It’s long been assumed that a lack of funding is what prevents startups from launching or founders from even testing their ideas in the first place.
That’s the idea Victor Bennett, professor in the Department of Entrepreneurship & Strategy at the University of Utah’s David Eccles School of Business, was operating with. A startup owner and well-respected entrepreneurship researcher, Bennett had studied many parts of the entrepreneurial journey – except the beginning.
Conversations with his MBA students at the time changed his mind.
“I had a ton of students who told me they wanted to start a business but were stuck,” he said. “I looked at the published research about launching, and there was no such thing as ‘stuck.’ It is always ‘you had an idea, but you couldn’t raise the financing, so the project ended.’”
As he spoke with more potential founders, though, Bennett found that this all-or-nothing approach to early-stage entrepreneurship just didn’t make sense.
“We have cities and states falling over themselves to give out grants,” he said. “We have the Small Business Administration and regulations on financial institutions specifically designed to get more financing to underserved communities. If financing was the only – or even the primary – issue, then why did this money spent have a fairly limited impact?”
The question then became: if it’s not fundraising, then what are the true early roadblocks?
“If you come from a place of wanting to create more entrepreneurs and ventures – as a government, venture capitalists, an economic development leader, or even a community member – you want to know what’s keeping people from starting a new business,” he said.
This was the goal while researching and writing “The entrepreneurial process: Evidence from a nationally representative survey.”
In the paper, Bennett took the conversations from a handful of MBA students to a set of interviews with founders, and then to the entire nation, with over 30,000 participants engaging in a survey targeted at what Bennett calls the “pre-entry” stage.
“We wanted to understand what steps people took to entrepreneurship once they have an idea,” Bennett said. “To come up with options of potential steps they may have taken, we consulted universities’ entrepreneurship curricula and books for what general advice is given to potential entrepreneurs.”
Bennett found that pre-entry stage activity is impacted by opportunity cost, prior experience, and founders’ confidence. While financing and the ability to fundraise play into these categories, it doesn’t have the final say.
“It’s one of several things you need,” Bennett said.
The research results showed patterns consistent with founders discarding their idea in the pre-entry stage, often due to a lack of community, whether that be reliable experts, networks, or general support systems. Entrepreneurship scholars think that access to information from that community can be critical to refining and improving a business idea. The two can form a kind of chicken-and-egg problem for entrepreneurs.
Bennett added, “If you can’t get the support you need to test and improve the idea, there is no point raising financing. If you’ll never be able to raise financing, there is no point tapping your network.”
“If our suggestive results are confirmed in future work, the focus of entrepreneurship policies on reducing government regulations and increasing financing could be incomplete or even misguided,” Bennett said in the paper. “Our findings would suggest more attention to lowering the cost of experimentation for individuals to develop their ideas at the very beginning of the process, long before incorporation or raising capital.”
This work isn’t just on governments, Bennett said.
“The hope is, going forward, we can see more community commitment,” he said. “Can we build out social networking? Can we introduce people to experts in their communities?”
Alumni associations, company networks, and economic development office hours are also programming that Bennett said “point us in the right direction.”
With these barriers removed, Bennett expects an uptick in not only ideas, but successful companies.
Although this direction is helpful, Bennett said it’s only the beginning. In a working paper titled “Why Aren’t There More Minority Entrepreneurs?” Bennett’s team found that minority groups face these same barriers, but more severely.
“While writing the first paper, we decided to dig deeper into this big gap between business ownership for, primarily, Caucasian men, and underrepresented minorities – women, Black, and Hispanic Americans,” he said.
The sub-report takes the foundation of the initial paper, including the questionnaire, and builds on it through a slightly different lens.
“We reviewed the step questions to see which were really different for the underrepresented respondents, and the ones that were the most striking were steps including asking for advice or feedback,” Bennett said.
Through a series of interviews, the research team learned of a serious lack of mentorship and role models. Ultimately, the results underscored what he’d learned before: funding, by itself, isn’t the most important pre-entry barrier.
“You need good advice to be able to refine your idea enough to make it viable,” Bennett said. “If you don’t have that social network in place, people you trust, a mentor to guide you through the brainstorming, funding isn’t going to help.”
To learn more about Bennett’s research or forthcoming paper, visit eccles.utah.edu/team/victor-bennett.
