a more comprehen-sive prediction of venture development and growththan any one dimension in isolation (Chrisman,Bauerschmidt, & Hofer, 1998; Covin & Slevin, 1997;Herron & Robinson, 1993; Lumpkin & Dess, 1996;Naffziger, Hornsby, & Kuratko, 1994; Sandberg,1986). However, there has been limited examina-tion of these multilevel models.

Our purpose was to propose and test a compre-hensive multilevel model of venture growth. Weincluded five research domains that have been the-oretically identified as antecedents of venture per-formance: personality traits and general motives,personal competencies, situationally specific moti-vation, competitive strategies, and business envi-ronment. We chose venture growth as our perfor-mance measure, rather than other indicators ofperformance, because entrepreneurship research-ers have pointed to growth as the crucial indicatorof venture success (Covin & Slevin, 1997; Low &MacMillan, 1988). Our goals were: (1) to testwhether a multilevel model that sampled relevantconcepts from individual, organizational, andenvironmental domains would predict firm perfor-mance successfully, (2) to test whether eachdomain would contribute something to the predic-tion, and (3) to explore alternative forms of therelationship among the domains and performance.By empirically examining multiple domains across

multiple levels, we hoped to produce a more com-plete understanding of venture growth.

THEORY AND HYPOTHESES

Direct Effects: Entrepreneurs

Traits and motives. Personality theories point tothe importance of personal predispositions for ven-ture success (McClelland, 1965), and venture capital-ists have reported that entrepreneur characteristicsare extremely important for venture success [MacMil-lan, Siegel, & SubbaNarisimha, 1985). Some traits andmotives of successful entrepreneurs have been iden-tified, but these concepts have typically producedweak relationships (accounting for less than 7 percentof the variance) with venture performance (Begley &Boyd, 1987; Low & MacMillan, 1988). Furthermore,Sandberg and Hofer (1987) found that organizationaland industry variables completely dominated indi-vidual-level variables as causes of venture success.There are three possible Implications of these priorresults: (1) traits do not matter, (2) traits do not workin isolation from other factors, and (3) the wrong traitshave been tested in past entrepreneurship studies.Our research design examined the second possibility.To control for the third, we included additional traitsin our study that have been proposed as characteris-tics of successful leaders: tenacity, proactivity, andpassion (Bass, 1990; Locke, 1997). Furthermore, en-trepreneurship theorists have proposed that tenacityand proactivity-initiative are important for the suc-cessful establishment and operation of new ventures(Bird, 1989, Chandler & Jansen, 1992). And Smilorsuggested that passion is "perhaps the most observedphenomenon of the entrepreneurial process" (1997:342). Thus, we predicted:

Hypothesis 1. Witb other antecedents of ven-ture growth controlled, the greater the tenacity,

292

2001 Baum, Locke, and Smith 293

proactivity, and passion for work of a venture'sCEO, tbe greater the venture's growth.

Individual competencies. Competencies here re-fer to individual characteristics such as the knowl-edge, skills, and/or abilities required to perform aspecific job. Testing his job performance theory.Boyatzis [1982] found significant performance re-lationships with "general" people and organizationcompetencies (oral presentation skill, decision-making ability, conceptualization ability, diagnos-tic use of concepts, and use of power) and "speci-fic" competencies [technical skill and industryskill). Entrepreneurship studies have developedskill-ability clusters that are similar to those foundin Boyatzis's management-leadership theory [Bird,1989: Chandler & Jansen. 1992; Herron & Robinson,1990); however, opportunity recognition appears inthese studies as an important additional generalskill of entrepreneurs, and tbe components of peo-ple and organization competency are combined as"managerial skill" (Chandler & Jansen, 1992). Wefocus on two general and two specific competen-cies that appear in common in entrepreneurshipstudies and predict that:

Hypothesis 2. The greater the general compe-tency of a venture's CEO with respect to organ-izational skiUs and opportunity recognitionskills, the greater the venture's growt/i.

Hypothesis 3. The greater the specific compe-tency of a venture's CEO with respect to indus-try skill and technical skill, the greater theventure's growth.

Sitvationally specific motivation. In this do-main, we chose to study vision, growth goals, andself-efficacy as motivation concepts, because: (1) allthree concepts bave demonstrated significant em-pirical relationships witb business performanceand [2) entrepreneursbip theorists have pointed tothe importance of vision, business goals, and self-efficacy for planning and venture performance[Bird. 1989; Low & MacMillan, 1988). Vision is acore element of motivation in charismatic leader-sbip tbeory [Bass, 1990). Indeed, two laboratorysimulations have sbown direct and indirect perfor-mance effects for vision. More scientific validitybas been demonstrated for the goal tbeory proposi-tion tbat specific, challenging goals lead to higberperformance than for any other motivation tbeory[Locke & Latham, 1990). Entrepreneursbip re-searchers bave found tbat entrepreneurs' self-effi-cacy [task-specific self-confidence [Bandnra, 19861)in relation to tbeir ability to start and "grow" tbeirventures is associated with venture performance[Cbandler & fansen, 1992). We examine the direct

effects of these three aspects of motivation andpredict;

Hypothesis 4. The greater the situationally spe-cific motivation of a venture's CEO with re-spect to vision, growth goals, and self-efficacy,the greater the venture's growth.

