Resource Requirements in New Ventures. While large firms own a wide range of valuable resources, entrepreneurial firms face a severe resource scarcity in the beginning and thus have to establish a resource base in order to implement the business idea (Stinchcombe 1965; Romanelli 1989; Brush, Xxxxxx, and Xxxx 2001; Xxxxxx and Xxxxxxxx 2003; Ravasi and Turati 2005). Entrepreneurs usually have a limited access to financial resources, material or labour markets. These resource restrictions reduce the power that start-up firms can impose on markets and competitive conditions. Accordingly, new ventures have a limited ability to change the difficult environment they encounter (Xxxxxxxxx 1989). Xxxxxx and Xxxxxxxx (2003) identified three different resources as most critical to launching a technology-based company. The first resource requirement for a new venture in high technology industries is a new idea and a foundational technology. However, new business ideas that exist are two a penny. Sometimes different entrepreneurs even come up with almost identical business ideas at the same time (Xxxxxxx and Zacharakis 2003). Entrepreneurial opportunities occur due to different beliefs about the value of resources in society (Kirzner 1997). In the previous chapter, we have identified the entrepreneur's ability to recognise these opportunities as a valuable resource in their own right (Xxxxxxx and Xxxxxxxx 2001). Thus, it requires the entrepreneur to identify the opportunity and decide to exploit it (Xxxxx and Xxxxxxxxxxxx 2000). Another highly important resource new ventures initially require is funding (Schoonhoven, Xxxxxxxxxx, and Lyman 1990; Xxxxxxxx, Xxxxxxx, and Xxxxx 1999; Xxxxxx and Xxxxxxx 2000; Xxxxxxxxx and Xxxxx 2001; Xxxxxx and Xxxxxxxx 2003). Inadequate supply of capital resources has been identified as a major cause of young business failure (xxx Xxxxx and Xxxxxx 1989). The following quote from the CEO of a software service firm stresses the importance of financial resources in the early stages of new venture growth. Due to wealth constraints, entrepreneurs usually depend on external financing (Xxxxx and Xxxxxxxxx 1989). However, entrepreneurial ventures encounter severe problems with respect to funding (Xxxxxxxx and Prahalad 1976). Technology-based companies are especially subject to high risk, can expect several years of negative cash-flow, and require substantial capital resources to finance research and development, production, and marketing (Xxxxxxx and Lerner 1999; van Auken 2001). In a...
