[Oliver Oechslein, is a German MBA graduate from the Munich University of Technology and the Tongji University Shanghai. He was doing a graduate research project about factors of success for Chinese startup companies in summer 2010, supervised by Andranik Tumasjan. He kindly sent me the abstract and some conclusion which I think are valuable to be shared with our readers. You may contact Oliver for the full thesis.]
In the last few years, entrepreneurship has become more important worldwide, and the founding rate of new companies has increased significantly. However, the failure rate of new ventures is still about 40% in the first years, and in general starting a new venture is considered a high-risk activity according to research scholars. Peña (2002) states that only 54 percent of new businesses survive more than one year, and only 25 percent more than six years. But who are the people in the startup companies who have to deal with these risks? For many years, researchers focused mainly on the individual entrepreneur as a human component in the venture. In the meantime the research focus reflects a growing interest in entrepreneurial teams, which are responsible for most startup foundations today. Cooper and Bruno (1977) found support that over 80% of startup companies which survive longer than two to three years were founded by entrepreneurial teams – defined as a group of two or more individuals who are responsible for the creation and management of new ventures.
The People’s Republic of China has shown strong economic growth rates within the last years, which can in part be attributed to the increasing foundation of startup companies. Due to missing familiarity with management, market, and team based novelty situations, it is difficult for entrepreneurial teams to operate successfully during the first years after starting out.
The aim of the present study was to examine different factors to minimize novelty in startup companies in China, to increase relational capital, and hence to be successful in long-term. Trust – as one dimension of relational capital – will be increased by strong commitment and responsibility of the entrepreneurial teams members for the new venture and by loose but existing contracting practices. Moreover the results show, that entrepreneurial teams with strong friendship characteristics (communal sharing) and regulations about exchanges among the members (market pricing) match the investors’ ideal expectations. These teams receive more financial capital from business angels or venture capitalists than startup companies with no matching characteristics.
As a conclusion, entrepreneurial teams in China can change and improve different factors within a startup company to become more successful by enhancing their relational capital. Entrepreneurial teams which are not focusing on the decrease of novelty effects have to make more effort to increase relational capital. The study results might be used and adopted by entrepreneurs in other developing countries, because they provide the same economic conditions as for startup companies in China. Entrepreneurial teams, which are adopting parts of the study results could grow faster and become more successful, by minimizing novelty impacts earlier and increasing relational capital.
Influences on trust – a condition for success
- Trust within the team – as one critical factor of success – will be increased by trong commitment and responsibility of the entrepreneurial teams members for the new venture.
- If people do know each other, they still need to have certain limitations and regulated rules of conduct. As the results show, if contracting practives are stronger and well-defined, entrepreneurial team members know that others act as expected which in turn increases trust.
- Contrary to expectations, the diversity of the entrepreneurial team’s nationality and the personal social beliefs did not have significant influence on trust
Team structure as a reason for high funding
- Team structures of startup companies conforming to the investors’ ideal perceptions, received significant more investor’s funding.
- The team receive more financial capital from business angels or venture capitalists than startup companies with no matching characteristics.