Direct Effects: Competitive Strategy

Following Porter [1980), we conceive of strategyin terms of tbree broad business-level choices: fo-cus, low cost, and differentiation. Focus (a narrowscope) refers to competitive strategies that target aparticular set of customers, segment of a productline, or geographic market. The low-cost strategyinvolves tbe construction of efficient-scale facili-ties, the aggressive pursuit of cost reduction andcost minimization in all functions of an organiza-tion, and offering products to price-sensitive cus-tomers (Dess & Davis, 1984). Differentiation strate-gies are designed to create and market innovative,bigb-quality products and/or services industry-wide (Porter, 1980). According to Porter, tbe tbreecompetitive strategies are alternative viable ap-proaches for dealing witb environmental forces.Firms tbat fail to select one of tbese strategies are"stuck in tbe middle" and, tberefore, almost alwaysdoomed to failure (Porter, 1980: 42). As Porternoted, a stuck-in-tbe-middle firm lacks tbe invest-ment in low-cost structure to compete on price, tbeindustrywide differentiation to offset the need for alow-cost position, and tbe focus to achieve differ-entiation or a low cost within a limited marketspace. Indeed, Dess and Davis (1984) found empir-ical support for this hypothesis. Thus, we arguetbat firms tbat select one of the three types of strat-egies will outperform those that deploy a combinedstrategy.

Hypothesis 5. A firm's competitive strategy willbe related to performance: more specifically,firms that emphasize either a focus, low-cost,or differentiation strategy will achieve tbehighest growth.

Direct Effects: Environment

Theories have been proposed and empiricallysupported suggesting tbat organizations are af-fected by their environments [Aldrich & Wieden-mayer, 1993). This study focused on three dimen-sions of environment: dynamism, munificence, andcomplexity. Dynamism (negative stability) refers tothe level of environmental predictability; it is man-ifested in the rate of market and industry cbangeand the level of uncertainty about forces tbat are

294 Academy of Management Journal April

heyond the control of individual businesses (Dess &Beard, 1984). Because stahle environments are eas-ier to navigate, we expect environmental stabilityto be positively related to venture growth. Munifi-cence refers to an environment's support for orga-nizational growth (Dess & Beard, 1984). High mu-nificence enables firms to cope with challenges byobtaining outside resources. Complexity representsthe concentration or dispersion of organizations inthe environment (Aldrich & Wiedenmayer, 1993).Complex environments, composed of many firms,may be more difficult for entrepreneurs to compre-hend. Thus, we propose:

Hypothesis 6. A firm's environment will be re-lated to venture growth; more specificoUy, ven-tures in stable, munificent, and simple envi-ronments will achieve the highest growth.

Indirect Effects

Effects among traits, competencies, and motiva-tion. Entrepreneurship researchers have pointed tothe likelihood that personality works in conjunc-tion with other factors {Naffziger, 1995), or that therelation of personality with performance is medi-ated by other factors (Herron & Robinson. 1993).First, we propose that traits affect competenciesbecause individuals practice what they like, andpractice develops skill. For example, someone whois tenacious and proactive and has a passion forpiano is likely to engage in daily keyboard practice,but someone who is without these traits will tendto avoid skill-building practice. Indeed, Boyatzis(1982) found that managers' traits were manifestedin their competencies. Thus, we propose:

Hypothesis 7. The greater the tenacity, proac-tivity, and passion for work of a venture's CEO,the greater his or her general and specific com-petency.

Second, we propose an indirect effect from traitsto venture growth mediated by situationally spe-cific motivation. Locke (in press) showed that situ-ationally specific goals and self-efficacy mediatedthe effects of general traits on performance, andBird (1989), in her discussion of strategic visionand goals, suggested that vision and goals are, inpart, a reflection of personality. Personality traits(proactivity and tenacity) affect self-efficacy (Ban-dura, 1986); thus, we propose:

Hypothesis 8. The greater the tenacity, proac-tivity, and passion for work of a venture's CEO,the greater his or her situationally specific mo-tivation with respect to vision, goals, and self-efficacy.

Thirdly, we propose that general competenciesaffect specific competencies and situationally spe-cific motivation. Drawing upon Maier's (1965) the-ory that general ability and motivation combine toproduce performance. Bird (1989) proposed thatpersonal ability affects specific skills, vision, andgoals, which, in turn, cause entrepreneurship suc-cess. The path from general competencies to spe-cific motivation is also consistent with social cog-nitive and goal theories that explain that peoplebase their goals and their efficacy evaluations onself-knowledge about ability (Bandura, 1986).

Hypothesis 9. The greater the general compe-tencies of a venture's CEO in terms of organi-zational skills and opportunity recognitionskills, the greater the CEO's specific compe-tency in terms of industry skill and technicalskill.

Hypothesis 10. The greater the general compe-tencies of a venture's CEO, the greater his orher situationally specific motivation with re-spect to vision, goals, and self-efficacy.

Effects of traits, competencies, motivation, andcompetitive strategy. Competitive strategies reflectthe choices of managers (Child, 1972). Thus, thedeterminants of individual decision making andhehavior are among the determinants of strategybecause people choose plans in part on the hasis of(1) what they are predisposed to do, (2) what theyare motivated to do, and (3) what they think theycan do (Bandura, 1986; HoUenbeck & Whitener,1988).

Strategy researchers have empirically linked topmanagement characteristics to innovation strategy,strategic change, and other aspects of strategy(Grimm & Smith, 1991; Michel & Hambrick, 1992).Furthermore, the strategy implementation litera-ture points to the importance of personal traits instrategy formulation and communication. Sincethese studies support the view that individual traitsare determinants of cognition and behavior, wepropose that traits affect strategic choice. In partic-ular, we believe that tenacity, proactivity, and pas-sion for work will lead CEOs to recognize the valueof competitive strategy for enhancing venturegrowth.

Hypothesis 11. The greater the tenacity, pro-activity, and passion for work of a venture'sCEO, the greater the likelihood that the ven-ture will select a focus, low-cost, or differen-tiation strategy.

We also expect that general competencies willaffect the choice and implementation of competi-

2001 Baum, Locke, and Smith 295

tive strategy. Individuals tend to adopt and committo strategies tbat tbey believe are achievable (Ban-dura, 1986; Covin & Slevin, 1997; Herron & Robin-son, 1993), and skills and ability may limit perfor-mance despite tbe existence of bigh goals and the"rigbt" strategy [Bird, 1989; Locke & Latbam. 1990).In addition, the resource-based view of tbe firm andthe strategic choice literature [Cbild, 1972) empha-size the link between managerial competence andstrategy.

Hypotbesis 12. The greater the general compe-tency of a venture's CEO with respect to organ-izational skills and opportunity recognitionskills, the greater tbe likelihood that the ven-ture will seleqt a focus, low-cost, or differenti-ation strategy.

We believe tbat an indirect causal effect frommotivation to venture growtb is mediated by com-petitive strategy. Bandura [1986) asserted tbat mo-tivation is a codeterminant (with environment) oftask strategies, the individual-level version of com-pany strategies. Coal theory research has found thattask strategy can mediate the goal-to-performancerelation (Locke & Latham, 1990), and entrepreneur-ship theorists propose that business vision and per-sonal goals affect competitive strategies (Bird.1989). Therefore, we expect a CEO's motivationwill lead to recognition of the importance of com-petitive strategies for venture growth.

Hypothesis 13. The greater the motivation of aventure's CEO with respect to vision, goals,and self-efficacy, the greater the likelibood thatthe venture will select a focus, low-cost, ordifferentiation strategy.

Effects of environment upon strategy. We ex-pect the environment domain to affect competitivestrategies, a view that is consistent witb the viewsof economists [Scherer & Ross, 1990), strategicmanagement tbeorists (Bourgeois, 1980), and socialpsycbologists (Bandura. 1986), and with the empir-ical findings of entrepreneurship researchers[Sandberg & Hofer. 1987). For example, the entirestructure (environment)—conduct (strategy)—per-formance paradigm in industrial organizationaleconomics rests on the premise that strategy [con-duct) will be influenced by industry structure,which will in turn affect performance [Mason.1939; Scherer & Ross, 1990). Furthermore, sincestrategic decision-making is a human behavior, so-cial cognitive tbeory [Bandura, 1986) points to thedetermination of behavior by environmental [andpersonal) forces. Finally, entrepreneurship re-search has found that new venture strategies areformed in response to environmental forces

[McDougall et al., 1992; Sandberg, 1986). Thus, wepropose:

Hypothesis 14. Environmental stability, munif-icence, and simplicity will be related to a ven-ture's strategy and, more specifically, to itspropensity to select a focus, low-cost, or differ-entiation strategy.

In summary, Hypotbeses 1-6 represent a directeffects model, which reflects a straightforward in-tegration of concepts from multiple research do-mains. With Hypotbeses 7-14, we present a morecomplex set of indirect effects, explaining bow en-trepreneurial characteristics are interrelated andhow these characteristics and environmental forcesimpact strategic decisions.

There is theory to support this more complexintegration: (1) Existing personality, competency,and motivation theories underlie our hypotbesizedindividual-level indirect effects (Bandura, 1986;Boyatzis, 1982; HoUenbeck & Whitener, 1988;Locke & Latham, 1990; Maier, 1965). And growingrecognition of the importance of [2) individual dif-ferences [Crinun & Smith, 1991; Michel & Ham-brick. 1992) and (3) environmental conditions[Scherer & Ross, 1990; Scbwenk, 1988) as inputsinto the strategic decision process supports ourproposed cross-level effects. Indeed, Scbwenk[1988) pointed to the importance both of rationalchoice and cognitive heuristics theory from cogni-tive psychology and of environmental analysis andscanning systems such as the CP/IA [competitiveposition/industry attractiveness) matrix [Hofer &Schendel, 1978) for understanding tbe outcomes ofstrategic decision making. The theoretical link be-tween these indirect effects and venture growtb iscompetitive strategy. Tbat is, strategic choice the-ory itself (Cbild, 1972) points to the efficacy ofstrategic decision making for organizational perfor-mance, guiding our prediction that strategies affectventure growth directly (Hypothesis 4).

We studied a single industry to avoid confound-ing by industry type [for example, mom-and-popversus high-potential industries) and industry-specific externalities. That is, we followed thosewho have suggested that universal organizationalpatterns and processes will be most apparent insingle-industry studies. In addition, we controlledfor organization size because size may systemati-cally influence other concepts of interest. Indeed,hundreds of studies have shown that size is animportant determinant of organization process andperformance.

296 Academy of Management Journal April

METHODS

Industry and Participants

U.S. firms that manufacture and install architec-tural woodwork (doors, windows, stairs, cabinets,and trim for residential, commercial, and majorpublic buildings) were studied; these enterprisesfall into Standard Industrial Classification (SIC)code 2431. Their products are sold to general con-tractors, architects, and interior designers. Typicalfirms employ skilled woodworkers, production-oriented high-tech machinery operators, carpentryinstallers, and project managers.

In 1993, the industry's 849 CEOs were invited toparticipate; 442 agreed. Following an extensive pi-lot test, the questionnaire was mailed to each CEO,and an adapted version was also sent separately to202 employees whose participation had been au-thorized by their CEOs. The employee data wereused to test the validity of the CEO self-reports. Thequestionnaire contained measures of the 17 predic-tor concepts studied and 1992 performance. Theemployee and the CEO versions were identical ex-cept that references in the CEO version to "you"and "your company" were changed to "the CEO"and "the company" in the employee version. Per-formance data for 1994 were collected in 1995 via asecond questionnaire sent to the CEOs.

We received 414 CHO responses (49 percent), andwe used 307 in our study (36 percent of the popu-lation). We disqualified CEOs who (1) had foundedtheir businesses or purchased going concerns lessthan two years or more than eight years prior to the1993 survey, (2) had no or only one employee, (3)were not active owner-managers, or (4) suppliedincomplete data. The average qualified CEO re-spondent had 16 employees and $1.5 million insales in 1992. Our net employee sample included131 directly reporting employees (43 percent of thenet qualified CEO sample) who had worked withthe responding CEO for two or more years and hadsubmitted complete data. The typical employeeparticipant was a manager who had been in theindustry for six years.

To test whether the 414 respondents were repre-sentative of the population, we compared the meannumbers of employees and the mean sales volumesof the respondents with the population; differenceswere not significant (employees, Z = 0.32, p < .38;sales, Z = 1.0, p < .16).

Measures

Data were collected for the 17 theory-based pre-dictor concepts from the entrepreneur-CEOs andthe employees, and the CEOs supplied data for the

control and performance concepts. Table 1 showsthe number of items, format, composite reliability,and research source for the 17 predictor concepts.Details are available from the first author.

We calculated three measures of venture growthusing data from the 1993 and 1995 CEO question-naires. The first measure of the dependent variable,average annual percent sales growth, was one-halfthe difference between 1992 and 1994 sales, di-vided by the base year (1992). Similar calculationsproduced the second and third measures, averageannual percent employment growth and averageannual percent profit growth (composite reliabil-ity = .87). We evaluated the accuracy of the rawperformance data hy checking the agreement of re-sults for a random sample of 25 of tTie firms againstDun & Bradstreet reports of 1992 performance. Forthe 21 of these cases for which Dun & Bradstreetdata were available, correlations were high (thesmallest r — .94, p < .001), and none of the meansdifferences were significant (the largest t = .96,p < .36).

Organization size, measured as the number offull-time equivalent employees at the end of 1992,was entered as a control variable.

RESULTS

LISREL 8 and PRELIS 2 were used to (1) imputemissing data, (2) evaluate concept validity (reliabil-ity, including dual-source similarity and conver-gent and discriminant validity), (3) perform confir-matory factor analyses to verify the validity of theproposed configuration of concepts and domains,and (4) test the hypotheses. Univariate homogene-ity testing (PRELIS 2 HT) and multiple sample anal-ysis (LISREL MSA) confirmed the similarity of theresponse distributions of the 131 pairs of entre-preneur-CEOs and employee participants, as wellas the distrihutions of the entrepreneur-CEOs with[n — 131) and without matched employee partici-pants {n = 176).

As shown in Table 1, the measurement modelhad ten concepts each with a composite reliability(CR) greater than .80, six concepts with a CR be-tween .70 and .79, and three with a CR between .60and .69. All the concept-to-domain coefficientswere statistically significant [t > 2.0. p < .05); thus,convergent validity was established. We verifieddiscriminant validity by determining that the aver-age variance extracted by each latent variahle'smeasures was larger than its shared variance withany other latent variable. The overall fit was accept-able 2

2,572 5,961, p < .00; GFI = .90, AGFI =

2001 Baum, Locke, and Smith 297

TABLE 1Predictor Measures

Domain and Predictor

TraitsTenacityPruactivityPassion

General competenciesOrganization skill

Opportunity skill

Specific competenciesIndiLstry skillTechnical skill

MotivationVisionGoalsSelf-efficacy

Gompetitive strategiesFocusLow-cost

Differentiation: Innovation

Differentiation: Quality/Service

EnvironmentDynamismMunificenceGomplexity

Number of Items

5, $

5

315

55

233

4 ^142314

ft42

Format

Likert-type response scalesLikert-type response scalesLikert-type response scales

Likert-type response scalesDecision scenarioLikert-type response scales

Scales developed for projectScales developed for project

Expert coding of quality and contentSelf-reportsScales developed for project

Scales developed for projectScale developed for projectLikert-type response scalesScales developed for projectLikert-type response scalesScale developed for projectLikert-type response scales

Likert-type response sccdesLikert-type response scalesScales developed for project

CompositeReliability"

.65

.81

.85

.74

.68

.63

.79

.77

.71

.86

.76

.81

.84

.67

.64

.73,68

Source

Ghandler and Jansen. 1992Bird. 1989Smilor. 1997

Boyatzis, 1982Ghandler and Jansen, 1992Ghandler and Jansen, 1992

Doutriaux and Simyar. 1987Doutriaux and Simyar, 1987

Kirkpatrick and Locke, 1996Locke and Latham. 1990Bandura, 1997

Porter, 1980

Porter, 1980

Porter. 1980

Porter. 1980

Dess and Beard, 1984Dess and Beard, 1964Aldrich and Wiedenmayer, 1993

Gonceptually similar to alphas.

.88, PNFI = .55, RMSR - .08, RMSEA = .09)/ Wecbecked for common source bias witb LISREL con-firmatory factor analysis by linking a common la-tent variable with all of the measures. The resultantcoefficient lambda (.16, t = .40, p < .05) indicatedthat common variance was less than 3 percent.

Figure 1 shows the results of testing the predic-tion of venture growtb using direct paths only (Hy-potheses 1-6). Solution of the model produced anacceptable fit ( /^Q^ = 168, p < .00; CFI = .92,ACFI = .89, PNFI = .63, RMSR = .06, RMSEA =.08). Comparison of the direct effects model withthe independence model yielded a significantchange in chi-square Ix^ja = 1,244, p < .01). Thissolution was better than any solution with only onepredictor domain. Specific competencies, motiva-tion, and competitive strategies have patbs to ven-ture growth with significant coefficients {t > 2.0,

' GFI is the goodness-of-iit index; AGFI, the adjustedgoodness-of-fit index; PNFI, the parsimony normed fitindex; RMSR, the root-mean-square residual; RMSEA,the root-mean-square error of approximation.

p < .05). With regard to the strategy domain, weobserve that strategy is positively related with per-formance. More specifically, with regard to the re-flections of the strategy domain, firms that selectand emphasize differentiation through higb quality(r = .31, p < .001) and/or innovation [r = .25. p <.001) achieve the fastest growth. In contrast, firmsthat employ low cost (r = —.22, p < .001) or focus[ — .27, p < .001) experience negative growth.

Neither traits, general competencies, nor envi-ronment are significant direct predictors of venturegrowth (environment is a direct predictor only atp < .10); thus. Hypotheses 1 (traits), 2 (generalcompetencies), and 6 (environment) are not sup-ported. However, tbis direct domain-level struc-tural equation solution provides support for Hy-potheses 3 (specific competencies), 4 (situationallyspecific motivation), and 5 (competitive strategies).

We tested the model with indirect paths accord-ing to Hypotheses 7 through 14. The solutionis shown in Figure 2. The indirect effects confi-guration produced a good fit (; 93 = 148, p < .00;CFI = .95, AGFI - .92, PNFI = .69, RMSR = .06,

298 Academy of Management Journal April

FIGURE 1Structural Equation Results, Direct Effects Model*

Passion for Work

Organization Skill

^ ^ - ~-~^Opportunity Skill

• - — — — ^

, - — — -

Industry Skill

Genera!Competencies

SpecificGompetencies

Technica Ski

Venture Growth

GompetitiveStrategies

Differentiation:Innovation

Differentiation:Quality/Service

Fit Statistics

X , constrained modeldfP

X', independence modeldfn

GFIAGFIPNFIRMSRRMSEA

168102

<.00

1,412138307

.92

.89

.63.06.06

Phi (<fr) is symmetric with a standard diagonal. Psi (^) and 0, and 9s are diagonal.*p < .05

2001 Baum, Locke, and Smith 299

RMSEA = .07), with 62 percent of the varianceexplained. Indeed, the fit of data to the indirect anddirect effects model is better than the fit of thedirect domain-level model alone.

With the indirect effects model, we find that spe-cific competencies, motivation, and competitivestrategy have significant direct effects upon venturegrowth and that traits, general competencies, andenvironment have significant indirect effects.Traits affect specific competencies, motivation, andcompetitive strategy, all of which are likely predic-tors of venture growth, and this pattern of findingsconfirms Hypotheses 7, 8, and 11. Similarly, generalcompetencies affect motivation and strategy, whichconfirms Hypotheses 10 and 12. General competen-cies also affect specific competencies (Hypothesis 9).Motivation has a positive effect upon strategy, whichin turn affects venture growth, confirming Hypothesis13. Environment affects venture grovrth through itsimpact upon strategy, which supports Hypothesis 14.Our prediction that complexity would be a negativereflection of the environment domain did not hold;nevertheless, the environment domain had a signifi-cant, positive effect upon competitive strategy, as hy-pothesized.

With direct and indirect effects taken together,the HSREL total effects solution confirms that alldomains exhihit significant effects on venturegrowth.

DISCUSSION AND CONCLUSION

The most important finding of this study is thatindividual, organizational, and environmental re-search domains predict venture growth better whenthe web of complex indirect relationships amongthem is included than when only multiple simul-taneous direct effects are studied. Furthermore, alldomains figure in the prediction of venture growthwhen these total effects are considered, so that ven-ture growth cannot be adequately explained from asingle perspective. Even the personal trait and spe-cific competency domains, which do not contributeto venture growth when studied in isolation, affectventure growth through their effects upon moredirect performance links.

By studying multiple domains across three levelsof analysis and by including both direct and indi-rect effects, we were able to gain a more completeunderstanding of the venture growth process thanhas been gained in previous efforts. Moreover, fromthe indirect model, we learned that such internalexplanations of performance as the strategic choice,leadership, and entrepreneurship viewpoints weremore relevant for explaining venture growth in thisstudy than environment or external explanations.

such as the structure/performance/economics par-adigm [Mason, 1939; Scherer & Ross, 1990), popu-lation ecology theory (Hannan & Freeman. 1977), orresource dependency theory (Pfeffer & Salancik,1978).

The internal explanation for venture growth thatemerges from this study emphasizes entrepreneursand their roles in formulating strategy. The storybegins with a hard-working, proactive entrepreneurwith a strong set of technical, organizational, andindustry skills. This entrepreneur is highly moti-vated, which is reflected in a clear organizationalvision, high growth goals, and confidence inachieving these goals. Perhaps because of tenacityand proactivity, organizational skills, or high moti-vation, this entrepreneur is capable of delineatingan effective differentiation strategy that works togenerate high growth. We can speculate that theentrepreneur's industry and technical skills andhigh motivation influence his or her venture'sgrowth through the estahlishment of growth-oriented organizational processes and structuresthat facilitate the implementation of this strategy.We also imagine that in these high-growth organi-zations, organizational culture becomes a reflectionof the tenacious entrepreneur. We now examine themore specific results with the goal of further elab-orating an internal explanation of venture growth.

An Internal Explanation

Traits. Consistent with psychological theoriesthat explain individual performance (HoUenbeck &Whitener, 1988; McClelland, 1965), traits were im-portant predictors of venture growth here; how-ever, they worked primarily through competencies,motivation, and strategy. As operationally definedin our research, an entrepreneur's traits serve toinfluence the skill sets that are developed and thelevel of entrepreneurial motivation, which in turnaffect strategy. This result offers an explanation forwhy it is that practitioners and venture capitalistscontinue to point to the importance of "the entre-preneur" for venture success (MacMillan et al.,1985) even though entrepreneurship trait researchhad not uncovered direct performance relations.Perhaps researchers ought to look again at traitsand motives, but through mediation models thattest more complex causal chains.

Competencies. Technical and industry-specificcompetencies should receive more research atten-tion in entrepreneurship settings because the do-main they reflect, specific competencies, hadhighly significant direct effects here with venturegrowth. We speculate that an entrepreneur's tech-nical and industry competencies are an important

2001 Baum. Locke, and Smith 301

form of expert power that facilitates the implemen-tation of the entrepreneur's vision and strategy. Wecan further hypothesize that these entrepreneurialskills may serve as sources of competitive advan-tage that rivals find difficult to identify and imitate.

Situationally specific motivation. Our resultsfor vision and goals and performance are fully con-sistent with applied psychology and social psy-chology research [Bandura, 1997; Locke & Latham,1990). For example, goal researchers have foundthat goal difficulty is directly related to perfor-mance, and social cognitive theory points to thestrong relation between self-efficacy and perfor-mance. We hypothesized that higher levels of en-trepreneurial motivation and confidence wouldshape organization structure and processes andeven work in the selection of goal-oriented employ-ees. As a result—and consistent with Hambrick andMason (1984]—organizations led by highly moti-vated entrepreneurs may begin to reflect the char-acter of these entrepreneurs, which may furtherenhance performance.

Competitive strategies. Although differentiationstrategies related positively to venture growth, wewere surprised to find that the focus and low-coststrategies related negatively. This finding may be afunction of the industry context, in that the samplefirms were geographically constrained craft manu-facturers. Thus, at least for this sample, Porter'stheory does not hold, in that low cost and focus arenot effective strategic options.

Perhaps more interesting is our finding that in-dividual differences affect competitive strategies.Some strategy research has focused on top manage-ment team demography (Hambrick & Mason, 1984),but our findings suggest that entrepreneur-CEOtraits, competencies, and motivation may offerequally important explanations of strategic deci-sion making. Indeed, established social cognitiveand goal theories point to personal characteristicsas determinants of personal strategies that arelikely determinants of organization strategies (Ban-dura, 1997; Locke & Latham, 1990). It would beinteresting to examine the relationship between en-trepreneurs' personal motivations and strategiesand those of their organizations. We speculate thatin small organizations, the two sets may be thesame.

Environment. The direct effects of the environ-ment domain were of borderline significance [p <.10). However, the significance of the indirect ef-fects on strategy enhance the generalizability of ourmodel because they are entirely consistent with thestructure -^ conduct (strategy) —> performance par-adigm in industrial organization economics (Ma-son, 1939). The relatively low impact of the envi-

ronmental domain on venture growth, with theother, more micro dimensions controlled, is sur-prising; at least in our study, this finding suggeststhat the CEOs of small firms may have more controlof their ventures' growth than some macro theoriessuggest (Hannan & Freeman, 1977; Pfeffer & Salan-cik, 1978), which could be an interesting avenue forfuture research.

This study did not deal with two definitionalissues that confound entrepreneurship research,namely, "Who is an entrepreneur?" and "Whichfirms are entrepreneurial?" We simply used a sam-ple of young, small businesses that were run byactive owner-managers, regardless of their mode ofentry, to identify predictors of venture growth. Nordid we study other indicators of performance (suchas successful founding, survival, innovation, intan-gible assets, and personal goals). It would be im-portant to, for example, find out if the competen-cies that contribute to venture growth also causesuccessful founding. Furthermore, we modeled di-rect and indirect effects witb linear equationsrather than with multiple-order equations becausestructural equation modeling is not well suited totesting nonlinear models. Additionally, althoughour analysis of a single industry provided control ofindustry effects, a few entrepreneurship research-ers have found that industry effects are significantdeterminants of performance. Only a few conceptswere used as reflections of the five research do-mains studied because of sampling limitations;however, our finding that all domains figure inventure growth suggests that use of relatively fewmeasures was not a failing.

The integrated entrepreneurship performancemodel that was confirmed in this study offers aplatform and a guiding framework for those whofund and manage ventures. We found that an en-trepreneur's personality matters, but indirectly,and that industry-specific skill and relevant tech-nical skill directly affect performance, as do vision,goals, and self-efficacy. Thus, there is evidence thatpersonality testing may help identify those whocan create and grow high-potential ventures; how-ever, skills and motivation assessment may be evenmore effective because these personal dimensionsare more directly related with performance. Thestudy also confirms the soundness of financiers'interest in business plans that include clearly de-fined strategies.

The study suggests that entrepreneurs shouldrecognize that multiple personal dimensions affectsuccess. Tbus, they must add, through partneringor hiring, those personal dimensions they lack. Fi-nally, it is apparent that entrepreneursbip educa-tion programs ought to teach organization skills

302 Academy of Management Journal April

(including vision and goal setting), opportunityskills, and analytic skills (enabling business envi-ronment analysis for formulation of strategies).

CONCLUSION

We began by arguing for the need for a morecomprehensive explanation of venture perfor-mance. Overall, we found that explaining venturegrowth is a complex process, influenced by a vari-ety of interrelated micro and macro domains. Ourresults are important because they begin to untan-gle the multifaceted process by which entrepre-neurs affect competitive strategy and performance.Perhaps other researchers can extend our proposedinternal explanation of venture growth. For exam-ple, they might utilize strategic decision making(Schwenk, 1988) and strategic choice theories(Child, 1972) to integrate cross-level effects bystudying the process by which entrepreneurs for-mulate and implement their strategies.

REFERENCES

Aldrich, H. E., & Wiedenmayer. G. 1993. From traits toratevS: An ecological perspective on organizationalfoundings. In J. A. Katz & R. H. Brockhaus. Sr. (Eds,).Advances in entrepreneurship, firm emergence,and growth, vol. 1: 145-195. Greenwich, GT; JAIPress.

Bandura, A. 1986. Social foundations of thought andaction: A social cognitive theory. Englewood Gliffs,NI: Prentice-Hail.

Bandura, A. 1997. Self-efficacy: The exercise of control.New York: W. H. Freeman.

Bass, B. M. 1990. Handhook of leadership. New York:Free Press.

Begley, T. M., & Boyd, D. P. 1987. Psychological charac-teristics associated with performance in entrepre-neurial firms and smaller businesses. Journal ofBusiness Venturing, 2: 79-93.

Bird, B. 1989. Entrepreneurial hehuvior. Glenview, IL:Scott. Foresman.

Bourgeois, L. J. 1980. Strategy and environment: A con-ceptual integration. Academy of Management Re-view, 5: 25-39.

Boyatzis, R. E. 1982. The competent manager. New' York: Wiley.

Ghandler, G. N., & Jansen, E. 1992. The founder's self-assessed competence and venture performance.fournal of Business Venturing, 7: 223-236.

Ghild, J. 1972. Organization structure, environment, andperformance: The role of strategic choice. Sociology,6: 1-22.

Chrisman, J. I.. Bauerschmidt, A.. & Hofer, G. W. 1998.

The determinants of new venture performance: Anextended model. Entrepreneurship Theory andPractice, 23: 5-29.

Covin, J. G.. & Slevin, D. P. 1997. High growth transitions:Theoretical perspectives and suggested directions.In D. L. Sexton & R. W. Smilor (Eds.), Entrepreneur-ship 2000: 99-126. Ghicago: Upstart Publishing.

Dess, G. G., & Beard, D. W. 1984. Dimensions of organi-zational task environments. Administrative ScienceQuarterly, 29: 52-73.

Dess, G. G., & Davis, P. S. 1984. Porter's (1980) genericstrategies as determinants of strategic group mem-bership and organizational performance. Academyof Management Journal, 27: 467-488.

Doutriaux. J., & Simyar, F. 1987. Duration of the compet-itive advantage accruing from some start-up factorsin high-tech entrepreneurial firms. In N. A.Ghurchill, J. A. Hornaday, B. A. Kerchhoff, O. J,Krasner, & K. H. Vesper (Eds.), Frontiers of entre-preneurship research: 436-451. Wellesley, MA:Babson Gollege.

Grimm, G. M., & Smith, K. G. 1991. Management andorganizational change: A note on the railroad indus-try. Strategic Management Journal, 12: 557-562.

Hamhrick, D. G., & Mason. P. A. 1984. Upper echelons:The organization as a reflection of its top managers.Academy of Munagement Review, 9: 193-206.

Hannan, M. T.. & Freeman, J. 1977. The population ecol-ogy of organizations. American Journal of Sociol-ogy, 82: 929-964.

Herron, L. A., & Robinson, R. B., Jr. 1990. Entrepreneur-ial skills: An empirical study of the missing linkconnecting the entrepreneur with venture perfor-mance. Paper presented at the annual meeting of theAcademy of Management, San Francisco.

Herron, L. A.. & Robinson. R. B.. Ir. 1993. A structuralmodel of the effects of entrepreneurial characteris-tics on venture performance. Journal of BusinessVenturing, 8: 281-294.

Hofer, G. W.. & Schendel, D. 1978. Strategy formulation:Analytical concepts. St. Paul: West.

HoUenbeck, J., & Whitener, E. 1988. Reclaiming person-ality traits for personnel selection. Journal of Man-agement, 14: 81-91.

Kirkpatrick, S. A., & Locke, E. A. 1996. Direct and indi-rect effects of three core charismatic leadership com-ponents on performance and attitudes. Journal ofApplied Psychology, 81: 36-51.

Locke, E. A. 1997. Prime movers: The traits of greatbusiness leaders. In G. Gooper & S. Jackson (Eds.).Creating tomorrow's organizations: 75—96. Ghich-ester, England: Wiley.

Locke, E. A. In press. Self-set goals and self-efficacy asmediators of incentives and personality. In M. Erez,H. Thiery, & U. Kleinheck (Eds.), Work motiva-tion—A multi-level approach: The individual, the

2001 Baum, Locke, and Smith 303

group, the organization and the culture. Hillsdale,NJ: Erlbaum.

Locke, E. A., & Latham, G. P. 1990. A theory of goalsetting and task performance. Englewood Gliffs, NJ:Prentice-Hall.

Low, M. B., & MacMillan, L G. 1988. Entrepreneurship:Past research and future challenges. Journal of Man-agement, 14: 139-151.

Lumpkin, G. T., & Dess, G. G. 1996. Glarifying the entre-preneurial orientation construct and linking it toperformance. Academy of Management Review,21: 135-172.

MacMillan, I. G., Siegel, R., & SuhbaNarisimha, P. N.1985. Griteria used hy venture capitalists to evaluatenew venture proposals. Journal of Business Ventur-ing, 1: 119-126.

Maier, N. R. R.. 1965. Psychology in industry (3rd ed.).Boston: Houghton Mifflin.

Mason, E. 1939. Price and production policies of large-scale enterprise. American Economic Review, 29:61-74.

McGlelland, D. G. 1965. N-achievement and entrepre-neurship: A longitudinal study. Journal of Person-ality and Social Psychology, 1; 389-392.

McDougall, P. P., Robinson, R. B., Jr., & DeNisi, A. S.1992. Modeling new venture performance: An anal-ysis of new venture strategy, industry structure, andventure origin, Journal of Business Venturing, 7:267-289.

Michel. J. G., & Hamhrick, D. C. 1992. Diversificationposture and the characteristics of the top manage-ment team. Academy of Management Journal, 35:9-37.

Naffziger. D. W. 1995. Entrepreneurship: A person basedtheory approach. In J. A. Katz & R. H. Brockhaus, Sr.(Eds.), Advances in entrepreneurship, firm emer-gence, and growth, vol. 2: 21-50. Greenwich, GT:JAI Press.

Naffziger. D. W., Hornsby, J. S., & Kuratko, D. F. 1994. A

proposed research model of entrepreneurship. En-trepreneurship Theory and Practice, 18: 29-42.

Pfeffer, J.. & Salancik, G. R. 1978. The external control oforganizations. New York: Harper & Row,

Porter, M. E. 1980. Competitive strategy. New York: FreePress.

Sandberg. W. R. 1986. A eiv venture performance: Therole of strategy and industry structure. Lexington,MA: Heath.

Sandherg. W. R. & Hofer, G. W. 1987. Improving newventure performance: The role of .strategy, industrystructure, and the entrepreneur. EntrepreneurshipTheory and Practice, 16: 73-90.

Scherer, F. M., & Ross, D. 1990. Industrial market struc-ture and economic performance. Boston: Hough-ton-Mifflin.

Schwenk, C. R. 1988. The essence of strategic decisionmaking. Lexington, MA: Heath.

Smilor, R. W. 1997. Entrepreneurship: Reflections on asubversive activity. Journal of Business Venturing,12: 341-346.

J. Robert Baum is the director of academic programs,Dingman Genter for Entrepreneurship, Robert H. SmithSchool of Business, University of Mai7land at CollegePark. He received his Ph.D. from the University of Mary-land. His research interests include nntrepreneurship.strategic decision making, and quantitative methods.

Edwin A. Locke is the Dean's Professor of Leadershipand Motivation at the Rohert H. Smith School of Busi-ness, University of Maryland at Gollege Park. He receivedhis Ph.D. from Gornell University. He has publishedwidely in professional journals and is the author or edi-tor of several hooks about leadership, motivation, andmanagement.

Ken G. Smith is a professor of management and organi-zation at the Robert H. Smith School of Business, Uni-versity of Maryland at Gollege Park. He received hisPh,D. from the University of Washington. His currentresearch interests include competitive dynamics, strat-egy, and adaptive efficiency.